II

INFLATION AND DEFLATION

177

customers’ margins have run off, they arethemselves “on margin.” I believe that, ifto - day a really conservative valuation weremade of all doubtful assets, quite a significantproportion of the banks of the world would befound to be insolvent; and with the further pro-gress of Deflation this proportion will growrapidly. Fortunately our own domestic BritishBanks are probably at present — for variousreasons—among the strongest. But there is adegree of Deflation which no bank can stand.And over a great part of the world, and notleast in the United States , the position of thebanks, though partly concealed from the publiceye, may be in fact the weakest element in thewhole situation. It is obvious that the presenttrend of events cannot go much further withoutsomething breaking. If nothing is done, itwill be amongst the world’s banks that thereally critical breakages will occur.

Modern capitalism is faced, in my belief,with the choice between finding some way toincrease money values towards their formerfigure, or seeing widespread insolvencies anddefaults and the collapse of a large part of thefinancial structure;—after which we shouldall start again, not nearly so much poorer as weshould expect, and much more cheerful per-haps, but having suffered a period of waste anddisturbance and social injustice, and a generalre-arrangement of private fortunes and theownership of wealth. Individually many ofus would be “ruined,” even though collectively