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A TKEATISE ON MONEY

BK. Ill

lending at home. But if F = S x at the old terms oflending, they will be unequal at the new terms, so thatthe first effect of the effort to preserve externalequilibrium will be to produce internal disequilibrium.We shall show in Chapter 13 that action by a CentralBank along these lines is capable at long last of pro-ducing a new situation in which internal and externalequilibrium are both simultaneously restored. Butthis does not remove the fact of a tendency towardsan initial disharmony between the two conditions ofequilibrium.

In the second place, with an international currencysystem, such as gold, the primary duty of a CentralBank is to preserve external equilibrium. Internalequilibrium must take its chance, or, rather, theinternal situation must be forced sooner or later intoequilibrium with the external situation. For the dutyof preserving the parity of the national currency withthe international standard, which is laid on theCentral Currency Authority by law, is incompatiblewith a long continuance of external disequilibrium ;whereas no corresponding obligation of a bindingcharacter exists relating to internal equilibrium. Thesame thing applies, in greater or less degree, whereverthe Central Currency Authority is required to preservethe parity of its money in terms of any objectivestandard other than the purchasing power of moneyitself.

The degree, however, to which an individualcountry can so dominate the international situationas to bend the position of external equilibrium to suitthe conditions of its own internal equilibrium, and theperiod for which it can afford to disregard externaldisequilibrium in the interest of preserving its owninternal equilibrium (allowing gold to flow freely inor out), are very different in different cases, dependingon the various elements of its financial strength.Before the War Great Britain and since the War the