CH. II

THE CONDITIONS OF EQUILIBRIUM 165

United States have had a considerable power ofinfluencing the international situation to suit them-selves. Since 1924 France and the United States areexamples of countries which have been in a situationto ignore external disequilibrium for long periods ata time in the interests of their own internal equilibrium,whilst Great Britain is an example of a country whichhas been forced to disregard internal equilibrium inthe effort to sustain a self-imposed external equilibriumwhich was not in harmony with the existing internalsituation.

The acuteness of the possible disharmony betweenthe conditions of internal and of external equilibriumdepends on whether the volume of foreign lendingis large relatively to total saving, whether it is sus-ceptible to small changes in relative rates of interestat home and abroad, and whether the volume of theforeign balance is susceptible to small changes inrelative prices; and the duration of such disharmonydepends on the ease with which changes can beeffected in the internal money-costs of production.If the volumes of foreign lending and of the foreignbalance and the internal money-costs of productionare all of them very susceptible to small changes ininterest-rates, prices and the volume of employmentrespectively, then the simultaneous preservation bothof external and of internal equilibrium will presentno difficult problem. Much current theory assumestoo lightly, I think, that the above conditions ofsusceptibility are in fact fulfilled in the present-dayworld. But this assumption is unsafe. In somecountries (but not all) the volume of foreign lend-ing is easily influenced, and in most countries themoney-costs of production show but little resistanceto an upward movement. But in many countriesthe volume of the foreign balance is sticky when it isa question of increasing it to meet a change in theexternal situation; and so are the money-costs of