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A TREATISE ON MONEY

BK. IV

probably be necessary to force down the rate ofmoney-earnings in Germany by means of a painful(and perhaps impracticable) process of deflation. It willbe necessary to qualify this, only if the rest of theworld, deliberately or by a fortunate coincidence, en-courage tendencies leading to an income inflation withthe result of easing the practical difficulties of Ger-many ’s problem of reaching a relative adjustment, orif new extraneous conditions come to pass whichnaturally lead the rest of the world towards a higherlevel of money-incomes.

Borrowing from the now familiar terminology ofthe German Reparation Problem, we might use similarlanguage in the general case, meaning by the “ Trans-fer Problem ” the problem of transition which occurswhen there is a change in the locality where investmenttakes place. Thus, when international equilibrium( i.e . the equality of the international-rate of interestin every country with its natural-rate) requires achange in the relative rates of earnings in differentcountries, the amount of the absolute change in therate of earnings in each country depends, in general,on the two following factors :

(1) The total amount of the relative change re-quired. This depends on what degree of difficulty andwhat loss of efficiency is involved in the change-overof production from goods required for a particularkind of investment in one place to a different kind ofinvestment in another place, i.e. the amount of neces-sary change in the terms of trade.

(2) The proportion of the total amount of therelative change which has to fall on each country.This depends on the policy and comparative skill andstrength to support changes in its proportion of goldto circulating money possessed by each of the centralbanks respectively.