] 14 PRESIDENTIAL ADDRESS SECTION F. 



the greater economic whole which has been created by the imports' 

 and exports of international trade. If production is reduced the 

 standard of living is reduced; industry cannot be rendered un- 

 profitable by limitation of output without first ruining indus- 

 trialists. There is no other store or reservoir of wealth except the 

 energy, skill and ability of the members of the community. 



If this diagnosis of economic consequences of the Great War 

 is correct, then we have it in the facts that besides inflation and 

 deflation as explanations of price movements, there is a state of 

 things conceivable which might be called, as distinct from produc- 

 tion, destruction or demolition of wealth, and of this a chief 

 symptom must be an extreme rise of prices. It seems important 

 to recognise that such a rise of prices is of a different order to any- 

 thing which can ordinarily be called inflation. A continued de- 

 preciation of the monetary standard is obvious upon any extended 

 survey of the history of prices within the last 1,000 years. In the 

 recent increase of industrial ventures in South Africa it is difficult 

 to assign the share of assistance afforded by the protection of war 

 isolation on the one side and that on the other by the stimulation 

 of an inflated currency and the apparent creation of new wealth. 

 At any rate, there can be no doubt that many economists consider 

 that a certain measure of inflation is a beneficial rather than a 

 destructive agency. Take for example the view of Gide — a reign- 

 ing text-writer — (second edition, p. 229): — "The continued depre- 

 ciation of the monetary standard is a phenomenon of great social 

 importance, the effects of which must be regarded, after careful 

 consideration, as beneficent. First of all the depreciation of 

 money results ordinarily in a rise of prices. Now a rise of prices 

 is a stimulus to production; it sustains the spirit of enterprise; it 

 is favourable to an increase in wages ; it acts like a tonic, and may 

 be regarded as a symptom of economic vigour." I think it is 

 evident that the phenomenon we have been studying is of a quite 

 different order from this delightful and even exhilarating 

 experience. I think we must distinguish between a rise of prices 

 caused by an increase of the currency, and that caused" bv diminu- 

 tion or destruction of capital. The first may be beneficial — though 

 even that is open to question — the latter cannot be beneficial, is 

 certainly a symptom of economic disease, and, with its cumulation 

 and progressive action as outlined above, may easily lead to a state 

 of national bankruptcy. This conception seems to be new to 

 economics and deserves consideration. It reveals a new danger in 

 national life and gives a new significance to facts with which we 

 have recently become familiar but only slowly have come to under- 

 stand. If we regard the conseouences of the so-called inflation as 

 laid down by the Brussels Conference as stages in a development 

 of bankruptcy, we realise that there are no European nations 

 which do not exhibit some such characteristics. But the signi- 

 ficance of a process is given by its end. Unfortunately, we have 

 instances in Austria and Russia as described by Wells, which 

 enable us to translate the general idea into concrete detail. When 

 an individual becomes bankrupt an account is made of his assets 



