Business men contend that stability and not inflation or deflation should have been aimed at by the Government, and that industry has been gravely injured by the instability resulting from the Government’s financial policy of deflating with the object of restoring an effective gold standard. In pursuance of this policy, towards the end of 1919, the bank rate was raised from 5 per cent. to 6 per cent., and Treasury Bill rate from 4½ per cent. to 5½ per cent.; then in April 1920, the bank rate was further raised to 7 per cent.[19] and the Treasury Bill to 6½ per cent. Appended to the Report of the War Wealth Committee, published in May 1920, is a Treasury Memorandum explaining the policy. Inflation and deflation are ambiguous terms; the Government has explained its understanding of them to be the increase or decrease respectively of purchasing power relative to the amount of commodities available for purchase—purchasing power being measured by the amount of bank deposits and currency in circulation. A masterly description of the nature and effect on industry of the Government’s policy was given by the Right Hon. R. McKenna at the Ordinary General Meeting of the London Joint City and Midland Bank, Limited, on January 28, 1921. Mr. McKenna drew the distinction, almost invariably overlooked, between “speculative inflation”—a temporary condition remediable by making money dearer and restricting credit—and “monetary inflation”—a more or less permanent condition which cannot so be remedied. In regard to the latter he said: “Dear money and a rigid restriction of credit, so far from proving an effective means of restoring trade to a wholesome condition, could only aggravate our evils.” Monetary inflation was due to gigantic war-time borrowing by the Government, not for increasing industrial production, but almost entirely for consumption. As loans remained outstanding after the commodities had been consumed, there was an immense increase of purchasing power relative to the amount of commodities available for purchase. Mr. McKenna pointed out that the first effects of an attempt at monetary deflation would be to cause severe trade depression, manifesting itself in a fall in wholesale prices, due to goods being thrown upon the market by traders who were unable to carry their stocks or who had failed in business; a diminution in production; a reduction in prices; a growth in unemployment; reduced purchasing power of wage-earners, and so a further fall in wholesale and retail prices, and later, in consequence of the trade depression, a decline in national revenue without any diminution of the permanent liabilities of the Government. To pay taxes traders would have to borrow from their banks; to meet national expenses Government would have to resort to bank loans, and credit inflation would again ensue. Mr. McKenna conclusively showed that monetary deflation can only be achieved through repayment of the immense Government loans, which