The limit of further economies on the lines of the “Geddes’ cut” that can become effective in 1923, would seem to be some 50 or 60 millions, because every 10 per cent. in economy represents a much more drastic and difficult task than the preceding, and it cuts more deeply into your essential national services.  On the other side of the account one sees the probable revenue diminish to an almost similar extent, having regard to the effect of reductions in the rate of tax and the depression in trade, with a lower scale of profits, brought about by a lower price level, entering into the income-tax average.  It looks as though 1923 may just pay its way, but if so, then, like the current year, it will make no contribution towards the reduction of the debt.  So much for the “short period.”  Our worst difficulties are really going to be deep-seated ones.

THE TWO PARTS OF A BUDGET

Now a national budget may consist of two parts, one of which I will call the “responsive” and the other the “non-responsive” portion.  The responsive portion is the part that may be expected to answer sooner or later—­later perhaps rather than sooner—­to alterations in general conditions, and particularly to price alterations.  If there is a very marked difference in general price level, the salaries—­both by the addition or remission of bonuses and the general alteration in scales for new entrants—­may be expected to alter, at any rate, in the same direction, and that part of the expense which consists of the purchase of materials will also be responsive.  The second, or non-responsive part, is the part that has a fixed expression in currency, and does not alter with changed conditions.  This, for the most part, is the capital and interest for the public debt.

Now the nature and gravity of the “long distance” problem is almost entirely a question of the proportions which these two sections bear to each other.  If the non-responsive portion is a small percentage of the total the problem will not be important, but if it is larger, then the question must be faced seriously.  Suppose, for example, that you have now a total budget of 900 million pounds, and that, in the course of time, all values are expressed at half the present currency figure.  Imagine that the national income in this instance is 3600 million pounds.  Then the burden, on a first approximation, is 25 per cent.  Now, if the whole budget is responsive, we may find it ultimately at 450 million pounds out of a national income of 1800 million pounds, i.e. still 25 per cent.  But let the non-responsive portion be 400 million pounds, then your total budget will be 650 million pounds out of a national income of about 2000 million pounds, or 33-1/3 per cent., and every alteration in prices—­or what we call “improvement” in the cost of living—­becomes an extraordinarily serious matter as a burden upon new enterprise in the future.