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