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run, will be associated with an increase in the supply of money and credit which will facilitate higher imports and consumption, and push up the internal cost/price structure, thus restoring equilibrium in the external accounts. The process works equally smoothly in the reverse direction, and ensures that the economy deflates so as to eliminate excess demand. These processes do not, however, involve "violent fluctuations in the level of activity during the course of the adjustment process. The reasons for this are that money wage rates adjust rapidly to shifts in demand, and the labour force is relatively mobile and adaptable." From this it follows that full employment is assured. It also follows that "Hong Kong could adjust to just about any pattern of exchange rates in the longer term, but changes in rates would do little to correct any fundamental disequilibrium on external account."
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4. There is a certain breath-taking simplicity in this analysis. I have quoted from it at some length to illustrate why this outside observer, so long attuned to different processes of thought, found it difficult to get onto the same wave-length. In all fairness, it must also be said that there are at least equal difficulties in the reverse direction, so that a dialogue of the deaf can easily ensue. The outside observer tends to assume that common prudence requires that some at least of the conventional tools of monetary management are available for use if required. But this assumption is based on premises which are not widely accepted in Hong Kong. is explicit in the sort of analysis sketched in above that tools of monetary management are unnecessary. More than that, the use of such tools would be reprehensible, in that they would hinder the contribution which automatic monetary changes make to the smoothly-. operating mechanism of automatic correction.
5% Of course, one would have to know a lot more about the economy of Hong Kong than I do to assess just how valid the analysis of Automatic correction is in the peculiar circumstances of Hong Kong.
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