SOME EXPERIENCES UNDER PAPER MONEY 399 
ditions — always the proximate cause of movements in inter- 
national trade — checked exports during the first stage, imports 
during the second. The mechanism was different from that of 
gold exchange prices based on the gold standard, but the sub- 
stantive outcome was the same. 
Not everything, however, is to be explained in this way. We 
must be on our guard here, as in all statistical and historical 
inquiry, against over-simplification in interpreting phenomena 
that are confused and complicated, often remaining obscure after 
the most painstaking examination. In the present case, for exam- 
ple, a further factor goes to explain the heavy imports into the 
United States during the years 1869-73. This was the direct 
purchase of British goods by the American borrowers. The way in 
which the balance of trade is affected by the direct linking of loans 
with expenditures in the lending country has been analyzed else- 
where.! These effects are the same under paper conditions as under 
gold conditions. So far as the proceeds of the loans were applied in 
part to the immediate purchase of goods in Great Britain, and so 
far as these purchases were additional to what would have been 
bought by Americans in any case, there was at once a movement 
of exports from Great Britain to the United States and an increase 
of imports into the United States. Operations of this kind could 
have no effect on the foreign exchange market or the gold premium 
in the United States, or the prices of goods in the United States. 
Such transactions call for no such recondite explanation as has 
been undertaken in the preceding paragraphs. 
None the less, there remain transactions to which the simpler 
explanation cannot apply. By no means all the proceeds of 
British loans were used in direct purchases. A large part — the 
larger part, one would guess, for these particular operations — was 
cashed in by the borrowers, so to speak. Funds were wanted by 
them for use in the United States, and remittances to the United 
States were called for. And then we do need to resort to the more 
recondite explanation, and to search for evidence which will cor- 
roborate it. 
Chapter 12, p. 127