388 CIN TERNATIONAL TRADE r |] may be divergence, and thus an effect either way on imports and exports. Which of the two possible results will be found when paper issues are first put out, or when paper is in the first stage of added issue, will depend on the way the purchasing power is used. When a government resorts to paper, it does not scatter the money broadcast, as might be inferred from the way in which we often speak of the “issue” of paper money. The money Is spent; it is applied to the purchase of goods or services. The effect on prices is first felt on the things for which the government bids. These may happen to be services and domestic goods; and then there will be no proximate effect on other domestic goods and services than those bought by the government, and none on imported or exported goods; hence no immediate change in the currents of international trade. As time goes on, the tendency to rising prices spreads in all directions. Those who sold the goods or services to the government have larger money incomes; they spend more, and the prices of other goods go up. I see no ground for supposing that under conditions of this kind there will be any special advance in the prices of either imported or exported goods; there will be nothing in the nature of a bounty either way. So far as concerns international trade, the case will be neutral. If, however, the government — or the other persons first getting command of the paper money — uses its additional purchasing power for buying imported goods, or for making remittances to foreigners on other than merchandise account, the bounty on exports will arise. These purchases enter the market for foreign exchange, and the exchange rate rises on countries to which remittances are to be made. It rises more than prices of goods made at home, if indeed these rise in the first instance at all. The exporter who has exchange on foreign countries to sell makes an extra profit. He can sell his exchange (in Germany, say) at a higher price, while his expenses for the moment are no greater. As has just been said, the added margin of profit will doubtless be shared between him and the various middlemen. If exchange rises fast and far, if the margin of profit is great, there will be