Modern monetary systems

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Monograph

Identifikator:: 1753210836

URN:: urn:nbn:de:zbw-retromon-128414

Document type:: Monograph

Author:: Nogaro, Bertrand http://d-nb.info/gnd/117039713

Title:: Modern monetary systems

Place of publication:: London

Publisher:: King

Year of publication:: 1927

Scope:: XII, 236 S.

Digitisation:: 2021

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Part II. The explanation of contemporary monetary phenomena and currency theory

Collection:: Economics Books

THE THEORY OF EXCHANGE 153 state of balance of payments is an important factor even in the latter, but all kinds of psychological influences also come into play, and it is therefore quite impossible to argue in such cases as if the balance of payments were the only factor which determines the rate of exchange. §S 9. Purchasing power parity as a function of the rate of exchange. But there 1s more to be said. When Mr. Cassel con- siders that the rate of exchange is determined by the parity of purchasing powers, he forgets that #kis parity is in itself a function of the rate of exchange. For supposing that the pound stands at 70 francs, whereas according to the purchasing power parity it ought to stand at 5o, surely internal prices in France will soon rise, from the mere fact of a rise in the price of imported commodities. There- upon, as the franc will have a smaller purchasing power even in France, the purchasing power parity between France and England will be altered and will be consistent with a greater exchange depreciation of the franc. The influence of the exchange on internal prices certainly varies from one case to another; it depends, no doubt, on the kind of commodities imported, and on the relative importance of foreign trade in the economic life of the country. But the exchange also affects the price of goods which can be exported; for even if, as was pointed out above, exporters are not in a position to obtain the entire profit on foreign sales for themselves, they do attempt to retain a large proportion of it, and the rise in the price of exportable commodities in terms of the home currency, which results from their profit on the exchange, reacts on the internal market. Hence it is certain that the exchange will always affect internal prices, though in varying degrees, and so in itself modify the purchasing power parity which 1s supposed to have determined the rate. Lastly, there are other psychological motives which, with an exchange already greatly depreciated, tend to

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