394 
ee 
BU 
INTERNATIONAL TRADE 
tive in several ways. The country’s currency was paper, and the 
volume of the paper remained virtually unchanged. The case was 
one of a stable paper currency, not of increasing issues. At the 
same time there were two stages in the period, marked by different 
conditions of international trade. Until 1873 there were heavy 
borrowings from abroad; after the crisis of that year the bor- 
rowings abruptly ceased and large repayments were made. As has 
already been noted, imports swelled rapidly during the first stage, 
and far exceeded the exports; while during the second the situation 
was reversed, exports exceeding the imports. As has also been 
noted, this change toward a ‘favorable’ balance was quite in 
accord with theoretical expectation. Yet evidently it did not take 
place thru that mechauism of shifting prices in the borrowing 
country which is assumed in the received theory. Since the 
United States was on a paper money basis, the mechanism must 
have been iifferent.! The case is thus adapted for a test of the 
theoretical analysis of the mechanism of payments under paper 
conditions. It is promising in still another way. In a situation 
otherwise changed but little, a single factor — that of the import 
of capital —varies sharply, first in one direction, then in another ; 
and its influence might be expected to be separately discernible. 
As in the Canadian case,® we have something analogous to an 
experiment ; one factor changes, while other things remain almost 
the same. | 
We may begin with the year 1866. By that time the influence 
of the war disturbances was no longer dominant, and something 
like normal conditions had been restored. In 1866-68 there was 
already substantial borrowing from abroad, chiefly of course from 
Great Britain; and with it a large excess of imports over exports 
(in terms of gold values). In 1869 the great spurt set in. The 
annual import of capital, which had been about 75 millions of 
dollars, ran to much larger sums — an average of about 130 mil- 
lions for the quinquennium 1869-73. The borrowings were 
mainly for railway building, which was carried on with feverish 
activity. The whole period, it need hardly be said, was one of 
1 See Chapter 26, 4p. 343. 2 See Chapter 19, p. 222.