THE UNDERLYING PRINCIPLES 353 
of imports. Under paper, we must expect the same money in- 
comes, the same domestic prices, lower prices of imports. Again 
the mechanism is different under paper, the effects on material 
prosperity the same. 
Observe further (still having regard to the ultimate outcome) that 
the goods exported from the United States to Great Britain, tho 
dearer in Great Britain, are unchanged in price in the United States. 
Similarly the goods exported from Great Britain, tho cheaper 
in the United States, are the same in price in Great Britain. 
The altered prices — American imports dearer in Great Britain, 
British imports cheaper in the United States — are altered solely 
because of the new rates of foreign exchange. Pounds sell for a 
lower rate as compared with dollars. The price of dollar exchange 
has risen in London; the price of sterling exchange has fallen in 
New York. Tho the American prices of American exported goods 
are unchanged, yet these, when translated into British prices on 
the basis of the new quotation of exchange, mean higher British 
prices for the goods. And the other way as regards British exports : 
tho their prices are unchanged in Great Britain in British money, 
yet when sold in the United States on the basis of the new quota- 
tion of exchange, they are put on the American market at lower 
prices. It is the rate of foreign exchange which has altered, and 
has definitively altered. That alteration takes place regardless 
of the fact that monetary conditions in the two countries are 
constant. It has no connection with any purchasing parity. 
The rate of foreign exchange shifts to a new figure, not because of 
price changes, but because of changed conditions of international 
trade; the new figure persists; and it is itself the continuing and 
permanent cause of the changes that ensue in the prices of goods. 
A word more concerning one corollary from the reasoning which 
has already been mentioned but deserves further attention. The 
general range of all prices — the change in the price level measured 
by an index number which is based on all commodities, imported 
as well as domestic — would show in each country a change, and a 
definitive change. And this change would be the opposite of 
that to be expected under specie conditions. The index number