376 
INTERNATIONAL TRADE 
‘optimistic about any one of the highly-organized and highly- 
speculative markets. It is not clear that incessant and feverish 
buying and selling, whether by financial magnates or by the riff- 
raft of the business world, has a benign and smoothing influence. 
As regards paper exchange, the question for the present inquiry 
is on the relation between the speculative fluctuations and the 
underlying forces which in the end determine the rates around 
which they move. Here some distinctions must be made. The 
underlying forces may operate in sudden and almost spectacular, 
ways, or they may operate slowly and inconspicuously. Under 
conditions of the first kind, speculation will be rampant, and 
fluctuations will be large, irregular, and rapid. Under those of the 
second, the rates are more likely to shift gradually, the outside 
public is not likely to be attracted by spasmodic ups and downs, and. 
the action of the professional dealers is more likely to have an 
evening and moderating effect such as it has under gold exchanges. 
A moderated situation may be expected, for example, if there is 
merely a change in commodity demand. Such a change usually sets: 
in, as has been noted above, by gradual and inconspicuous stages. 
Suppose that the British demand for American exports becomes 
greater. The first trace of the effects is that the brokers find 
exchange on London more plentiful than before in New York. 
Dollar exchange tends to stiffen. The brokers themselves, and the 
speculative fraternity generally, may think that this is but a 
flurry, and they will readily sell exchange short, at some advance 
over the previous price. The additional supply of exchange which 
must be in the end provided to meet the short sales will come with- 
out strain for a while, merely by taking up the slack which usually 
exists in the available supplies, or by arrangements with London 
correspondents for meeting the bills for the time being. Gradually 
it will appear that there is more than a flurry; more American 
goods are being steadily bought in Great Britain, and more sterling 
bills are being steadily offered on the market. The underlying 
situation emerges. The impact of the continuing new offerings 
makes itself felt on the market rate, and a new rate of exchange 
becomes established gradually and (perhaps) smoothly.