THE THEORY OF EXCHANGE 149 
pound sterling. On the other hand, an Englishman would 
have difficulty in buying in France at a rate lower than go 
francs; and at a higher rate a Frenchman would find it 
burdensome to make his purchases in England. And so 
the purchasing power parity would determine the rate of 
exchange at which international trade remains feasible on 
an equal basis for the two parties. Mr. Cassel goes even 
further ; he believes that the rate of exchange cannot move 
far away from the purchasing power parity because an 
importer would refuse to buy the currency at a higher rate 
than that which corresponds to this parity. 
Mr. Cassels theory which at first sight is plausible 
enough 1s not based on premises which square with the 
actual facts. It implies that the purchaser of a foreign 
commodity can choose freely between the foreign and home 
markets and that he will therefore not be willing to purchase 
the drafts required for his payments at a price which makes 
the foreign commodity more expensive than if he had 
bought it in the home market. But this notion contains a 
double error. 
In the first place, it is better to admit at once that 
goods are chiefly bought abroad which cannot be obtained 
at all, or cannot be obtained in sufficient quantities, on the 
home market. Hence it is not possible to rely on the 
prices ruling in the home market in order to refuse to 
purchase the instrument of payment at a rate which would 
raise the cost price of the commodity bought in a foreign 
market to too high a level. For instance, when our wheat 
harvest is insufficient we are forced to suffer the price and 
the rate of exchange of countries from which we draw our 
supply, with the result that by this very process the price 
of wheat is sent up on the French market; we cannot 
argue that we can procure wheat more cheaply in France 
since we are compelled to supplement our own harvest. 
Again, it is attributing much too great a bargaining 
power to the purchaser of foreign bills, and much too 
great an influence over prices, to suppose that he could 
refuse to purchase bills on a foreign country at a higher 
rate than purchasing power parity, An importer who has