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INTERNATIONAL TRADE 
HT 
a 
changes, flow of specie, and so on. The balance of trade becomes 
at once “favorable” to the lending country, and “unfavorable” 
for the borrowing country. There is no disturbance of foreign 
exchange, no flow of specie, nothing to modify the level of prices 
or wages either in the lending or in the borrowing country. 
It is extremely rare, however, that the purchases of goods in the 
lending countries by the selfsame foreigners who contracted the 
loans take place to such an extent as to obviate the flow of specie 
completely. Not the entire proceeds of loans are likely to be 
spent in this way, only some fraction. Even if railway promoters 
from the United States or Canada or Argentina, who borrow in 
England, also buy railway material in England, they are likely to 
use in this way only a part of the funds. Some part they will 
spend at home, for labor, for miscellaneous supplies, divers ex- 
penses. It is conceivable, nay probable, that they will raise some 
portion of their capital at home, and only the residue abroad. 
And it is then conceivable that they will use for domestic expendi- 
tures the funds raised at home, and will use the proceeds of foreign 
loans entirely for purchase abroad. But it is most improbable, 
even when there is a division between foreign and domestic financ- 
ing, that an exact balance of this sort will be struck. In the 
majority of cases a part of the foreign funds, and usually a con- 
siderable part, will be wanted for expenditure in the borrowing 
country itself. Then, to repeat, the outcome must be a flow of 
specie from the lending to the borrowing country. Remittances 
will have to be made, in our illustrative situation, from London 
to New York. Specie will flow; the consequences become the 
same as those which ensue when remittances have to be made for 
any other invisible item. 
These consequences will of course ensue quite without modifica- 
tion if there be no immediate purchases of goods at all in the lend- 
ing country. Such was doubtless the case with a large proportion 
of the British loans both of earlier and later date. It was so with 
the continuous stream of loans by the French in those earlier loans 
of the second and third quarters of the 19th century, made when 
neo-mercantilism was not yet rampant. The transactions were