LOANS AND INTEREST PAYMENTS 127 
such as to involve at the outset nothing more than the obligation 
to put funds at the disposal of the borrowers; while the borrowers 
themselves transferred these funds, except for the possible use 
of some fraction forthwith in the lending country, to their own 
country. All in all, we are justified in treating this as the normal 
and ordinary course of events. International loans disturb the 
existing balance of payments; remittances are made to the borrow- 
ing country ; specie flows thence from the lending country. 
The further course which events may then be expected to take 
is sufficiently familiar, and need not again be analyzed in detail. 
The loan being made (in our assumed case) by British to Ameri- 
cans, prices and incomes fall in Great Britain, rise in the United 
States. An excess of exports develops in Great Britain; not 
immediately, but by a gradual process. She comes to have a 
“favorable” balance of trade. In the United States an excess of 
imports gradually appears — an “ unfavorable ” balance of trade. 
The people of Great Britain send merchandise to the United States, 
and add to the tangible equipment of the Americans, or to their 
consumable goods, giving up for the time being some of their own 
possessions and adding to those of the Americans. But not only 
do they give up something in this way — make a sacrifice, incur 
a loss, for the time being — but they incur a further loss in that 
the barter terms of trade become less advantageous to them. 
The imports which they continue to buy from the United States 
are got on less favorable terms than before. Conversely, the 
people of the United States have a double gain; not only do they 
get an extra supply of imported goods, but all the imports, the 
goods plainly and simply bartered as well as the extra goods that 
represent the loans, are got on better terms than before. 
The ulterior consequences on the barter terms of trade, let it 
be repeated, will not appear so far as the borrowers make direct 
purchases of goods in the lenders’ country. And if the borrowed 
funds are used in foto for such purchases, the ulterior effect will 
not ensue at all. If part is so used, the effects will be mitigated. 
The actuating machinery for these effects is the flow of specie, 
which is eliminated so far as there are the direct purchases.