LOANS AND INTEREST PAYMENTS 129
lending country ; its prices and money incomes will rise; the bor-
rowing country will have falling prices and incomes; the lending
country will come to have an excess of merchandise imports and
the borrowing country an excess of merchandise exports. A
cycle of operations is set in motion by a steady succession of inter-
national loans. Their effects on international trade and interna-
tional payments are different according as the transactions are
in the initial stage, the midway stage, the final stage.
In popular talk on these matters it is commonly assumed that a
creditor country ipso facto has an excess of merchandise imports,
and a debtor country an excess of exports. The creditor country
— so people imply in their everyday talk — has payments to re-
ceive, the debtor country has payments to make; the former is
expected to show a net credit in its accounts, the latter a net charge
or net outgo. Not at all. The state of the merchandise account,
the balance of the money values of imports and exports, may
run either way, for either debtor country or creditor country. It
depends on the stage which the credit operations have reached.
And, similarly, there is a common erroneous notion that the flow
of specie tends to be toward the creditor country; that the course
of the foreign exchanges is naturally such as to cause specie to
move to it, or at least such as to bring some pressure that way.
Again not at all. The movement of specie may tend to be in
one direction or the other, according to the stage of the cycle.
It is to be remarked, however, that the transactions rarely show
such regularity as the preceding analysis has implied. On the
contrary, they usually take place with marked irregularities. And
not only are they irregular; they are subject to abrupt stoppages.
They frequently entail spasmodic changes in international pay-
ments and in the movement of goods.
These irregularities, of which abundant illustrations will be given
in later chapters, deserve some further consideration even at this
point. If loans on capital account were continued regularly at
the same amount year after year, the accumulating interest pay-
ments would bring about, at the date when reversal of the rela-
tions began to set in, a slow and gradual readjustment, not a
