198 
INTERNATIONAL TRADE 
I {at 
EY 
in terms of money. In the ordinary course of affairs there is no 
conscious exchange of goods for goods. There are sales of goods, 
or payments for services which are liquidated in terms of money. 
Money, current funds, what the business man regards as cash, 
must be remitted from country to country. The illustrative 
figures presented in the first Part of this volume were worked out 
in terms of prices, and then in terms of money incomes, with the 
express object of directing attention to the details of the process 
by which eventual results were brought about. It is obvious that 
everything in the calculations rests on the assumption that the 
flow of specie affects the prices and money incomes of the trading 
countries. An inflow of specie causes prices and money wages to 
rise; an outflow causes them to fall. The whole train of reasoning 
rests, in this way, on the assumption of the quantity theory of money. 
I say “in this way,” because the quantity theory, when formu- 
lated in strict consistency with the premises from which it starts, 
involves something more than the mere proposition that an increase 
of the money supply raises prices, a decrease lowers them. Stated 
with logical accuracy, it involves the further proposition that the 
changes in prices are precisely in accord with the changes in the 
quantity of money: that prices double (the quantity of goods 
remaining the same) if money is doubled in quantity, are halved 
if the money is halved. As regards the mechanism of international 
trade, however, it makes no difference whether this precise formu- 
lation of the doctrine be accepted. It suffices if the course of 
prices and incomes be influenced merely in the stated direction. If 
an inflow of specie into a country causes prices and wages to rise, 
the consequences envisaged by the theory of international trade 
take place irrespective of the exact degree of correspondence 
between the two movements. It is not of importance for our 
inquiry whether there be adherence to the semi-mathematical and 
rigorously consistent formulation of the quantity doctrine. 
In another regard, however, it is of great importance for the 
theory of international trade whether the relation between money 
movements and the level of prices be stated in a guarded or a loose 
way. Stated guardedly, the quantity doctrine examines the rela-