208 
INTERNATIONAL TRADE 
follow, not precede, an enlargement of the circulating medium 
and a rise in prices. So it may be, at least, for a short time, 
even for a period of many months. Indeed, if there be further 
forces at work than those merely monetary, it may remain so for 
years. 
This apparently anomalous sequence of events results from the 
looseness of the connection between deposits and reserves; a cir- 
cumstance which leads in so many directions to caution in making 
hard and fast statements. Deposits, to repeat once again, are not 
dependent on reserves in any automatic or mechanical way. In 
times of buoyancy, loans and deposits expand, and prices tend to 
rise. Unless the margin of cash happens to be at the very mini- 
mum, there will always be some play for an upward movement 
without immediate pressure on the cash in hand. And if at the 
moment the banks happen to have reserves not merely adequate 
but abundant, the upward movement can go on for a considerable 
time without strain of any kind. But as bank operations reach 
the full amount which the cash reserves can easily support, the 
rate of discount rises and money becomes tight. The expansion 
of loans and deposits is not thereby necessarily checked at once, 
still less does it cease entirely. The banks sail closer to the wind 
and keep a sharp look-out, but they still find business good, and 
do not cut their customers down. Thereupon specie begins to 
flow in from abroad, tempted by the higher rates of interest on 
current funds. The inflow thus follows the general expansion, 
does not precede it. True, this is not the invariable order. The 
flow of specie is dependent on conditions in other financial cen- 
ters, and it will take place most easily and abundantly if there 
is quiescence elsewhere, or less activity. But often enough its 
inflow of specie will be proximately the result rather than the 
cause of expansion. 
This, however, is but a first stage, and by no means definitive. 
Just as the tight money market attracts specie imports, the rising 
prices attract commodity imports. Rising commodity imports 
bring increasing obligations to make payments to foreign coun- 
tries; and they tend to a reverse movement — a drain of specie.