312 
INTERNATIONAL TRADE 
expected. It was to be expected, too, that the increase of the 
gold supply in the United States should bring about a rise in 
American prices, or at least should give the basis and the impetus 
for a rise; a consequence which did ensue. Of this aspect of the 
case (comparatively simple) more will be said presently. In 
other respects, however, things did not happen at all in the way 
which unvarnished theory would suggest. Indeed, they could 
not happen so. Prices abroad were not affected by the specie 
movement. The gold came chiefly from countries no longer on 
a gold basis — from the dead holdings or reserves of the central 
banks of England, France, and apparently Russia also. Each 
of these countries was on a paper basis, was hoarding its gold so 
far as it could, and was using it reluctantly and under pressure 
simply as an adjunct to military policy. Prices were determined 
by the conditions which obtain under inconvertible currency. 
Nothing like the Ricardian reasoning could be applicable as re- 
gards international trade: no assumption that there ensued a fall 
in prices in the European countries whence the gold came, thereby 
a stimulus to their exportation of goods to the United States, and 
so on. So far as concerns the inflow of gold the other way, 
into the United States, the Ricardian consequences might per- 
haps be perceived ; not so as regards the flow out of the European 
countries. 
When it comes to the borrowing operations, we are confronted 
still more patently by phenomena quite outside the range of the 
usual explanations. In relation to the substantive course of inter- 
national trade — the movement of physical goods — the charac- 
teristic feature of the case was that the borrowings were caused by 
the exports, not the exports by the borrowing. Cause and effect 
ran in quite a different sequence from that which has been assumed 
in our general reasoning, and has been verified in our analysis of 
the earlier loan transactions of various countries. In all that has 
been said in preceding chapters, an export of merchandise has been 
treated as the consequence of an export of capital ; either an indirect 
consequence, coming about thru price changes, or a direct conse- 
quence, following the immediate use of the funds in the purchase