THE UNDERLYING PRINCIPLES 339 
monetary systems of the trading countries simply caused the 
counters of exchange in each of them to be different, nothing more. 
The followers of Ricardo had occasion chiefly to consider trade 
between a specie-standard country like England and another 
country having depreciated paper. In such case, they argued, the 
country of paper money would have prices higher than it would have 
under specie, according to the extent by which the volume of the 
paper was greater than the specie which would have circulated in 
its absence. The normal or ordinary rate of foreign exchange on 
the paper country would be high in the same proportion. The 
mere fact of prices higher in paper, and the higher “nominal” 
quotations of foreign exchange, would have no effect on the sub- 
stantive trade. Imports and exports between the countries would 
move In just the same way and in the same volume as if both 
countries were on one and the same specie basis. 
It seems never to have occurred to these writers to inquire what 
would happen if, under paper conditions, a status quo were dis- 
turbed. Suppose a given situation to have been established as 
regards paper currency, prices, foreign exchange: paper doubled 
in quantity, prices twice as high as before, a corresponding rate 
of exchange (sterling exchange, say, twice as high as before in 
terms of the paper money). Suppose then that something happens 
to disturb this established situation: a tribute or indemnity 
becomes payable by one country to the other; or a loan transaction 
enters, tourist expenditures; or — what might most readily have 
occurred to the older writers — an increase of demand takes place 
in one of the countries for the products of the other. What then ? 
Would the “nominal” rate of foreign exchange remain the same ? 
Would prices in the several countries remain the same? Would 
the physical volume of imports and exports be changed, and, if so, 
by what process? So far as I know, these questions were neglected 
in the older literature of the subject and have been hardly less 
neglected in modern times. That the Ricardians should have 
ignored them is in keeping with their general treatment of mone- 
tary problems. They regarded monetary disturbances as of little 
substantive importance, whether for domestic or international