340 
INTERNATIONAL TRADE 
Adal 
trade; the only significant consequence of inflated prices was that 
a new set of counters came to be used. We have learned how un- 
duly simplified is this version of what happens in domestic trade; 
much more takes place within a country when paper money is 
put forth. Something more may happen also in the trade between 
countries. 
The logical corollary of the Ricardian simplification of the prob- 
lem has appeared recently in the purchasing-parity doctrine, 
That doctrine, as set forth more particularly by Professor G. Cassel, 
maintains that the rates of foreign exchange — the prices at which 
bills of exchange on one such country will sell in the currency of 
the other — are in accord with the range of general prices in the 
two; or rather, to state the doctrine more carefully, are in accord 
with the relative price levels — with the changes in general prices 
that appear in the two. If paper currency in country A is put 
out to such an extent that prices are doubled in that country; 
and if, on the other hand, paper issues in country B result in a 
quadrupling of prices in B; then in B bills of exchange on A will 
sell at twice the rates which prevailed before the respective paper 
issues. The new rates of foreign exchange will be on a parity 
with the altered price levels. In more refined and careful exposi- 
tions of the doctrine this bald and simple statement is somewhat 
qualified. Account is taken of disturbing influences, of irregulari- 
ties that conceal the main trend. Payments on other than mer- 
chandise account — government remittances, and invisible items 
of all sorts — are admitted to exercise for considerable periods an 
influence of their own on the rates of exchange, not directly con- 
nected with the price levels. It is admitted also that the actual deal- 
ings in bills commonly have a speculative character, and are affected 
for weeks and months by expectations and rumors concerning the 
economic and political future. But thru all the transactions, 
it is maintained, the same general trend appears — accordance 
of the foreign exchanges with the respective price levels; and in 
the end the first approximation is found to fit the facts. When 
once all the remittances, on merchandise account and on account 
of other items as well, have been arranged for and allowed for;