348 
INTERNATIONAL TRADE 
RY i 
A 
States to Great Britain. The Americans gain in having more of 
imported British goods at their disposal. The British lose in 
having less of American goods at their disposal. That which 
happens — so we reason — under identical monetary standards, 
happens also under differentiated standards and dislocated ex- 
changes. And apparently it happens thru a process quite as 
quick and effective. Time is needed for a readjustment of pro- 
duction in either case, and there would seem to be no a prior 
ground for expecting more time in one case than in the other. 
What now about prices and money incomes in the two coun- 
tries? And what about the foreign exchanges? Will the eventual 
outcome here also be the same as that under specie? I think not. 
In some essential particulars, conditions will be quite reversed. 
Under specie the level of domestic prices in each country will 
be changed — lowered in Great Britain, raised in the United States. 
But with dislocated exchange, the level of domestic prices in each 
will remain as it was before. Under specie it is the foreign ex- 
changes that never vary, barring the minor fluctuations within the 
gold points. Under paper, however, a new and different normal 
quotation for foreign exchange will be established. Indeed, it 
cannot be said that there had been, or will be, any “normal” 
foreign exchange rate under dislocation; and herein our conclu- 
sion is quite different from that of the older British economists 
and from that of their modern successors of the purchasing-parity 
school. 
Let me now elaborate and substantiate the theoretic conclusions 
thus summarily laid down. 
First, as regards prices in the trading countries. Observe that 
in the contrasts between the two sets of price conditions which 
were indicated in the preceding paragraphs it was stated that 
domestic prices remain unchanged in both countries under dis- 
located exchanges. It is otherwise as regards imported articles. 
These become permanently cheaper than before in the United 
States, dearer than before in Great Britain. It is otherwise also, 
for a period, as regards exported articles. True, the prices of these 
in the long run will follow the course of domestic articles; they