THE UNDERLYING PRINCIPLES 349

are, of course, domestic articles as regards the conditions of supply
and of long-period price. But during the stage of readjustment,
during the lag, exported articles will be somewhat higher in
price than before in Great Britain, somewhat lower than before
in the United States. Eventually, it is to be expected that
exported articles in both countries will return to their former
level ; the only persisting change in both will be in the prices of
imported articles.!
Consider how these changes would affect an index number of
the usual kind, made up from the prices of a miscellaneous assortment
 of goods — domestic, exported, imported. Such an index
would show one sort of result during the period of readjustment,
another when that period was past and things had settled down.
In the United States the index number will register during the
period of readjustment a fall in prices. Imported goods will be
cheaper as the immediate consequence of the new rate of foreign
exchange. Exported goods also will be cheaper. Domestic goods
will be unchanged. The general price level will thus be shown by
the index to be lower. As time goes on, the exported goods will
no longer show a fall in price, i.e. the initial fall will be succeeded
by a rebound to the original figures. Their producers will be led
to lessen supplies in such way that the returns to them will be as
great as to other domestic producers. But imported goods will
have fallen in price definitively. When all has settled down, the
general price level in the United States will be lower than it was
before the disturbing influence set in, domestic prices (including
those of exported goods) being the same as before but the prices
of imported goods lower.
In Great Britain the other way. During the period of readjustment
 exported goods will be higher in prices than before ; imported
goods will also be higher; domestic goods will show no change.

! Lest there be misunderstanding, IT would remind the reader that, for simplicity,
various assumptions are tacitly made, as they have been in previous chapters.
For example, constant costs are assumed, no individual domestic commodity being
affected in price by the circumstance that under altered conditions of demand more
or less of it is produced; no commodity shifts from the export to the import list
under altered barter terms; and so on. Such assumptions may be made without
affecting the validitv of the present conclusions.