THE UNDERLYING PRINCIPLES 357
to country; and thus the greater are the possibilities that one
country will gain markedly thru a high range of money incomes
and low prices of imported goods, while another, having high
import prices and low money incomes, gains much less.
It is not to be gainsaid that there is, in the rough and as a first
approximation, a general accordance between the quantity of
paper money issued, the advance in prices, and the rates of paper
exchange; and thus a rough sort of purchasing-power parity.
A doubling or quadrupling of the volume of currency will lead to
something like a doubling or quadrupling of prices, and to disturb-
ance of exchange rates of similar quantitative character. What
is to be questioned is the doctrine of an exact relation, and
especially that of a tendency to a long-run exact correspondence.
And the important comparison, it must be borne in mind, is be-
tween domestic prices and money incomes in the several countries,
not between prices measured by an index number made up for
all classes of goods, international as well as domestic. It is a mere
truism that the prices of international goods tend to fluctuate in
close accord with the exchange quotations. The real problem lies
in the movements of domestic prices and money incomes. Be-
tween these and the exchange rates there are not only temporary
discordances (concerning which something will be said in the
following chapter) but permanent ones. Divergences may arise,
and are likely to arise, between the exchange rates and the general
domestic price levels, divergences that rest on deep-seated causes.
They are such as to persist however long a time elapses and how-
ever completely competition irons out the short-time phenomena.
The conclusions that emerge from this prolonged analysis as
regard the purchasing-parity doctrine can be summarized in a
few words.
There is no normal or settled rate of exchange based on purchas-
ing-power parity. To be sure, if there be not only the elements
of constancy just mentioned, but also constant conditions of de-
mand for the exports and imports, and, moreover, constancy in
the invisible items, then the purchasing-parity doctrine will hold.
