382 
Fhe. 
INTERNATIONAL TRADE 
be made innocuous. If the rate is set in fairly accurate correspond- 
ence with the prices of goods in the trading countries — regard 
being had also to non-merchandise operations — the system can be 
made to work indefinitely. Not only this; it will represent, for a 
country which is in financial straits (such as a depreciated currency 
usually entails), a comparatively cheap method of getting rid of the 
main evils of depreciation. Stabilization on a gold basis is achieved 
without the expense of securing any considerable supply of the 
metal for actual use in the currency system. 
The difficulties arise when the correspondence with the funda- 
mental factors — relative prices and incomes in the trading coun- 
tries — ceases to be even roughly accurate. Contingencies of this 
kind must be faced. It is true that they may not come for a long 
time, and when they do come, may emerge slowly and almost 
imperceptibly. So slow and obscure are they that most writers on 
the subject ignore them. Yet, as is indicated by the discussion in 
the preceding chapters, it is these which in the end determine the 
rate of exchange. It is here that the gold exchange standard, like 
pegging, meets its eventual test. Changes from any established 
situation, any current rate of exchange, however firmly it seems to 
be imbedded, do occur. Demands will change, new articles of 
export and import will appear, the balance of international pay- 
ments will need to be readjusted ; then what? 
"The consideration of the gold exchange standard brings out once 
again the connection, both in theory and practice, between mone- 
tary problems and the problems of international trade. What 
determines the course of prices? It is on prices and price changes 
that the movement of goods from country to country depends. 
Can prices and money incomes change, permanently and con- 
siderably, without a change in the quantity of money? And can 
bank policy, bank rate of discount, the stimulation or repression 
of industrial operations by bank credit, exercise not merely a 
temporary influence, but an enduring one, on the course of domestic 
prices and so on the currents of international trade? That they are 
of influence for a time, no one can doubt. But how about the long- 
run effects? The rate of discount, after all, is but one phase of