200 
INTERNATIONAL TRADE 
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brings a corresponding change in its total monetary supply or an 
immediate effect on its level of prices. But it is entirely possible 
that the total of the medium of exchange may be sensitive to gold 
movements — may shrink in some degree when gold flows out, 
expand in some degree when gold flows in. And it is also entirely 
possible that the gold movements may have a dominating influence 
on the monetary total ; that this total is not only sensitive to them, 
but remains sensitive to continued movements of gold in the same 
direction, and that the direction is ultimately determined by them. 
To put it in another way, it is entirely possible that the course of 
prices in a country is sensitive to the international movement of 
specie, and also that in the long run the course of its prices is 
determined by that movement. 
These two questions — of sensitiveness and of domination — are 
not unrelated. There could not be domination without sensitive- 
ness; and continuing sensitiveness leads to domination. Never- 
theless it will be convenient to consider them independently. 
We may turn first to the question of sensitiveness. 
The forms of the medium of exchange (other than gold itself) 
which bulk largest in modern times are, on the one hand, paper 
money payable to bearer in the form of bank notes or government 
notes, and, on the other hand, bank deposits. Among these, 
government notes are obviously of the non-sensitive kind. Such, 
for example, are our own United States notes (greenbacks) and the 
Dominion notes of the government of Canada. Such were Reich- 
skassenscheine of the pre-war German system. Bank of England 
notes are in the same class; they too are fixed in amount and 
indeed are in effect government notes. Most issues of bank notes, 
however, are in some degree flexible, and thus at least potentially 
sensitive. The deposits which constitute the other form of bank 
money, and which are by far the largest item in English-speaking 
countries, are least of all fixed in amount either by law or by custom, 
and are most of all — at least potentially — sensitive. Hence 
it is the connection between bank operations on the one hand and 
changes in prices on the other which must chiefly engage our 
attention.