218 
INTERNATIONAL TRADE 
which an outflow can be easily met and into which an inflow can 
be readily absorbed. In connection with a discount policy aiming 
at the same result — the elimination or minimizing of a flow of 
gold — they have the appearance of dominating the situation. 
Sometimes, indeed, they are treated in the modern literature of 
our subject as if this were the factor that needed to be watched, 
wisely handled, adequately safeguarded ; as if it were the core and 
substance of the problem of international payments. Altogether 
too much stress is thus put on the importance of a “defensive” 
bank policy, on the efficiency of this device toward maintaining 
stability of credit and prices. It operates essentially as the foreign 
exchange market does in the absence of any deliberate regulatory 
policy ; and there is no clear evidence to show that under normal 
trade conditions it operates better. It is merely one of the several 
devices that enable international payments to offset one another 
with the minimum of friction. 
Still another equalizing factor is the movement of securities that 
have an international market. They are sold between the great 
financial centers in a way that replaces or lessens the transmission 
of gold. Just as lending and borrowing have come to play a much 
larger part in international trade than was reckoned with in the 
earlier discussions, so have the sales and purchases of securities. 
This is true not only of those securities which had their origin 
in international loans, but of others also which at the outset had 
no international character but in the course of time have come to 
be quoted in the financial markets of different countries. They 
are bought and sold, sent this way and that, on a fractional differ- 
ence in price. In the so-called arbitrage business — buying in 
one market with a view to reselling at once by cable in another — 
a great volume of transactions is carried on at an astonishingly small 
spread between buying and selling price, as is the case in the 
closely related purchases and sales of bills of exchange. In both 
sets of operations, the current rate on short-time loans is a com- 
manding factor. In any given financial center, a tight-money 
market and a high discount rate tend to lower the prices of the