CHAPTER 27 
DisLocATED ExcnanNGes FurRTHER CONSIDERED 
WE may proceed to other problems, somewhat different. The 
questions now to be considered arise not in connection with the 
invisible items (such as tourist expenditures) but from influences 
of another sort. Merchandise movements, instead of following 
variations in the foreign exchanges, may set in of their own accord ; 
they may precede the exchange variations. Under conditions of 
the type analyzed in the preceding chapter the remittances first 
set in; then the exchanges are affected; then prices shift; at last 
the imports and exports of goods are modified. In the cases now 
to be considered, on the other hand, the sequence in time and the 
causal connections run the other way. Changes in merchandise 
movements, in imports and exports, are the initial modifying 
factors. Thereafter come the readjustments of the foreign ex- 
change rates and of prices in the trading countries, and also some 
further and complementary changes in merchandise movements. 
In considering cases of this kind I shall proceed, as ir the last 
chapter, on the supposition that the volumes of currency in the 
several trading countries remain constant. It is not the effects 
of continuing issues of paper and continuing advances in prices 
that are here examined, but the characteristics of trade under 
dislocated exchanges pure and simple. Let the reader disregard 
for the moment the possibility or even probability that paper 
money issues may be enlarged, and that the enlargement will bring 
effects of its own. For the purpose of the analysis that follows, 
assume a fixed amount of currency in each country. 
A clear example of changes of the kind now to be considered — 
that is, where merchandise movements themselves cause exchange 
fluctuations — is that of an altered state of demand. Suppose two 
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