SOME EXPERIENCES UNDER PAPER MONEY 399
ditions — always the proximate cause of movements in inter-
national trade — checked exports during the first stage, imports
during the second. The mechanism was different from that of
gold exchange prices based on the gold standard, but the sub-
stantive outcome was the same.
Not everything, however, is to be explained in this way. We
must be on our guard here, as in all statistical and historical
inquiry, against over-simplification in interpreting phenomena
that are confused and complicated, often remaining obscure after
the most painstaking examination. In the present case, for exam-
ple, a further factor goes to explain the heavy imports into the
United States during the years 1869-73. This was the direct
purchase of British goods by the American borrowers. The way in
which the balance of trade is affected by the direct linking of loans
with expenditures in the lending country has been analyzed else-
where.! These effects are the same under paper conditions as under
gold conditions. So far as the proceeds of the loans were applied in
part to the immediate purchase of goods in Great Britain, and so
far as these purchases were additional to what would have been
bought by Americans in any case, there was at once a movement
of exports from Great Britain to the United States and an increase
of imports into the United States. Operations of this kind could
have no effect on the foreign exchange market or the gold premium
in the United States, or the prices of goods in the United States.
Such transactions call for no such recondite explanation as has
been undertaken in the preceding paragraphs.
None the less, there remain transactions to which the simpler
explanation cannot apply. By no means all the proceeds of
British loans were used in direct purchases. A large part — the
larger part, one would guess, for these particular operations — was
cashed in by the borrowers, so to speak. Funds were wanted by
them for use in the United States, and remittances to the United
States were called for. And then we do need to resort to the more
recondite explanation, and to search for evidence which will cor-
roborate it.
Chapter 12, p. 127
