162
A TREATISE ON MONEY
BE. Ill
the same monetary standard as, and enter into borrow-ing and lending relations with, the outside world.
Nothing is required, however, in the extension ofour argument to an International System which isnot already adequately provided for in the terms ofthe Fundamental Equations. The main consequenceis to introduce an additional condition of equilibrium. •
For let L and B stand for the values of ForeignLending and of the Foreign Balance respectively inaccordance with the definitions given on pp. 131-2;G for the exports of gold ; S x for the difference betweenS, the total volume of Saving, and L, so far as L isnot financed by exports of gold—which we will callthe volume of Home Saving ; I x for the differencebetween I, the total value of Investment, and B—which we will call the value of Home Investment;and 1/ for I x - Q 2 —which we call the “ adjusted ”cost of Home Investment; then we have :
L = B + G,
Sj = S - L + G,
Ii=I-B,
and since I x -1/ = Q 2 = I - I',
I'-S=I 1 '-S I .
Thus we are entitled to substitute I x - S x for I - S and 1/ - S x for I' - S in our Fundamental Equations.Accordingly the equilibrium of the price-level of out-put as a whole requires that the volume of HomeSaving should be equal to the value of Home Invest-ment, and that of the Purchasing Power of Moneyrequires that the volume of Home Saving should beequal to the adjusted cost of Home Investment, whichis the same thing as its actual cost less the profit onthe Foreign Balance, i.e. less the excess of value ofB over its cost. In accordance with the definitions