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A TREATISE ON MONEY
BK. IV
to cover international capital transactions of whichRicardo himself took little account, as it is expoundedin relation to the facts of to-day by, for example,Professor Taussig . 1 But it is not quite in accordancewith another traditional doctrine which was widelyheld in Great Britain, mainly on empirical grounds,during the nineteenth century, and is still held to-day.According to this view foreign lending stimulates theforeign balance directly and almost automatically, andthe actual movement of gold plays quite a minorpart. This conclusion was, I think, based much moreon British experience during the nineteenth centurythan on a priori reasoning. But recently—especiallyin connection with the German Transfer Problem—ithas been supported by argument also, notably byProfessor Ohlin.
Professor Taussig has endeavoured, in his Inter-national Trade, to put the question to the inductivetest by examining a number of nineteenth- and earlytwentieth-century examples drawn from the countrieswhich have at various dates suffered an importantebb and flow in the value of L. He finds, naturallyenough—indeed inevitably—that B and L tend tomove together. But when he comes to the questionhow far monetary movements have been necessary tomake B obey the direction of L, the result is moreinconclusive. Sometimes the facts seem to supportthe Ricardian view, and sometimes it is difficult todetect monetary changes on a scale sufficient to verifythe essentials of the theory. Moreover, the inflow ofgold may sometimes follow, instead of preceding, arise of prices.
In a controversy between Professor Ohlin andmyself in the pages of the Economic Journal (1929),with special reference to the German Transfer Prob-lem, I was not able to make clear the theoretical basisunderlying my view, because the analysis of the pre-