oh. 2i INTERNATIONAL DISEQUILIBRIUM 331

ceding chapters had not then been published. Butwith the aid of this analysis I can, I hope, resolve thedifficulty, and show in what circu m stances the factswill appear to conform to Professor Ohlin’s thesis andin what circumstances to the Ricardo-Taussig thesis.

There are two contingencies which we must first ofall put on one side as not being relevant to the essenceof the argument. There is the case where foreignlending is bound up with a contract or understandingthat the proceeds shall be employed in making pur-chases at home, although, failing such an arrangement,they would in ordinary course have been made abroad ;—for such arrangements, apart from their being, infact, negligible in aggregate quantity, are equivalentto subsidising the cost of the goods supplied, which istantamount to reducing their price, at the expense ofthe rate of interest which might have been charged.

Secondly, there is the case where Gold ExchangeManagement is present in some shape or form, so thatmovements of foreign liquid assets take the place ofmovements of actual gold. We shall regard suchchanges as equivalent to movements of gold for thepurposes of this discussion.

Let us call the value of a country’s market-rateof interest which would obviate gold movements ( i.e.which is such that G = 0) its international-rate. (Theinternational-rates of different members of the samecurrency system are, of course, not independent of oneanother.)

Let us begin with the case where there are onlytwo countries, A and B, in question, thus avoidingthe complications of roundabout trade.

Let us assume that we start from a position ofequilibrium with G = 0 and I = S in both countries.This means that in each country :

Its Market-rate = its International-rate

= its Natural-rate.