CH. 21

INTERNATIONAL DISEQUILIBRIUM

337

Let us suppose that country A has no objection toreceiving more gold, and fixes its market-rate at anequality with its natural-rate regardless of the policyof country B, but that country B is reluctant to losegold and keeps its market-rate at an equality withits international-rate (which latter largely depends, ofcourse, on the market-rate fixed by country A). Inthis case country A suffers no period of inequalitybetween its market-rate, its natural-rate, and its inter-national-rate, and no alteration in its stock of gold,and there is, therefore, no need for any alterationin its rate of earnings. Thus the whole brunt of thechange is thrown on the rate of earnings in country B,which will be forced, in order to retain its gold, tokeep its market-rate above its natural-rate until theprocess of deflation thereby set up has brought itsrate of earnings down to the necessary extent.

If, on the other hand, country B is prepared tolose any amount of gold rather than raise its market-rate above its natural-rate, then it is country A whichwill have to bear the brunt of the change by under-going an inflation until its rate of money-earningshas been raised to the necessary extent relatively tothe rate in country B, which will have remained con-stant throughout.

The amount of the flow of gold between the coun-tries, if any, is, in a sense, quite non-essential to theprocess. For the same results can be brought aboutby the potentiality of a flow of gold as by the actuality.The amount of absolute change in rates of earnings inA and B depends on the policies of the central banksof the two countries as to the relationships which theyrespectively maintain between their natural-rate andtheir market-rate. The one whose policy is most in-dependent of the policy of the other, and keeps itsmarket-rate nearest to its natural-rate throughout thetransition, will suffer least absolute change in its rateof earnings.

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