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A TREATISE ON MONEY

BK. IV

gold fall to any great extent, the effort to keep theirgold necessarily involving them in a sympatheticdeflation. It will also occur, in spite of a materialmovement of gold, if the country which initiates themovement is able to absorb large quantities of goldwithout being compelled to bring its market-ratedown to equilibrium with its natural-rate. 1

I have said enough to indicate the nature of theprocess and of the argument. It is evident that manyillustrations could be given. For example, a lendingcountry, which is not willing to lose much gold andwhose rate of earnings is not sensitive to deflationaryforces, may suffer a long and painful transition be-tween one position of equilibrium and another. Butit would lead me too far into the intricacies of thetheory of international trade, which would fill a bookin itself, if I were to pursue the matter further. Imust leave the reader to carry on the line of thoughtfor himself, if it interests him.

Perhaps, however, I may be allowed, in parenthesis,to apply the above to my discussion with ProfessorOhlin about the German Transfer Problem in theEconomic Journal (1929). The payment of Repara-tions by Germany operates in the year in which ittakes place, much in the same way as a compulsoryprocess of foreign investment of equal amount, exceptthat Germany will not enjoy the cumulative off-setsin subsequent years which foreign investment affords,and the investment does not correspond to a spon-taneous change abroad, such as would lead directlyto a demand for Germany’ s exports. Now I conceiveProfessor Ohlin’s standpoint to have been, that, givenan appropriate credit policy in the receiving countries,

1 As we shall see in Vol. ii. Chap. 30, Great Britain in the 1890’sdeflated every other country in the world by refusing to lend abroad on thescale to which international economic relations had become adjusted. Atthe end of 1929 it looked as if France might be playing somewhat the samerole, and was provoking a world-wide deflation by her reluctance to lendabroad on the appropriate scale (i.e. to allow L to accommodate itself to B).