ch. 2i INTERNATIONAL DISEQUILIBRIUM 341

the new equilibrium could be brought about withoutthrowing on Germany the brunt of any change what-ever in her current rate of earnings, and without anymovement of gold.

This is quite true. Such a thing is not theoreticallyimpossible. But I contend that it is highly improb-able in the conditions of the actual problem, and thatto establish the opposite, Professor Ohlin must exploremore fully the conditions which have to be satisfiedbefore his conclusion can hold good.

To begin with, this line of argument is quite irrele-vant to the amount of change which will be requiredin the terms of trade, and therefore in the relativerates of earnings in Germany and elsewhere and in therate of German real wages. It is only concerned withthe question whether this relative change will bebrought about mainly by an absolute fall in the rateof money-wages in Germany , or mainly by an absoluterise in the rate of money-wages elsewhere. Now itwould be difficult to find a case where the conditionsfor the former alternative to be probable are betterfulfilled. For Germany is not in a position to part withenough gold to have a sensible effect on the creditpolicies of the rest of the world, there is no pre-existing tendency for the natural-rate of interest inthe recipient countries to rise relatively to the natural-rate in Germany , and she is not in a position to resortto the expedient of regulating the rate of growth ofher foreign investment to suit the rate at whichrelative money-earnings can be adjusted (or rathershe only can do this by increasing her own borrowingfrom abroad, which is a more difficult task thand im i ni shing her own lending would be). I concludethat, if the payment of Separations involves a sub-stantial change in the terms of trade (which dependsnot on monetary considerations but on physical factsrelating to the nature of the productive forces ofGermany and the rest of the world), then it will