F.—ECONOMIC SCIENCE AND STATISTICS 117 
altered without prejudice to the present system. ‘The latter secures an 
automatic adjustment of the internal price average to the international 
price average, and this may be done with a 30 per cent. gold reserve as 
effectively as with a 40 per cent. reserve. A change from the larger to 
the smaller reserve would permit a substantial rise in the international 
price level. 
The discussion of the gold standard has been based, so far, upon an 
important assumption, namely, that trade between countries consists of 
the exchange of commodities, including such services as shipping. 
I have ignored capital movements and interest payments. On that 
assumption I have tried to show that, when countries are on the gold 
standard, their internal wage and price averages must be adjusted to the 
price average of international goods. In a state of equilibrium trade 
between the countries will be balanced, that is to say, exports and imports 
will be equal in total value. Within each country the wage and price 
averages will represent a normal distribution of particular wages and 
particular prices. If equilibrium is disturbed gold movements will 
follow. In practice the equilibrium between countries will quickly be 
restored through the adjustment of the internal prices of international 
goods following depression on the one side or, on the other, greater 
activity. But the resulting internal disequilibrium is not so quickly 
removed. Some trades are affected more quickly and seriously than others ; 
some are sheltered, others unsheltered. Wage rates in the latter fall out 
of line with wage rates in the former. So long as this adjustment is 
delayed the intermediate effects will continue. But in the long run the 
condition of domestic disequilibrium will be changed and a new position 
of stable equilibrium reached, both within the country and between 
different countries. 
In the next stage of the discussion it is necessary to consider the effects 
of capital movements. One of the commodities entering into the final 
price average is capital, which, for my present purpose, I shall divide 
into investment capital and liquid capital. It is well known that the 
price of capital is higher in new countries than in countries which, in the 
industrial sense, have reached maturity, and that the difference is greater 
than the measure of relative risk. Hence we find a movement of capital 
from older to younger countries, enabling the latter to develop more 
rapidly than they would be able to do without such assistance. Investment 
is an import (of bonds) which must be offset by an equivalent export of 
commodities. Other things being equal an investing country therefore 
enjoys an excess of current exports of commodities (including current 
services) over imports. We need not pause to consider whether foreign 
investment or the excess of exports is the cause, or which came first. 
It is sufficient to point out that, in a position of equilibrium, the price 
average within a country must again be such as to make the price average 
of exports equal to the international price average and that, for com- 
modities (including current services), the average will be lower than 
it would be if capital were not being exported. But in due course the 
lending country receives interest, and the amount of interest increases 
annually. This inflow of interest neutralises a corresponding outward 
