Prosperity and Depression.pdf

440 Nature and Causes of the Cycle Part IItrade such as quotas, tariffs or exchange restrictions. Theseconsiderations may sometimes be ofvital importance: but they falloutside the scope of the present study.)A devaluation is bound to have a strong influence on the move..ment of capital; and the fundamental effect on the trade currentsmay be blurred as a result. Since it is not probable that a devaluationwill come quite unexpected out ofthe blue, it may be assumedthat it will be preceded by capital outflows from the D country.After the operation has been accomplished, it is likely that thesecapital·flows will cease or even be reversed. It will be apparent,if this happens, that the operation of these developments does notrun counter to the fundamental influence exerted on the D and Acountries through the effect on the export and import of goodsand services, but, on the contrary, accentuates and anticipates it.In this case, the devaluation will be regarded as successful from thepoint of view of the D cQuntry. This result depends, however,on certain expectations being created-in particular, the expectationthat the devaluation will be definitive for a considerable timeto come. It does not necessarily follow that this expectation willbe created. The devaluation may be regarded as no more than afirst step, to be followed by others in the same direction. In thatcase, capital movements away from the D countries may be induced,and the favourable effect on the supply of investible funds in theD economy will be postponed.While ordinarily the effects of devaluation in a single country onthe world situation-through changes in the trade balances andrevaluation of the gold reserves of the countries affected-may besaid to be on the whole inflationary, the capital movements whichmay be induced will probably have a deflationary effect on theworld as a whole; and the deflationary effect may be stronger onbalance than the inflationary effect.Ordinary capital movements-i.e., movementsDeflationary induced by disparities in interest rates or profit rateseffects of in different countries-mustbe counted as expansion..tapital flights. ary, because money which may have been in parthoarded in the country of origin owing to its lowerrates of interest will be invested to a greater extent in the capitalimportingcountry because of its higher rates of interest.