Prosperity and Depression.pdf

Chap. 12. International Aspects of Busines~Cycles 447part of the money which seeks inves tment abroad comes out ofhoards, or would have been ho~rded if the transfer abroad hadnot been possible.In the capital-importing country A, the effects are the contraryviz.,deflationary. The money which people in D want to investin A can be made available only by an import surplus in A -thatis,it is withdrawn from the sales of A prodJlcts. More goods areoffered for sale in A ,: but total demand has not risen. It will beseen that this deflationary effect obtains everi on the most favourableassumption: viz., the assumption that the money madeavailable in A for investors in D is spent on goods-i.e., is reallyinvested. If-as may be the case with speculative movementsof capital-a part of the money is kept in liquid form, thedeflationary effect is. accentuated.From the point of view of our gold-standard'Contrast experience, it appears highly paradoxical that thefIIith capital-exporting country should be stimulatedgold standard. and the capital-importing country" depressed as aresult of capital movements IThe diHerence between the modus operandi of the two systemsmay again be put this way. Under a gold standard, capital exportwill usually not p!oduce an immediate corresponding movementof goods. 1 It \\jll first lead to a money flow, which will theninduce a flow ofgoods. This intermediate phase is cut out un~erthe operation of a system of free exchanges.In the light of this analysis of the effects of capital movementsunder free exchanges, we may reconsider the case ofa switch-over ofdemand from D goods to A goods. D's currency will depreciate.This may induce speculative capital movements. Suppose themovement ofthe exchange is believed to be temporary and likely toI Under exCeptional circumstances. it may happen that the moneywhich D lends to A is spent in A .entirely on D's or A's export goods, sothat the change in the balance of trade is brought about without friction-that is, without a relative or absolute contraction in the lending, anda relative or abSolute expansion in the borrowing. country. (CompareR. Nurkse, Ifz,ternationaleKapitalbewbgungen. Vienna, 1935, pages 121.122 and 144.) Owing, ho\vever, to transport cost and the resultinglocalisation of demand for goods. this will rarely happen to the extent of100% of the sum transferred.