Page:Stabilizing the dollar, Fisher, 1920.djvu/231

8, C] currency policies of Europe, policies as yet unknown and unknowable.

C. Exports and Imports. As to the effect on international trade in commodities, these effects would be complex and somewhat varied according to circumstances, though not, probably, important in magnitude.

Suppose that the United States had a stable dollar and other gold standard countries had not. Suppose further that gold units tended throughout the world to depreciate and therefore that we were obliged successively to increase the weight of the dollar, i.e. to decrease the price of gold, and thereby to lower the rate of foreign exchange as measured in American dollars.

Under these circumstances the price level in the United States would remain stationary, the price levels in other countries would rise, and the rates of exchange between the United States and those countries would change accordingly, e.g. exchange on London would decline.

Normally, or in the long run, the change in the exchange between two countries is proportional to the divergence of their price levels. Thus, let us assume that prices in England gradually increase until they have doubled while those of the United States remain the same, and that the exchange on London falls correspondingly from $4.86 to $2.43 per pound sterling.

Under these assumptions imagine an American exporter who now finds that, while the American prices with which he is concerned are about the same, the English prices he can get for his goods are doubled. He receives a bill of exchange for £200 where before he received one for £100. But when he sells the £200 bill at $2.43 per pound he receives the same $486 which he used to get when he sold the £100 bill at $4.86.

Evidently if the changes in price level and the changes in the rate of exchange thus correspond to each other, there is neither gain nor loss.