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By Root 1300 0

a hitherto undreamed-of manner, and the economic connections between countries became extraordinarily close. Now just at this time when commercial relations were beginning to grow more active, the monetary standards of the individual states were becoming more diverse. A number of countries went over for a shorter or longer period to credit money and the others, which were partly on gold and partly on silver, were soon in difficulties, because the ratio between the values of these two precious metals, which had changed but slowly during centuries, suddenly began to exhibit sharp variations. And in recent years this problem has been given a much greater practical significance still by monetary happenings in the war and postwar periods.

Let us suppose that one kilogram of silver had been exchangeable for ten quintals of wheat, and that upon the objective exchange value of silver being halved, owing, say, to the discovery of new and prolific mines, one kilogram of it was no longer able to purchase more than five bushels of wheat. From what has been said on the natural exchange ratio of different kinds of money, it follows that the objective exchange value of silver in terms of other kinds of money would now also be halved. If it had previously been possible to purchase one kilogram of gold with fifteen kilograms of silver, thirty kilograms would now be needed to make the same purchase; for the objective exchange value of gold in relation to commodities would have remained unchanged, while that of silver had been halved. Now this change in the purchasing power of silver over commodities will not occur all at once, but gradually. A full account has been given of the way in which it will start from a certain point and gradually spread outward, and of the consequences of this process. Until now we have investigated these consequences only so far as they occur within an area with a uniform monetary standard; but now we must trace up the further consequences involved in commercial relations with areas in which other sorts of money are employed. One thing that was found to be true of the former case can be predicated of this also: if the variations in the objective exchange value of the money occurred uniformly and simultaneously throughout the whole community then such social consequences could not appear at all. The fact that these variations always occur one after another is the sole reason for their remarkable economic effects.

Variations in the objective exchange value of a given kind of money do not affect the determination of the exchange ratio between this and other kinds of money until they begin to affect commodities that either are already objects of commercial relations between the two areas or at least are able to become such upon a moderate change in prices. The point of time at which this situation arises determines the effects upon the commercial relations of the two areas that will result from variations in the objective exchange value of money. These vary according as the prices of the commodities concerned in international trade are adjusted to the new value of money before or after those of other commodities. Under the modern organization of the monetary system this adjustment is usually first made on the stock exchanges. Speculation on the foreign-exchange and security markets anticipates coming variations in the exchange ratios between the different kinds of money at a time when the variations in the value of money have by no means completed their course through the community, perhaps when they have only just begun it, but in any case before they have reached the commodities that play a decisive part in foreign trade. He would be a poor speculator who did not grasp the course of events in time and act accordingly. But as soon as the variation in the foreign-exchange rate has been brought about, it reacts upon foreign trade in a peculiar manner until the prices of all goods and services have been adjusted to the new objective exchange value of money. During this interval the margins between the different prices