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A TREATISE ON MONEY

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national market, weighted by reference to their im-portance in the trade of the country in question. Acomplete version of this index-number would, ofcourse, also include manufactured articles such ascotton piece-goods, which are the subject of inter-national trade on an important scale. This Indexcorresponds, in the case of any given country, towhat it is now usual to call the Unsheltered Price-Level.

Now, after allowances for tariffs and costs oftransport, the price of every constituent of an Inter-national Index must be the same for all countries ifthey are reduced to terms of the same currency.Subject, therefore, to corrections for changes in tariffsand costs of transport, fluctuations in the ratio of anyinternational index expressed in terms of the pricesof one country to the same index expressed in terms ofthe prices of another country must correspond closelyto fluctuations in the rates of exchange between thecurrencies of the two countries. That is to say, therates of foreign exchange between currencies must beat a parity with the comparative purchasing powersof those currencies over the staple commodities ofInternational Trade.

We must not, however, overlook the fact that thecorrections required for tariffs and costs of transportmay be very substantial over a period of time, evenin the case of articles which we think of as having,beyond question, an international market. Thefollowing table for the seventeen years 1896-1913,based on statistics collected by Mr, F. C. Mills (TheBehaviour of Prices, Section II.), exhibits this veryclearly:

[Table