346

A TREATISE ON MONEY

BK. IV

with the pains and difficulties of the transition,—overand above the amount of the actual reparation pay-ments themselves.

(iv.) The Awkwardness of Changes due toInternational Factors

The importance of the foregoing discussion is this.A mere change in the demand-schedule of borrowersabroad is capable, without any change in the monetarysituation proper, of setting up a disequilibrium in theexisting level of money-incomes at home. If borrowersabroad are ready and able to offer better terms thanbefore, whilst the demand-schedule of borrowers athome is unchanged, this means that foreign lending isincreased. Consequently gold will flow until money-earnings have fallen sufficiently, relatively to similarearnings abroad (which may be rising a little as aresult of the movement of gold), for the foreignbalance also to be correspondingly increased. Theextent to which real incomes will fall at home willdepend partly on the elasticity of demand for loanson the part of home borrowers and partly on theelasticity of the world’s demand for our country’sexports, and of our country’s demand for its imports.If the demands of home investment are elastic andthe foreign trade position is inelastic, the troubles andinconveniences of the transition may be very great.

At present public opinion—in Great Britain atleast—is chiefly coloured by memories of nineteenth-century experience, when for various reasons theadverse reaction of foreign investment on the level ofmoney-incomes at home was probably at a minimum.The significance of the above in the different circum-stances of to-day in relation to the national benefitsof a high degree of mobility for international loans is,as yet, scarcely appreciated.

In an old country, especially one in which the