A THEORY OF BALANCE-OF-PAYMENTS ADJUSTMENTS FOLLOWING UPON OUTPUT EXPANSIONS IN THE FOREIGN-TRADE AND DOMESTIC-TRADE INDUSTRIES.

The purpose of this paper is to explore the theoretical underpinning of this proposal. Specifically, it purports to inquire through what mechanism the effects of output expansions in a country's foreign-trade and domestic-trade industries[3] are transmitted onto its external balance of trade. Although the subject matter is ultimately one of economic policy, our present concern is solely with positive economic analysis. In particular, no attempt will be made in this paper to evaluate the potential costs and benefits of the proposed policy in comparison with those of alternative policies for attaining the same objective; nor will there be an effort to prescribe any program of action for carrying out the policy. In short, the objective of this paper is to discuss the efficacy of the policy, not its merit, nor its implementation.
The purpose of theory in general is to clarify thinking in areas w here common sense fails to provide adequate guidance. Occasionally, conclusions obtained from theoretical analysis may seem to "subvert common sense." In such cases, clinging to common sense would clearly defeat the very purpose that theory is intended to serve. [ABSTRACT FROM AUTHOR]