THE ADEQUACY OF EXISTING CURRENCY MECHANISMS UNDER VARYING CIRCUMSTANCES.

In discussing the adequacy of different international monetary mechanisms under varying circumstances, it seems desirable to begin with some analysis of the logical extremes. The extremes are fixed exchanges maintained by transfer of means of payment between the national monetary systems and flexible exchanges without international transfer of money. The gold standard would be an example of the first type of mechanism and the paper standard of the second, provided that both were entirely automatic. In these extreme cases there would be no money management, externally or internally. The object of both systems is to achieve and maintain equilibrium of external-internal trade. For this purpose both systems provide a balancing or compensatory mechanism by which economic change sets in motion forces of correction which restore equilibrium of external-internal trade. The gold standard system works through variation of internal prices and incomes relative to export-import prices, and the paper standard system through variation of the prices of exports and imports.