We are familiar with the causal chain along which the pre-war method reached its result. If gold flowed out of the country’s central reserves, this modified discount policy and the creation of credit, thus affecting the demand for, and hence the price of, the class of goods most sensitive to the ease of credit, and gradually, through the price of these goods, spreading its influence to the prices of goods generally, including those which enter into international trade, until at the new level of price foreign goods began to look dear at home and domestic goods cheap abroad, and the adverse balance was redressed. But this process might take months to work itself out. Nowadays, the gold reserves might be dangerously depleted before the compensating forces had time to operate. Moreover, the movement of the rate of interest up or down sometimes had more effect in attracting foreign capital or encouraging investment abroad than in influencing home prices. Where the disequilibrium was purely seasonal, this was an unqualified advantage; for it was much better that foreign funds should ebb and flow between the slack and the busy seasons than that prices should go up and down. But where it was due to more permanent causes, the adjustment even before the war might be imperfect; for the stimulus to foreign loans, whilst restoring the balance for the time being, might obscure the real seriousness of the situation, and enable a country to live beyond its resources for a considerable time at the risk of ultimate default. Compare with this the instantaneous effects of the post-war method. If at the existing rate of exchange the amount of sterling offered in the exchange market during the course of the morning exceeds the amount of dollars offered, there is no gold available for export at a fixed price to bridge the gulf. Consequently the dollar rate of exchange must move until at the new rate the offerings of each of the two currencies in exchange for one another exactly balance in amount. But it is the inevitable result of this that within half an hour the relative prices of commodities entering into English-American trade, such as cotton and electrolytic copper, have adjusted themselves accordingly. Unless the American prices move to meet them half-way, the English prices immediately rise correspondent to the movement of the exchange. This means that relative prices can be knocked about by the most fleeting influences of politics and of sentiment, and by the periodic pressure of seasonal trades. But it also means that the post-war method is a most rapid and powerful corrective of real disequilibria in the balance of international payments arising from whatever causes, and a wonderful preventive in the way of countries which are inclined to spend abroad beyond their resources.