THE DILEMMA OF AN INTERNATIONAL SYSTEM

We have seen that the management of money, national or international, always presents a dual aspect. There are the long-period movements in the equilibrium price level, i.e. in the level of efficiency earnings, due to permanent changes in the quantities of the monetary factors relatively to the volume of output. And there are the short-period movements round the long-period trend of the equilibrium price level due to the temporary disequilibrium of the investment factors, which we have summed up in brief as the credit cycle.

Now, so far as the first aspect is concerned, membership of an international system necessarily binds the long-period value of the local money to the long-period value of the international standard. This must be accepted as inevitable, and also, if one believes in the virtues of an international standard, as desirable. But, as regards the second aspect, each country naturally wishes to save itself from temporary disturbances as much as it possibly can. When investment disequilibria are being initiated within its own borders, it will endeavour to counteract them, whatever may be happening abroad; and when investment disequilibria are arising outside its own borders, it will endeavour not to share them. Since, therefore, investment disequilibria do not arise everywhere in the same degree at the same time, a given national system may be under an incentive to take measures to preserve its own investment equilibrium, which may not suit other members of the same international system.