So long as there is money and trade, so long as the prosperity of one nation depends upon its volume of commerce with others, and so long as it is not possible for any-one nation to settle all its accounts with its neighbours in commodities only, there would always be the problem of international exchange. The principle on which such exchange works is exactly like that on which individual business is based. When two persons are dealing with one another, and one has an excess of money while the other has an excess of commodities, the man with money would gladly pay more of it to get the goods, and the man with the goods would give more of them to get the money. After a few transactions of that nature there comes a stage when the man with the goods believes he has had enough of money or the man with the money believes he has enough of goods; consequently the man with the goods would not part with them at the same cheap terms he did until he received a sufficiency of money, and the man with the money would not pay as much money for further transference of ownership in commodities unless he obtained more of the latter for his money. Applying the same principle to international commerce, the nation with a lot of commodities to sell and an insufficiency of money is naturally willing to give its commodities cheap in order to obtain money; on the other hand, a nation with a lot of money but wanting commodities is willing to pay a higher price than usual in order to get hold of the commodities. As soon as the nation with the commodities receives money sufficient for its needs it stops selling unless it gets its own price; or in other words prices go up. As soon as a nation with money has received commodities sufficient for its needs, it refuses to pay the same price as before; or in other words prices go down. This process is continually going on in the trade among nations; and the periodical adjustment of prices is the international exchange.

In Europe and America the variations in the exchange have been restricted to very narrow limits; the main reason is that money or commodities could always easily flow from places where they are abundant to places where they are wanted, on account of the perfection of the steamship and railroad communications. The mistake is often made, even by reputable economists, that this restriction in the variation is due to the adoption of gold as the standard by countries in Europe and America. No doubt the uniformity of the standard of value helps, to a certain extent; but to attribute to it the full effects of other causes is simply absurd. My point is conclusively proved by events which have taken place during the war. The American exchange suffered enormously, while the Russian exchange was simply ruinous owing to the fact that, in spite of the common gold standard, the war stopped proper communication and the free flow of trade and gold. There is, however, one advantage in a common standard of value. Except at times like the present, when trade and exchange are almost impossible, in many instances, there is always a specie point beyond which exchange could not rise or fall, i.e., if exchange rises above or falls below a certain rate it becomes profitable to export or import gold. But such advantage is, in most instances, nullified by the undue rise in prices which, in its return, affects trade even more adversely than exchange.