We may now turn to a consideration of the last step in settling the balance due

English exporters, which, according to the assumption above, is $65,000. Export bills of exchange are no longer to be had, since the total amount, $900,000, has already been absorbed by the importers, who originally owed $1,000,000 in England. A portion of the $100,000 investment, let us assume, has gone to pay interest and freight, and to cash travelers' cheques and immigrants' remittances. There remain then but $35,000 to be applied to pay on the balance of the debts of American importers, which, we have seen, was $100,000 ($1,000,000 - $900,000). Consequently, gold to the amount of $65,000 must be exported from the United States to England. This is the ultimate means employed in every case to pay balances of trade.

The movement of gold to pay balances is self-regulating. Let us suppose that year after year it is necessary to ship gold to England to pay balances of trade. Gradually the supply of gold in that country would increase, while in the United States it would decline. According to the quantity theory of money, which is, that as the supply of gold increases its unit value decreases, prices in England would tend to rise while in the United States they would tend to fall. England would then be a poorer buying market and a better selling market than would be the United States. Consequently, the flow of gold from the United States to England would decrease while the flow in the opposite direction would increase, thus lessening, if not entirely destroying, the balance in favor of England. Because of this self-regulation, statesmen and bankers no longer, as they once did, look with great disfavor on a flow of gold from the country. They know that if it is needed here it will flow back in response to a lowering of prices.