CH. 23

NOTES ON MERCANTILISM, ETC.

337

falls so low relatively to rates of interest elsewhere asto stimulate a volume of foreign lending which is dis-proportionate to the favourable balance, there mayensue an efflux of the precious metals sufficient to re-verse the advantages previously obtained. The risk ofone or other of these limitations becoming operative isincreased in the case of a country which is large andinternationally important by the fact that, in conditionswhere the current output of the precious metals fromthe mines is on a relatively small scale, an influx ofmoney into one country means an efflux from another;so that the adverse effects of rising costs and falling ratesof interest at home may be accentuated (if the mercan-tilist policy is pushed too far) by falling costs and risingrates of interest abroad.

The economic history of Spain in the latter part ofthe fifteenth and in the sixteenth centuries provides anexample of a country whose foreign trade was destroyedby the effect on the wage-unit of an excessive abundanceof the precious metals. Great Britain in the pre-waryears of the twentieth century provides an example ofa country in which the excessive facilities for foreignlending and the purchase of properties abroad fre-quently stood in the way of the decline in the domesticrate of interest which was required to ensure full em-ployment at home. The history of India at all timeshas provided an example of a country impoverishedby a preference for liquidity amounting to so strong apassion that even an enormous and chronic influx of theprecious metals has been insufficient to bring down therate of interest to a level which was compatible withthe growth of real wealth.

Nevertheless, if we contemplate a society with asomewhat stable wage-unit, with national character-istics which determine the propensity to consume andthe preference for liquidity, and with a monetary systemwhich rigidly links the quantity of money to the stockof the precious metals, it will be essential for the main-