ogists' dissections of habit and instinct, in our estimate of the future.1

A multitude of dynamic propositions at once more immediately feasible and more fundamental for social improvement, however, await upon a better knowledge of human nature than economists generally now possess. Such are those involving education of consumers' demands, the stimulation of productive effort, and the avoidance of standards of consumption which are futile or harmful. If all people chose spontaneously to spend their incomes in the directions which are, in the long run, most beneficial to themselves and everybody else, the millennium would be realized under the competitive order. All would work out according to the specific productivity ideal. And likewise in a collectivist society production and saving would be ultimately determined by consumers' (voters') demands, and so the millennium in this case too depends upon better standards of consumption. Very likely the luxurious demands of the rich would not divert so much productive power away from necessities in such a state; but most of us, socialists as well as liberalists, will admit that the masses' individual demands need considerable improvement. If we desire-not necessarily as economists, but as men having the social welfare at heart to do some

1 The Comtean "hierarchy of science" supplies an interesting side-light at this point. The sciences, as Comte showed, may be arrayed in simple to complex order, corresponding to the relations subsisting in their subject-matter. If we start with the mathematical and logical sciences as the "lower," and proceed through the physical, biological, psychological and social sciences, we shall notice that each science for its completion presupposes most, if not all, of the results of all the other sciences "below" it, but none of the laws of sciences "above" it. We believe that neither Comte nor anyone else ever supposed that much fruitful and exact work in any of these fields must await upon any particular degree of completion of the simpler fields; but it is useful to remember this relationship, which signifies that any well-authenticated discovery in a simpler field, which is inconsistent with an assumption in one of the more complex, makes necessary the revision of the latter so as to harmonize with the former. Paychology, for example, must adjust itself to all facts of the physiology of nervous tissue. This application of the Comtean formula was made by Richard Jennings, in his Natural Elements of Political Economy, London, 1855.

thing effectual toward improving consumers' demands, we shall learn what we can about the psychology of wants. We shall go to the roots of customs, institutions and the other social influences, and by understanding the source and extent of their power over us, shall learn to harness that power toward making nature supply more freely the materials for realizing our ideals. Such study may not be economics, but it is certainly part of the social physiology which must be developed before social medical treatment can be most efficiently administered. It is one of the fundamentals of the theory of welfare as related to wealth, which nearly all economists feel bound somehow to consider.

The suggestion mentioned above, that current theory is sufficiently dynamic, because it simply works out principles of reasonable and economical use of resources, which must be conformed to if the group is not to be ousted from the world by another group which does conform to them, must be borne in mind lest we make our theories too comfortably humanistic by overlooking the stonewalls of fact which we are about to bump our heads against. Altho correspondence to existing human nature is not the last criterion of economic theory, yet human nature is one of the elements which our active adaptive process has to work with, in adjusting our society to its physical environment. The best possible institutions (which we may have some hand in framing) must have a double adjustment to the nature of man and to the nature of the physical universe. Our bodily structures also may not be as adaptive as those of some of our competitors, but in order to improve them, we must know the principles upon which they are organized.

And so our tentative conclusion is that an accurate knowledge of the psychology involved in economic behavior is needed in economic theory, not so much for

static as for dynamic purposes. It is needed for static theory if we want to be assured that our static theory is as complete and fundamental an explanation as the existing state of knowledge permits. But it is vital for dynamic theory, which looks beyond the existing conditions of wants, social structures and industrial devices, and prophesies what would be the result of various supposed innovations, if they were made. In this same fashion we have long predicted the probable results of hypothetical taxes and tariffs on production, distribution, etc. If we can set up hypotheses as to ways of changing consumers' demands, or producers' springs to action, which psychological science shows to be plausible, and trace their effect on economic life, we shall be adding to the purely scientific theorems which the legislator or reformer may find helpful. And aside from the possible applications to pure economic theory, such knowledge of motives is bound to be useful in the practice of social art.

CAMBRIDGE, Mass.

Z. CLARK DICKINSON.

LATIN AMERICAN FOREIGN EXCHANGE AND INTERNATIONAL BALANCES

DURING THE WAR

SUMMARY

The credit-exchange arrangements, 422.-Comparison of the course of exchange in the four leading countries, 425.- Buenos Aires and Montevideo exchange, 428.—The Argentine balance of international payments, 431.- Quantity exports of meat and cereals, 436.- The Chilean trade balance, 438. — Nitrate, exports, production, prices, 439. — Exports of coffee, 443.- - Interest payments, 443.- Chilean exchange a depreciated paper exchange, 445.— The fall of the rate since the armistice, 448. The new exports and industries of Brazil, 449. — The fall of Brazilian exchange, 453. The decline of exports (and prices) of coffee and rubber, 455. - Comparison of trade balances of Brazil, Argentina, and Chile, 459.- Foreign borrowings of Brazil, 460.Budgetary deficits, 462.- Inconvertible paper money, 463.- Interest payments, 464.

I. THE EXCHANGE SITUATION

To the student of international trade the experiences of Latin America during the war offer interesting material for analysis. Especially interesting is the course of foreign exchange. Exchange has fluctuated with a violence that would be impossible in normal times; and the fluctuations have occurred in response to commercial and financial changes particularly significant for these young countries," whose business of making a living consists chiefly in exchanging their raw produce for foreign manufactures, and whose capital is obtained almost entirely by foreign borrowings.

So abnormal did the exchange situation become in the later stages of the war that in some cases "creditexchange" agreements were resorted to at the solicita

tion of the United States and the Allies. In January, 1918, Argentina entered into a "Grain Convention" with Great Britain and France, whereby a credit of $200,000,000 was granted to those nations to finance the purchase of 2,500,000 tons of Argentine wheat of the 1917-18 harvest. Shortly afterwards a similar credit fund was extended by Argentina to the United States, for $40,000,000. In February, 1918 the Uruguayan congress sanctioned a credit of $15,000,000 to Great Britain; and in July, one of $20,000,000 to the United States.1

1

These various "credit-exchange" conventions had as their main purpose the stabilization of exchange without resort to gold shipments. Their general character may be shown by a brief description of the arrangement between Argentina and the United States. (By way of a beginning, we may recall the basic principle of the exchange mechanism as it operates in normal times: that, in response to the conditions of demand for and supply of bills of exchange (represented respectively by those who owe payments abroad, and those who receive payments from abroad), exchange fluctuates within the narrow limits of the "gold points," and cannot depart farther from par, for the reason that with the rate at specie point it becomes cheaper to make or receive payment (as the case may be) in gold, including cost of carriage overseas, than by bill of exchange. Gold thus flows out of or into the given country according as exchange is at the gold export point (unfavorable to importers and other debtors to the outside world) or at gold import point (unfavorable to exporters and other creditors of the outside world). Such, very baldly, is the mechanism in peace times. But the United States government was at war, and had placed an embargo on the

1 A similiar arrangement between the United States and Chile was under discussion last summer, but was not put into operation.