Initially we advance the apparently reasonable hypothesis that capital movements were, mainly, independent of aggregate imports. By independent we mean that nineteenth-century capital flows had a causal relationship to domestic activity and were not simply short-term loans used to finance trade or long-term loans of the "tied" sort. It is clear, under these assumptions, that net capital movements and imports must be statistically related since both were a function of domestic activity.
Presumably, the motivation of private capital movements in the nineteenth century, or in any other, was to search out investments yielding high rates of return. Given that a secular net capital importer reveals sizeable fluctuations in its pace of development, we surely should expect similar fluctuations in its rate of