there is a corresponding decrease in the cost of living; salaries, wages, and taxes can be reduced, and the result is the reduction in the cost of production and consequently also in the price of manfactured goods. With the decline of prices, the rate of exchange rises, etc.
These consequences also may be observed in Czechoslovakia at the time of the increase in the rate of exchange of the Czechoslovak crown. The trade balance became less favorable, unemployment increased, wages were reduced, the prices showed a downward tendency. It is interesting to note that when the prices had gone down so far as to correspond with the rise in the rate of exchange, the exchange showed again an upward tendency.
The foreign quotations of the Czechoslovak currency fluctuated, as we have seen, from one extreme to another, from a considerable undervaluation to a considerable overvaluation. Both of these phenomena produce unfavorable results. The currency conditions are sound only when the currency is neither undervalued nor overvalued and is stabilized. But how is stabilization to be achieved?
It is often assumed that it is sufficient to introduce the gold standard, for in that case the circumstances that would otherwise lead to an increased rate of exchange (favorable balance of trade, etc.), will result in an influx of gold and the exchange will remain steady, while in the opposite case the factors that would otherwise cause a decline of the exchange, will