Abstract
This paper utilizes a new formulation of the determination of capital flows within a Keynesian framework. In the basic spirit of Professor Metzler's pioneering work, capital flows and interest rates are determined simultaneously by the savings and investment behaviour in both countries. The question posed by Metzler was whether the existence of capitals flows decreased or increased the role of gold movements in the process of international adjustment. This study concludes that if capital is freely mobile, any real disturbance in the system may not require any gold flow whatever, and on a priori grounds one cannot even say if the gold flow will be positive or negative.
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