It is impossible in a paper like the present to describe the other changes that have occurred in Brazil, the rapidly growing exportation of lumber, the new developments in dye stuffs and pharmaceutical products, the really remarkable expansion in the manufacture of textiles 1 and shoes. These latter industries were fairly well established, thanks to very high tariff protection, before the war. Whether they, and the other industries mentioned, will continue to develop without the stimulus of high prices, and under normal conditions of trade, remains to be seen. Our purpose in the present paper is to consider the darker side of the Brazilian war-time condition, and to summarize the chief factors bearing upon the foreign exchange movement.

The striking fact is the marked fall of exchange, as contrasted with the rise in all the other countries studied. Up to July, 1914, exchange fluctuated closely

1 In 1917 Brazil exported cotton textiles to France. More than half of the home needs in cotton textiles are supplied by Brazilian manufacture.

2 The output of footwear is now about 20,000,000 pairs a year, over half being produced in the state of São Paulo.

about par, 16d. per milreis. Our chart shows what occurred thereafter. With the outbreak of war the rate broke so sharply as to compel the closing of the exchange. A bank holiday of fifteen days was declared. In October exchange was quoted at the very low figure of 114d. In other words, the value of the Brazilian milreis had depreciated about 31 per cent from the rate ruling in July. In November there was a partial recovery, to 14d. Then followed another, more gradual, drop to 11-12d. in 1916. Since 1916 the rate, tho somewhat higher than in the earlier years, has shown no sign of a return to the pre-war level, but has fluctuated between 12d. and 14d. (25 per cent and 12 per cent below par).

As with the other countries, explanation of the exchange movement is sought in the balance of international payments. We begin with the merchandise trade. The following table shows the exports and imports of Brazil for the period 1910-17, and strikes the balance:

EXPORTS AND IMPORTS OF BRAZIL 1910-17 1

The important fact to be gathered from the preceding table is that both imports and exports were at a lower level in the war years than in the pre-war period. The diminution of imports requires no comment. It is a characteristic of the trade of all Latin American coun

1 From the Brazilian annual commerce reports, Estatistica Comercial.

tries during the war, the result of the conservation of tonnage and goods for war uses. The falling off in exports, however, is significant. Here again the Brazilian experience is strikingly different from that of the other leading South American republics. The war caused a marked increase of demand for Argentine wheat, meat, and wool, and for Chilean nitrate and copper; and since these products represent the bulk of the exports of those countries, their total exports expanded remarkably. Meantime, Brazilian exports were below the pre-war level. The following table compares the exports of Brazil, Argentina, and Chile for the period 1911-17:

EXPORTS OF Brazil, Argentina, and Chile, 1911–17
(Absolute figures, in U. S. dollars; 000's omitted)

In the following table the exports of these three leading Latin American countries are reduced to relative numbers. In the case of each country the average of the pre-war years 1911-13 is taken as the base (100 per cent) and the index number for each year is computed:

EXPORTS OF Brazil, Argentina, and ChiLE, 1911–17

The index numbers enable one to see more readily than do the absolute figures given in the preceding table just what occurred in the export trade of the three countries. Argentine exports were particularly large in 1915. Chilean exports in 1915 were below the pre-war level. In 1916, however, the growing demand for nitrate and copper manifested its effects, producing an astonishing increase (to far beyond the pre-war level) in Chilean exports of that year; in 1917 the expansion continued. Brazilian exports, meanwhile, were distinctly below the level of the pre-war period.

The reasons for this difference between the experience of Brazil and that of other countries are several. In the first place, it should be said that the decline in Brazilian exports was not a decline in the quantity exported. In fact, tonnage of exports in 1916 and 1917 considerably exceeded that of 1912 and 1913. What has happened in Brazil is that the mean value of Brazilian export tonnage has constantly decreased. In other words, while prices of exports in other South American countries were rising, export prices in Brazil were actually declining during the war. The mean value per ton of Brazilian exports was $237 in 1913, $179 in 1914, $148.5 in 1915, and $148 in 1916. These figures demonstrate the relatively high value of Brazilian produce to its weight in pre-war years, under normal circumstances, and the striking decline in value per ton during the war.

This question of export prices has, perhaps, a direct connection with the course of foreign exchange. An exporter of wheat in Buenos Aires, for example, in quoting a price to the foreign buyer, would base his quotation upon three factors, the price of wheat in the Buenos Aires market, the maritime freight rate, and the current rate of exchange. With the abnormally high

rate of exchange ruling during the war, the exporter having for sale a foreign bill of exchange received in payment of produce sold, was obliged to sell it at a ruinous loss, owing to the existing depreciation of foreign moneys in terms of the Argentine or Uruguayan peso. To protect himself against loss, the exporter had to raise the price of his goods to a figure sufficient to offset the difference on exchange. In Brazil, as we have seen, exchange was not above normal, but decidedly below it. The bearing of this fact on prices is apparent. Foreign moneys being at a premium, the exporter who had sold abroad Brazilian goods and received a foreign bill of exchange in payment therefor, could cash his bill at a premium. In consequence, he could afford to sell at a lower, rather than a higher, price than in former years.

This statement of the connection between exchange and price, however, is put forth merely as a suggestion of one factor, and probably a minor one, in the explanation of the different course of export prices in Argentina and Chile on the one hand, and Brazil on the other. It is a commonplace that in peace times South American exports, except for coffee and nitrate, constitute too small a proportion of the world stock to control the world price. Rather, South American export prices are dominated by the prices ruling in the principal markets to which the exports are sold. Much more was this the case during the war. Export prices, total value of exports, foreign exchange, rose in Argentina and Chile as the direct consequence of war demand for Chilean nitrate and Argentine meat, wheat, wool, and hides. It is at this point that one finds the explanation of the difference between the Brazilian experience and that of the other countries. The exports of Brazil did not expand for the reason that they were not the sort of prod