IF THERE IS a discipline arising out of developments in the balance of payments of a country, it should manifest itself by some measurable repercussions on economic and financial developments within the country. In other words, the balance of payments is considered as "disciplining" the domestic economy. This is a permissible way of looking at the matter, and it is adopted for the purposes of this paper. However, it may be observed that there is another side to the coin; that is, developments in the domestic economy could be said to "discipline" the balance of payments. It may be inquired whether the disciplining effects of the balance of payments are openly recognized by policy-makers, such as central bankers and treasury officials, or whether they make themselves felt more indirectly through a relatively automatic mechanism of adjustment. This question would probably not be relevant to, say, the United Kingdom or western European countries, where the balance of payments has for decades been a very important datum in economic and financial policy. But in the history of the United States, chiefly because of the unimportance of balance-of-payments factors relative to total factors operating in the economy, it is much less evident that financial officials have been aware of a discipline imposed by the balance of payments. Lines of economic policy or action or the course of economic and financial events in a country may be conditioned or modified by balance-of-payments necessities. The level of general demand and the level of liquidity may be importantly influenced by developments in the balance of payments. The main ingredients of monetary policy, such as reserve requirements, rediscount rates, and openmarket operations, may have to take such developments into account. Wage increases may or may not need to be resisted, depending on the state of the balance of payments. Commercial policy may need to be responsive to balance-of-payments trends. As an example, the slogan of "trade, not aid" coined by the British government during the chancellorship of Mr. Butler was an effort to dramatize the necessity for creditor countries to find ways of encouraging imports