In this reexamination of Canada's balance of payments experience under the gold standard, the authors develop and empirically test a new portfolio approach to the mechanism of balance of payments adjustment. This adjustment mechanism responded to massive inflows of foreign capital during a critical period of Canada's economic growth in the early years of this century. The authors show that the existence of international mobility of capital requires a fundamental revision of the price-specie-flow theory that has traditionally been used to explain adjustment when the balance of payments was...