already overstocked with them, or, as it is called, "glutted," it would be useless to send more goods, to force the price down still further, and the consequence must be that nothing but specie will go.

From this we see, that if specie be coming in from a country, it is a proof that we have already got so many of their goods, that it will not pay to import any more, and if specie be going out to a country, it shews that we have already sent out so many of our goods to that market that it is already overstocked. The different barbarous laws which every country has enacted under the erroneous appellation of protection, by aggravating the price, limit the markets in every country for the products of other countries, and cause much fewer commodities to pass between nations than otherwise would, and cause the markets of any country to be much sooner overstocked than they would otherwise be. By preventing this interchange of commodities which every nation would naturally prefer, it necessitates payments in specie to a much larger extent than would be the case if commerce were free, to the common impoverishment of all parties.

The foregoing considerations shew that it is possible to carry on any amount of foreign trade without the necessity of any remittances being made in specie. In the instance above taken, the English merchant purchases goods and sends them to his correspondent abroad, who realises them and invests the proceeds in that market, and sends them to England, and the English merchant disposes of them in England, and gains the profits there, and no specie is sent from one country to the other. Similarly the foreign merchant sends his goods to his correspondent in England, who disposes of them there, and invests the proceeds of them in England in English commodities, and sends them to his foreign correspondent, who gains his profit, either by selling them in his own country, or by sending them to some other market where he may make a higher return, and, as in the former case, no specie passes between the two. Nor is the result in any way different if the trade be conducted by the more circuitous method of three or more transactions. Hence, in a healthy state of the markets of different countries, scarcely any specie will pass between them, and the very fact of there being a necessity for making frequent and large remittances of specie from one country to another, is in itself a proof of there being

something irregular and unhealthy in the state of commerce in general, and in the state of the markets of one country or the other, either that they are overstocked or understocked, or that there is some legislative interference with the natural course of trade between nation and nation. Nothing can be more certain than that bullion is the least profitable of any article of commerce, except from bullion-producing countries, and that when merchants have recourse to it, it is because some disturbance has taken place in the profitable relations between supply and demand of other commodities.

Now, supposing commerce to be in that desirable and healthy state in which no specie passes between non-bullion-producing countries, who could tell how what is called the balance of trade is inclined? Who can tell what the balance of trade is? Each country would shew a favourable balance, taking the values of the exports and the imports at their market prices in each country. Each country would shew that their imports exceeded their exports in value, that is, each would shew that they had gained by their commerce, for the very simple reason that the value of the article they received would be greater in their own market than the value of the one they gave; and, unless it was so, it is manifest that trade could not be carried on, because all the expenses and profits of trade are provided for, by the difference in value between what they give and what they receive. Hence, unless both parties gain by the transaction, commerce cannot be carried on. But this shews that the expression "balance of trade" is a gigantic delusion, and it is greatly to be wished that it should be for ever exploded and laid aside, as the fountain and origin of incalculable mischief to the world, in the suicidal efforts every nation has made to secure to itself that great chimera-a favourable balance.

The mistake of unreflecting writers, who think that the price of foreign goods sold in this country goes into the pocket of the foreigner, consists in this, that the probability is, that the English merchant who imports these goods has already purchased them with English goods, so that their money price goes into the pocket of the English merchant, and not that of the foreign one, and is, probably, re-invested in English goods, if there is a prospect of a favourable opening for them.

The fundamental fallacy about the balance of trade, which

Y

seems to have taken possession of the Legislature, was, that the interests of the State were different and opposite to the interests of individuals. They seem to have entertained the idea that every merchant had entered into a conspiracy to ruin the country, which he tried to carry into effect by becoming as prosperous himself as he could. It seems most unaccountable how long they missed the obvious truism, that the prosperity of the State was made up of the prosperity of the individuals composing it, and that every one was far keener in discerning what conduced to his own prosperity than the State could be, and that if private merchants found it to be to their individual advantage to import commodities rather than bullion, it could not be beneficial to the State to force trade into a contrary direction.

Notwithstanding the prevalent idea that foreign trade was profitable just in proportion to the money it brought into the kingdom, and that this was indicated by the so-called balance of trade, there were a few enlightened persons who saw through the fallacy, and combated it. In reference to a certain "balance" which occurred in the trade between Holland and England, and which was a subject of much gratulation, Craik well observes that it would be as irrational to suppose that the English must necessarily be the chief gainers by this trade, as it would be to maintain that the productive labourer must always be a greater gainer on the article he produces than the capitalist who employs him. That the Dutch were in the position of the capitalist, and the English of the labourer, and that while the Dutch had the goods the English had the money; just as, while the master has the goods the workman has his wages. But that the excess of profit, or real advantage, should be with the labourer rather than with the capitalist, may fairly be presumed to be as unusual, and as little likely in the nature of things, in the case of nations as of individuals.

An attentive consideration of these various methods of trading will shew what a complete phantasy the old, and still too common, idea of the "balance of trade" is; and, as nothing more conduces to error and confusion in any science than a nomenclature and technical phrases which are founded upon misconceptions of the principles of that science, so nothing has exercised a more malignant influence upon legislation, and popular ideas generally, han this phrase; and it would be very desirable if some means

could be taken to discontinue its use altogether. But, as it does occur in the course of trade that transactions between nations have to be settled in specie, we must now consider the operations of the foreign exchanges.

The course of the foreign exchanges, then, entirely depends upon the fact of persons in one country having to make payments to persons in another country, from whatever causes these payments have to be made. And there are but two causes which influence their rates: first, the depreciation of one or both of the currencies which have to be exchanged, secondly, the relative amounts of money that have to be remitted from one country to the other.

On the Rate of Discount as influencing the Exchanges.

10. We have now to treat of a cause of the movement of bullion which has acquired an importance in modern times, far exceeding what it ever did before; in fact, it is now probably more important than any other, viz., a difference in the rate of interest or discount between two countries. In former times, when the communication between different places was slow and expensive, before the days of railroads and steamers, a considerable difference might exist in the rates of interest in two places, without causing a movement of bullion from one place to the other. But that is not possible now. The communication between places is so rapid now that directly the difference between the rates of interest in any two places is more than sufficient to pay for the expense of sending the bullion, an immediate flow of bullion commences from one place to the other. And this is in exact accordance with the usual mercantile principle that operates in every other case, that if the difference of price of the same article in any two markets is more than sufficient to repay the cost of sending it from one to the other, it will be sent; and this movement will continue as long as the difference in price continues. Now, if the rate of discount in London is 3 per cent., and that in Paris is 6 per cent., the simple meaning of that is that gold may be bought for 3 per cent. in London, and sold at 6 per cent. in Paris. But the expense of sending it from one to the other does not exceed

per cent.,

consequently it leaves 24 or 2 per cent. profit on the operation. The natural consequence immediately follows, gold flies from London to Paris, and the drain will not cease until the rates of discount are brought within a certain degree of equality. It used to be the common delusion of mercantile men that gold was only sent to pay a balance arising from the sale of goods, and that, therefore, it must cease of itself whenever these payments were made. But this is a profound delusion. When the rates of discount differ so much as is supposed above between London and Paris, persons in London fabricate bills upon their correspondents in Paris for the express purpose of selling them in London for cash, which they then remit to Paris, and which they can sell again for 6 per cent. And it is quite evident that this drain will not cease so long as the difference in the rates of discount is maintained. Moreover, merchants in Paris immediately send over their bills to be discounted in London, and, of course, have the cash remitted them. Now, the only way of arresting such a drain is to equalise the rates of discount of the two places. These simple facts are a perfectly conclusive answer to those writers, and they are many, who complain of the variations of the rate of discount by the Bank of England, and suppose that it is possible to maintain a uniform rate. Consequently, at the present day it is the imperative duty of the Bank of England to keep a steady watch upon the rates of discount of neighbouring countries, and to follow these variations so as to prevent its being profitable to export bullion from this country.

On Foreign Loans, Securities, and Remittances, as affecting the Exchanges.

11. Besides the state of national indebtedness, arising out of commercial operations, there are other causes which seriously affect the Exchanges. In former times, England being more abundant in money and material resources than men, used to subsidise foreign powers to a great extent: and the method of transmitting such a loan to the best advantage to the remitting country is an operation of considerable nicety and delicacy. If the sums to be remitted were very large, the expense and danger of the transit of the coin would have been very considerable in