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"Bank Credits, the paper circulating between head offices and branches, circular exchanges, payments for invoices, the remission of funds for the ultimate purchase of merchandise, the settlement of debts abroad to France under the form of coupons, shares, and commercial obligations, were all in these effects, making up the most gigantic portfolio which was ever brought together.

"After all this, to give a detailed classification is an absolutely impossible task. One can do no more than determine the classes of the operation, and make some general remarks on these classes, and on the importance and meaning of the business effected on each of them.

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Fifty years ago there were no other international operations than merchandise and money; merchandise, gold and silver, were the only subjects of export and import; the balance of commerce was settled in gold and silver. Every thing which was bought from the foreigner was paid for in gold or silver, if not in merchandise.

"One might find then in the statistics of the Custom House, data more or less exact, but at least real data of the course of business between two countries; but things have greatly changed within fifty years.

"There has appeared, especially within the last twenty-five years, in international commerce, what may be called a new article of export, an article which in every country has acquired a greater importance than any other, and which has had the result of completely distorting the meaning of Custom House returns. This new article is Securities; it is transmitting across the frontiers of different States the property of Capital by representation, which is easy to transport, viz., these Capitals of the form of bills of exchange, public funds, shares and obligations of railways and other companies.

"To understand the real course of international business, it is necessary to know not only the imports and exports of merchandise, the imports and exports ef specie, but also the imports and exports of Securities; and this last class, which is the most important, and which is the key to the two others, escapes all kinds of

returns."

Now this is exactly the doctrine we have been enforcing for so many years, and shews the profound absurdity of those Economists

who exclude the Incorporeal Property from the Title of Wealth, and of those who write books on Economics, and who are either ignorant of, or who ignore, its existence, for as we have said, in such a country as this it is the largest class of property of any. M. Leon Say then gives some notices of the imports and exports of merchandise, specie, and securities, which we need not enter on.

We will give, however, the final result of the operations, shewing the pieces in which the debt was liquidated—

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Now we observe that the whole of the above sum that was paid in French specie was 273 millions in gold, and 239 millions in silver, being somewhat over 20 millions sterling, whereas 4 milliards, or 160 millions sterling, were paid by Bills of Exchange. This fact is especially worthy of notice, because some financial writers maintained that if England had met with a similar misfortune, she could not have paid such a ransom, on account of the small quantity of specie in the country. These figures, however, shew that this is a complete delusion, as England could pay by bills, if ever she were driven to such a dire extremity, to a far larger amount than France; and we see that in France herself, where specie it alleged to abound, the part that was paid in specie was less than an eighth part of the payment by bills.

M. Leon Say notices, as one of the results of the war, the liquidation of the famous Bank of Hamburg, founded in 1619 in imitation of those of Venice and Amsterdam, for the purpose

of securing a uniform standard of mercantile payments, by means of credit in its books, which was called the marc banco.

After the establishment of the German Empire, it was resolved to adopt a gold currency; and the marc banco of Hamburg (which was absorbed in the Empire) violated the new imperial system in two ways; first it was a local money, and all local monies were to disappear before the imperial currency; and it was silver, whereas the imperial standard was gold.

The marc banco, which was worth a half thaler or 1.87 franc, was abolished by law, and the reichs thaler imperial, of 1.25 franc, was substituted. The bank was ordered to liquidate all its accounts in fine silver by the 15th February, 1873; and after that, any one who had claims against the bank was credited with a half thaler for the marc.

The preceding are examples of loans raised in this country with the consent of the Government, and, consequently, every care was taken to have them transmitted in such a way as to produce as little disturbance of the exchanges as possible. But it has become very common for foreign Governments to raise loans in England, without any sanction of the Government at all. During the late unhappy war in America, both the belligerent Governments sent over enormous quantities of their securities or stock, to be disposed of for specie in the European markets for what they would fetch, and the proceeds were remitted either in cash or bills. So, also, vast numbers of foreign companies of all sorts seek to raise capital in England.

There is, lastly, to be considered, the sums required by residents abroad for their expenditure. The drafts of the great English and Russian families, on their bankers, at home, affect the exchanges exactly in the same manner as any other drafts.

On Monetary and Political Convulsions as influencing the
Exchanges.

13. As an immediate consequence of the preceding principles, it follows that a political or monetary convulsion in any country will immediately turn the foreign exchanges in favour of that country, if such an event is not prevented by the issue of an inconvertible paper currency. The reason is plain, any political or monetary convulsion is attended by a great destruction of

credit. Now, that credit, while it existed, performed the functions of money, but as soon as it is destroyed, there is an intense demand for money to fill the void. Money rises enormously in value. Multitudes of persons are obliged to sell their goods at a sacrifice. The consequence is that money, having risen greatly in value, both with respect to goods and debts, an immense quantity will flow in from neighbouring countries. Thus, in 1801-2 there was a great commercial crisis at Hamburg. The rate of discount rose to 15 per cent. That immediately drained the bullion from the Bank of England. In 1825 there was a great commercial crisis in England. For a considerable period the bank, by making extravagant issues at a low rate of discount, had turned the foreign exchanges against the country. But, no sooner did the crisis occur in December, than the foreign exchanges immediately turned in favour of it. Exactly the same thing happened in 1847. No sooner had the crisis in that year fairly set in than the exchanges turned in favour of the country. In the French revolution in 1793, and subsequent years, immense quantities of inconvertible paper were issued, which kept all the French exchanges in a very depressed state. In 1796 this paper currency was annihilated, and the exchanges immediately turned in favor of France. The same thing was observed in 1848. Things were to be had so cheap then that multitudes of persons went over to buy.

On the Means of Correcting an adverse Exchange.

14. The preceding paragraphs shew upon what complicated causes these great movements of bullion depend, which produce such important consequences. There are three great Economic Quantities-PRODUCTS-BULLION-and DEBTS-all seeking to be exchanged, all flowing from where they are cheaper to where they are dearer.

But all this vast superstructure of credit-this mighty mass of exchangeable property-is based upon GOLD BULLION. Different methods of doing business require different quantities of bullion; but, however perfect and refined the system may be, we must come at last to a basis of bullion, as its moderator and regulator. If, therefore, the bullion be suffered to ebb away too

rapidly, the whole superstructure is endangered, and then ensues one of those dreadful calamities-a monetary crisis.

We have endeavoured to explain the different causes which produce an adverse exchange, so that if one takes place the proper corrective may be applied. If it be caused by a depreciated currency, there is no cure but a restoration of the currency to its proper state.

When, however, it arises from a balance of indebtedness from commercial transactions, there are but two methods of correcting it—an export of produce, and A RISE IN THE RATE OF

DISCOUNT.

It used to be a favourite doctrine that an adverse exchange was in itself an inducement to export, on account of the premium at which bills could be sold. What truth there was in this doctrine can only be known to those actually engaged in such operations. But a very much more certain means of producing an export of goods is a lowering of their price.

This was one of the fundamental objects of the framers of the Bank Act of 1844. They truly observed that the prices of goods had often been unduly inflated by the excessive creation of credit, while gold was rapidly flowing out of the country. Thus, when prices were kept too high here, nothing but gold would go. One object of that Act was, therefore, by causing a gradual and compulsory contraction of credit as bullion ebbed away, to lower the prices of goods and encourage an export of them.

The reasoning of the framers of the Act was undoubtedly correct in that respect. But the only thing is, whether the same object might not be attained another way. This is not the place to discuss fully the policy of that Act, because there are several other conflicting theories involved in it, which we cannot fully discuss until we come to the consideration of a commercial crisis.

It is sufficient to say here, that all the objects of that Act are obtained by paying proper attention to raise the rate of discount rapidly as bullion flows out. If the Directors of the Bank had understood and acted upon that principle, there never would have been any necessity for the Act. It is true we cannot blame them too much, as before 1833 they were prohibited by law from raising it above 5 per cent., a rate wholly inadequate

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