第54章

Further explanations of the nature of the Exchanges We have seen that the exchanges are regulated by the intrinsic value of specie, that is at par, and their variation arises from the costs and risks of transport from one place to another when the valance of trade has to be sent in specie.

Argument is unnecessary in a matter which we see in fact and practice. Bankers sometimes introduce refinements into this practice.

If England owes France 100,000 ounces of silver for the balance of trade, if France owes 100,000 ounces to Holland, and Holland 100,000 to England, all these three amounts may be set off by bills of exchange between the respective bankers of these three states without any need of sending silver on either side.

If Holland sends to England in January merchandise of the value of 100,000 ounces of silver and England only sends to Holland in the same month merchandise to the value of 50,000 ounces (I suppose the sale and payment made in January on both sides) there will be due to Holland in this month a balance of trade of 50,000 ounces, and the exchange on Amsterdam will be in London in January 2 or 3 per cent above par, or in the language of exchange, the exchange on Holland which was in December at par or at 35 escalins to the pound sterling in London will rise there in January to about 36 escalins. But when the Bankers have sent this balance of 50,000 ounces to Holland the exchange on Amsterdam will naturally fall back to par or 35 escalins in London.

But if an English banker foresees in January, owing to the sending into Holland of an unusual quantity of merchandise, that at the time of payments and sales in March Holland will be indebted considerably to England, he may instead of sending the 50,000 ecus or ounces due in January to Holland, furnish in that month bills of exchange on his Amsterdam correspondent payable at double usance or two months, the amount of the value to be paid on maturity, and by this method profit on the exchange which in January was above par and in March will be below par, and so gain doubly without sending a sol to Holland.

This is what bankers call speculation, which often causes variations in the exchanges for a short period independently of the balance of trade; but in the long run we must get back to this balance which fixes the constant and uniform rule of exchange. And though the speculations and credits of bankers may sometimes delay the transport of the sums which one city or state owes to another, in the end it is always necessary to pay the debt and send the balance of trade in specie to the place where it is due.

If England gains regularly a balance of trade with Portugal and always loses a balance with Holland the rates of exchange with Holland and Portugal will make this evident: it will be seen that at London the exchange on Lisbon is below par and that Portugal is indebted to England. It will be seen also that the exchange on Amsterdam is above par and that England is indebted to Holland. But the quantity of the debt cannot be seen from the exchanges. It will not be seen whether the balance of silver drawn from Portugal will be greater or less than what has to be sent to Holland.

There is however one thing which will always show at London whether England gains or loses the general balance of her trade (by general balance is understood the difference of the individual balances with all the foreign states which trade with England), and that is the price of gold and silver metal but especially of gold (now that the proportion between gold and silver in coined money differs from the market rate, as will be explained in the next chapter). If the price of gold metal in the London market, which is the centre of English trade, is lower than the price at the Tower where guineas or gold coins are minted, or at the same price as these coins intrinsically, and if gold metal is taken to the Tower in exchange for their value in guineas or minted coins, it is a certain proof that England is a gainer in the general balance of her trade. It proves that the gold taken from Portugal suffices not only to pay the balance which England sends into Holland, Sweden, Muscovy, and the other states where she is indebted, but that there remains some of the gold to be sent to the Mint, and the quantity or sum of this general balance of trade is known from that of the specie coined at the Tower of London.

But if the gold metal is sold in the London market above the Tower price, which is usually ?.18.0 an ounce, the metal will no longer be taken to the Mint, and this is a certain sign that so much gold is not drawn from abroad (from Portugal for instance) as must be sent into the other countries where England is indebted. It is a proof that the general balance of trade is against England. This would not be known but for the prohibition in England to send gold coin out of the country. But this prohibition is the reason why the timid London bankers prefer to buy gold metal (which they are allowed to send abroad) at ?.18.0 up to ? an ounce for export rather than send out guineas or gold coins at ?.18.0 against the law and at the risk of confiscation.

Some of them take this risk, others melt the gold coins to send them out as bullion, and it is impossible to judge how much gold England loses when the general balance of trade is against her.