George Goschen

“ The interest and commissions which are still paid by almost every country to English capitalist, certainly form a noticeable element in the revenue by which England is enable to discharge her enormous foreign liabilities. ”

“ As another currency exists, with which they are by no means identical, they no longer constitute the standard, but themselves become subject to another standard. Accordingly, when, owing to this new standard, the prices of all merchandize begin to fluctuate, bullion is subject to the same influences; and when, through the over-issue of paper money, a general rise of prices ensues, the price of gold, as measured by paper money, rises with the rest. ”

“ Or, in the case of the capitalists who buy up bills at a time of pressure in order to send them abroad and have them converted into gold, their foreign correspondents will have to discount the long bills for them, and the amount of discount affects their profits. If they fear the rate of interest in the country on which the bills are drawn will be high, they pay so much less for their bill; if they anticipate cheap rates, they pay so much the more. Without any doubt, the New York capitalists, who suffered the price of bills upon England to sink three and four per cent. ”

“ The idea of actual borrowing must be lost sight of; it is the liability incurred with which we are now concerned; and this liability is identical in its effect, whatever its origin may be.
⁠Payments which have to be made by one country to another for any purpose whatsoever, have the same effect as payments for direct importations. Thus it is possible that the general indebtedness of two countries to each other may be almost balanced, though the one imports far more commodities from the other than those which is supplies in return. ”

“ But what we have now to deal with is the liquidation of debts which are becoming due, -in fact, liabilities for which the time of settlement has arrived.
⁠The debts between different countries are, when they approach the time of settlement, embodied, as far as possible, in bills of exchange; they are invariably settled by bills of exchange, so far as the indebtedness of one country to others is covered by the liabilities of those countries to itself. ”

“ Probably there are as many cases in which the depreciation of the currency is, directly, or indirectly, the consequence of excessive importations, as in which it is due solely to the errors and bankruptcy of Governments. Often, both influences are combined, taking alternately the position of cause and effect. Sometimes Governments, simply for their own purpose, issue a quantity of paper money: the natural consequence of the increase in circulation, and accordingly attract commodities from other markets, while the exports, having risen also, will be less easy of sale abroad. ”

“ This is the first and most elementary phase in which the Foreign Exchanges can appear; and for the purpose of appreciating the most important lessons which can be derived from their study, it is better to discard the idea of the exchange taken place between different sorts of money, and to hold fast to the general principle that what is really given in exchange in the natural and simple transactions from which all others are derived, is a sum of money at one place for an equivalent sum of money at another. ”

“ Those who are not versed in the various details of international banking transactions will have some difficulty in understanding, how foreign bills, representing mutual accommodation, and merely intended to raise a fictitious capital during the time which the bills have to run, may be distinguished from bills drawn to anticipate actual transactions, and to bridge over the interval which exists between a season of importation and a season of exportation ”

“ But the primary cause of the fall of the exchanges which led to the flow of bullion to America lay in the immense excess of their exports of wheat and flour, following too, on a cotton crop of unprecedented extent. Independently of the political crisis, Europe would have had to pay a balance to America in gold; and this was surely the cardinal point to keep in view, in considering whether the export of bullion would continue or cease. ”

“ But comparatively few, even of leading bankers and merchants, with the exception of those who are exclusively or mainly engaged in international transactions, are as conversant with the subject as its immense importance deserves; and it is thought that the present situation of monetary affairs, in which the Foreign Exchanges are exercising an abnormal and extraordinary influence, affords a peculiarly suitable opportunity for a discussion, which otherwise might be considered uninviting and superfluous. ”

“ The force of the axiom that, with regard to the balance of trade, to contract a foreign loan is equivalent to an increase of exportation, will subsequently be more fully felt when the correctives of an unfavorable exchange come to be discussed. ”

“ An English merchant owes a certain amount of Hamburg money; that is to say, an amount which he is bound to pay in silver. Silver, let us suppose, is, when his debt becomes due, considerably dearer than usual in England. The amount of the difference he will be compelled to pay either by purchasing silver in the English market at the enhanced price and shipping it to Hamburg, or by buying a bill on Hamburg, payable in marks, an unfavourable exchange. The price of silver having risen, the price of bills payable in silver rises also, and the purchaser will receive fewer marks for his pound ”

“ It will be seen that when the indebtedness of a country becomes excessive and the liability cannot be liquidated either by shipments of bullion or by an increase of exportation, recourse is sometimes had to a loan in order to readjust the balance; the country exports public securities made for the purpose, when it has no other available resources left with which to satisfy its foreign creditors. ”

“ How is the balance to be restored? This case is the converse of the one just now considered; the indebtedness under the present hypothesis is not excessive, but under the mark; such a country often restores the equilibrium by becoming the speculative purchaser and importer of loans and stocks and securities of all kinds; her manufactures are repaid by railway debentures, and the sums which other countries expend on the commodities with which she supplies them, she in her turn expends on the Stock Exchanges of foreign capitals. ”

“ The price which is paid to a merchant of undoubted position for his sixty days' sight bill on a foreign country, will be higher than that which is granted for a second-rate bill on the same place. The purchasers of bills must be induced, by a concession in price, to take an article of inferior security. They must be indemnified for the greater risk. Credit is a very important element to be considered in the rate of exchange ”

“ Let us suppose that importers foresee that the bills which they will be able to procure, will not suffice for all the payments which they have to make. They accordingly become aware that the balance will have to be remitted in bullion; and each individual, to avoid this necessity falling to his share, hastens to offer a slight premium to those who draw, in preference to running the risk of having to send bullion, on which he would have to pay freight and insurance and lose interest besides. The premium may rise to within a fraction of a bullion remittance ”

“ Discussions are sometimes held on the state of the Foreign Exchanges in which attention is paid mainly to the value of money in different countries, to the amount of bullion held by each, and to the relative position of their paper currency, -points, no doubt, of the highest moment in determining the fluctuations in the exchanges, but not entitled to exclude the first and leading feature, their relative indebtedness. ”

“ It is necessary to look closer into the transactions between two countries before an idea can be formed of the position of their mutual indebtedness.
⁠It will be discovered to result not so much from the exchange of their respective produce as from the relative totals of all the amounts expended by each upon the other, whether in payment of produce and manufactures, or for the purchase of shares and public securities, or for the settlement of profits, commissions, or tribute of any kind, or for the discharge of the expenses incurred in foreign residence or travel ”

“ For instance, if it should be desired, at any particular moment, to consider the relative indebtedness between England and the United States, it might be discovered that the sum total of the exports of the Americans to us, in the largest sense of the word, taking into consideration all the supplementary causes of indebtedness to which allusion has been made, exceed all that they had taken from us, or spent on us, and that accordingly the balance must be remitted by us in gold ”

“ It seems evident at once, that the limits previously assigned to the fluctuations of exchanges are, under most of these hypotheses, removed altogether. If the creditor of such a country loses the alternative of being able to obtain gold in payment of his claim, there is no limit to the sacrifice which he may be compelled to make, in order to sell his bill, except in the competition of those who may be obliged to purchase it. ”

“ When in the course of the discussion the case of one class only is considered, it is highly desirable that the reader should himself clearly realize the converse proposition, and consider the results form the opposite point of view. ”

“ Beyond this point the balance of trade cannot cause the premiums to rise; nor, on the other hand, can it cause the discount at which bills are sold ever to exceed the sacrifices which exporters would incur, if they found themselves obliged to instruct their foreign debtors to send them bullion, in consequence of bills upon them no longer being saleable. The time, however, when they would receive payment would, in this case, be an important consideration. As long as the exporters can find purchasers for their bills, they get payment at once ”

“ Either gold or silver will be at what may be called the par value between the two, or, as is more generally the fact, the one will be at a premium as compared with the other. With the exception of France, which with its double standard, is subject to somewhat different influences, gold is simply merchandize in such countries as have a silver currency, and silver is merchandize in such countries as have a gold standard ”

“ When the transaction takes a practical form, Foreign Bills, -that is to say, bills on foreign countries, -constitute this subject-matter; but a less technical explanation can be given. That which forms the subject of exchange is a debt owing by a foreigner and payable in his own country, which is transferred by the creditor or claimant for a certain sum of money to a third person, who desires to receive money in that foreign country, probably in order to assign it over to a fourth person in the same place, to whom he in his turn may be indebted. ”

“ It is an error often committed, when scientific subjects are superficially or popularly treated, to consider it enough to point out one cause as sufficiently accounting for any phenomena, regardless of the fact that it is far more important to prove that there are no other causes which could have led to the same results. ”