New Exchange

“ During the autumn months, under normal conditions, the advantage is all with the buyer of foreign exchange. By every mail huge packages of bills, drawn against shipments of cotton, wheat and corn, come pouring into the New York market. Bankers' portfolios become crowded with bills; remittances by each steamer, in the case of some of the big bankers, run up, literally, into the millions of dollars. Naturally, any one wanting bankers' exchange is usually able to secure it at a low price. ”

“ Arbitraging in exchange—‌the buying by a New York banker, for instance, through the medium of the London market, of exchange drawn on Paris, is another broad and profitable field for the operations of the expert foreign exchange manager. Take, for example, a time when exchange on Paris is more plentiful in London than in New York—‌a shrewd New York exchange manager needing a draft on Paris might well secure it in London rather than in his home city. ”

“ For several weeks on either side of the two important interest periods, the exchange market feels the stimulus of the demand for exchange with which the proceeds of these masses of coupons are to be sent abroad.
4. Freights and insurance are responsible for a fourth important source of demand for foreign exchange. A walk along William Street in New York is all that is necessary to give a good idea of the number and importance of the foreign companies doing business in the United States. ”

“ Sometimes, as in the case of new issues of railroad stock, where payments are usually made in instalments covering a year or more, the drawing of exchange is distributed in such a way that its influence, if felt at all, is felt merely as an underlying element of weakness. ”

“ Refiners, distillers, importers of oil or rubber, customs-house brokers, insurance brokers occupied, from January first to December thirty-first, the few square feet assigned to them without encroaching upon their neighbors. Anybody familiar with the Exchange could play blind-man's-buff in the middle of this anthill and with no difficulty lay his hands upon any particular man whom he might need. ”

“ A merchant in New York has sold a bill of goods to a merchant in London, having thus become his creditor, say, for $5,000. To get his money, the merchant in New York will, in the great majority of cases, draw a sterling draft upon the debtor in London for a little over £1,000. This draft his banker will readily enough convert for him into dollars. The buying and selling and discounting of countless such bills of exchange constitute the very foundation of the foreign exchange business. ”

“ Obligations continually arising in the course of trade and finance between firms in New York and firms in London, it follows that every day in New York there will be merchants with sterling drafts on London which they are anxious to sell for dollars, and vice versa. The supply of exchange, therefore, varies with the obligations of one country to another. If merchants in New York, for instance, have sold goods in quantity in London, a great many drafts on London will be drawn and offered for sale in the New York exchange market. ”

“ Ordinary self-inspection and foresight and industry being presupposed, the issue of exchanges is just what was expected by the two persons, the satisfaction of each follows as a matter of course, and stimulates to new exchanges in ever-widening circles. ”

“ The duty to explain and afford an opportunity to answer will, therefore, be of extremely beneficial effect in keeping exchange action from straying into areas wholly foreign to the purposes of the Securities Exchange Act. ”

“ To the older licensees, enriched by the wisdom gained in a whole years experience, it soon became evident that many of the new exchanges were being built and operated only for speculative purposes by local promoters, in anticipation of profitable consolidations, rather than as a permanent investment for local capital. ”

“ Surely it is a commonplace of Political Economy, that the effect of an unfavourable exchange, i.e. of an excess of imports over exports, is to stimulate production and export, and bring about a more favourable course of exchange. ”

“ 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. ”

“ Seeking to free itself from the shifting influence of speculative trading, by taking the business out of the hands of middlemen at home, the Exchange found it quite as important to maintain the control of its own affairs in the markets. ”

“ The arranging of these loans, it will be seen, means the continuous creation of very large amounts of foreign exchange. As the financial relationships between our bankers and those of the Old World have been developed, it has come about that European money is being put out in this market in increasing volume. ”

“ Now, if an exchange could be always made and completed on the spot, each party giving and receiving an equivalent in labour or the product of labour, the whole problem of exchanges would be solved by this simple method, and there would be no necessity for a circulating medium, or for anything to perform the part which is performed by money in our existing commerce. ”

“ Throughout his life he maintained the 'predominance of exchange,' exposed the 'tricks of the exchangers,' and urged that exchanges should be settled on the principle of 'par pro pan, value for value.' Naturally, therefore, he sought to revive the staple system, and appealed to the government to put down the exchangers. ”

“ The idea of a commercial exchange germinated in the United States before the war of the American Revolution. Here, as in Europe, the basis of every mercantile exchange is a voluntary union of business men, who deem it for their mutual interest regularly to assemble in some convenient locality, for the purpose of effecting the sale of commoditiescommodities or securities, and of profiting by the fluctuations in market prices. ”

“ Exchange constitutes an important division of the science of economics, but its social causes and effects are of even greater consequence. Exchange is dependent upon the diffusion of information, the expansion of interests, and growing confidence between those who effect a transaction. When mutual wants are few it is possible to carry on business by means of barter; when trade increases money becomes a necessary medium ”

“ The only real subjects of Exchange are mutual efforts, mutual services, as these are expressed in Commodities and Services and Credits, and money is the instrument merely that comes in between the real exchanges to facilitate them; and, therefore, it seems to be perfectly conclusive on this point to remark that the quantity of money needed in any country or the whole world is limited by the number of the services ready to be exchanged, to make easy the exchange of which is the good purpose and sole end of Money. ”

“ It is a first condition of any kind of permanent trade that each party to it shall be really benefited by the transaction; otherwise the one who is not benefited will withdraw from the trade, which would consequently come to an end. We have seen, then, that foreign trade, although the amount of it may be measured in money, must in reality be an exchange of commodities for commodities. ”

“ We shall no more think, when we shall have sold our produce here, of making an useless voyage to another country, to lay out the money, than we think, at present, when we have sold it elsewhere, of coming here to lay out the money. The conclusion is, that there are commodities which form a basis of exchange, to the extent of a million of guineas annually: it is for the wisdom of those in power, to contrive that the exchange shall be made. ”

“ You will find that if changes and improvements seem to come about slowly it is not because of the unwillingness of the Exchange to remedy these conditions, but because of the gravity and deliberation with which they must be considered180 in the light of the future as well as the present. ”

“ The doctrine therefore amounts to this; that labour shall be exchanged with labour, but not with the produce of labour,—or that there shall be no exchange whatever;—for if the present labourers are to have the sole benefit of the capital, the principle of exchange, in which both exchangers benefit, is destroyed. There must be an end of all exchanges when the things to be exchanged are not equally desired by both parties. ”

“ The operations of corner makers are confined principally to goods which are dealt in upon commercial exchanges. One evident reason for this is that the vast purchases and sales, which are necessary in the formation of a corner are impossible without the facilities afforded by an exchange. It must be said, too, that the plain truth is that our principal commercial exchanges, while they do serve certain useful purposes, are yet practically devoted chiefly to speculation. ”

“ Acts put forth under the impulse of these are direct opposites of, or at best antagonistic to, acts of Trade. They tend to kill trade, and therefore they are no part of trade. These, then, and such as these, aside, we will now analyze a single Act of Exchange at one time and place,—which will serve in substance for all acts of exchange in all times and places, and just find out for ourselves what are the Fundamentals and Essentials of that matter, with which alone we have to do in this science of Political Economy. ”

“ The more exchanges are thus effected the smaller is the number of the men, wagons, ships, or sailors employed in making them, and the greater the number of persons employed in the work of production, with increase in the quantity of commodities produced, and the power to exchange grows with the power to produce, while the power to produce diminishes with every increase in the necessity for exchange. ”

“ The pride that I felt at that time has grown and increased every year since that day, so long ago, as I have seen the Exchange grow in influence and moral power. There is no body of men in the world superior to the members of our Exchange in honor, integrity and truthfulness. Every transaction on the floor is done on word of mouth. ”

“ Take, for instance, a day when half a dozen brokers usually identified with the operations of the international houses are consistently selling such stocks as Missouri, Kansas & Texas, Baltimore & Ohio, or Canadian Pacific—‌whether or not the inference that the selling is for foreign account is correct can very probably be read from the movement of the exchange market. ”

“ That the countries which are the least favored by nature are those which profit most by mutual exchange.
1. Equalizing the facilities of production is to attack the foundations of mutual exchange. The equalizing of the facilities of production, is not only the shackling of certain articles of commerce, but it is the attacking of the system of mutual exchange in its very foundation principle. ”

“ For whether the banker sends over in every mail a bewildering assortment of every conceivable form of foreign exchange to be credited to his account abroad, or whether he confines himself to remittances of the simplest kinds of bills, the idea remains exactly the same—‌he is depositing money to the credit of his account in order that he may have a balance on which he can draw. ”

“ Other causes of less importance—‌interest and profits on American capital invested in Europe, for instance—‌are responsible for the existence of some quantity of exchange, but the great bulk of it originates from one of the four sources above set forth. ”

“ In our opinion exchange properly speaking,—true exchange and free from the alloy of any foreign element whatsoever, has never been anything but barter; and as soon as the system of barter was left and that of money entered upon, the exchange system was rather abandoned for another system quite different, than that one form of exchange was simply substituted for another form of exchange. ”

“ My answer is, that exchange business will always go smoothly on, as long as exchangers gain, and that trade is not interrupted.
But trading men consider their own interest only; and I am configuring the interest of an intelligent state, which wants to promote the good of the whole community, without occasioning any hurt to the interest of individuals. ”

“ It may be considered, therefore, as established, that when two countries trade together in two commodities, the exchange value of these commodities relatively to each other will adjust itself to the inclinations and circumstances of the consumers on both sides, in such manner that the quantities required by each country, of the articles which it imports from its neighbour, shall be exactly sufficient to pay for one another. ”

“ To this I agree: but I must observe, that this exchange does not convey my idea of trade, although I admit, that it is the root from which the other springs; it is the seed, but not the plant; and trade, as we have defined it, conveys another idea. The workman must not be interrupted, in order to seek for an exchange, nor the consumer put to the trouble of finding out the manufacturer. ”

“ So long as foreign trade, and expence kept equal, exchange was at the par: but when a people imported for a greater value, or had other occasions abroad, more than their export, and the expence of foreigners among them would ballance; there was a necessity of sending out the ballance in money or bullion, and the merchant or gentleman who owed, or had occasion for money abroad, to save the trouble, expence and hazard of sending it out, gave so much per cent to another, as the trouble, expence and hazard was [Pg 39] valued at. thus exchange rose above the par, and became a trade. ”

“ But under ordinary circumstances foreign exchange dealers who engage in the business of selling cables carry adequate balances on the other side, balances which they keep replenishing by continuous remittances of demand exchange. Which in itself constitutes an important form of foreign exchange activity and an operation out of which many large houses make a good deal of money. ”