Economic exchange

“ Suppose that a country should be opened to our merchants, disposed to buy from us in abundance, but which can sell to us scarcely anything, as every commodity which it affords could be got cheaper by us from some other quarter. Nevertheless, our trade with this country will enable us to obtain from all other countries their commodities at a lower price. At the first opening of this commerce of mere exportation, we must have received in payment a large quantity of money; for which our customer will have been indemnified by other countries, in exchange for her commodities. ”

“ Money imported on two modes; as a Commodity, and as a medium of Exchange. The degree of progress which we have now made in the theory of foreign trade puts it in our power to supply what was previously deficient in our view of the theory of money ”

“ We may often, by trading with foreigners, obtain their commodities at a smaller expense of labour and capital than they cost to the foreigners themselves. The bargain is still advantageous to the foreigner, because the commodity which he receives in exchange, though it has cost us less, would have cost him more. ”

“ But in addition to the amount of foreign money thus employed in these bills of exchange, our vast foreign trade must result in the temporary employment here of the proceeds either of these bills or of goods sold in our market, to be used in the purchase of goods here, for investment, or for safe-keeping in time of trouble, and must greatly add to our available resources. ”

“ Suppose that we had no cotton, corn or pork to give in exchange for our imports, and that we produced a thousand millions dollars’ worth of gold per annum, should we not be equally well conditioned to trade with Europe? ”

“ 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 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. ”

“ 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 when two countries exchange with each other the commodities which each has some comparative facility for producing, each country is permanently benefited, and therefore such a trade will be lasting and stable in its character. ”

“ All interchange is, in substance and effect, barter: whoever sells commodities for money, and with that money buys other goods, really buys those goods with his own commodities. And so of nations: their trade is a mere exchange of exports for imports; and whether money is employed or not, things are only in their permanent state when the exports and imports exactly pay for each other. When this is the case, equal sums of money are due from each country to the other, the debts are settled by bills, and there is no balance to be paid in the precious metals. ”

“ 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. ”

“ The things which the more favoured country will import from others, are of course those in which it is least superior; but by importing them it acquires, even in those commodities, the same advantage which it possesses in the articles it gives in exchange for them. Thus the countries which obtain their own productions at least cost, also get their imports at least cost. ”

“ Every country exports and imports the very same things, and in the very same quantity, under the one system as under the other. In a barter system, the trade gravitates to the point at which the sum of the imports exactly exchanges for the sum of the exports: in a money system, it gravitates to the point at which the sum of the imports and the sum of the exports exchange for the same quantity of money. ”

“ Even under conditions of simple reproduction, he increases, on the one hand, the absolute quantity of money circulating inside the country, and on the other, he buys producer and consumer goods without, in his turn, selling commodities, paying with his own product, i.e. with the general exchange equivalent, for the goods he buys. ”

“ The objection assumes, what I have endeavored to controvert, that there will be a reduction in the value of our exports. Commerce is an exchange of commodities. Whatever will tend to augment the wealth of a nation must increase its capacity to make these exchanges. By new productions, or creating new values in the fabricated forms which shall be given to old objects of our industry, we shall give to commerce a fresh spring, a new aliment. ”

“ Now, as the prices of foreign commodities in the home market, which could not have been supplied in the usual abundance during the operation of the subsidy when we had a large balance to pay, would fall, and would be in greater demand from the moment that our commodities would be received in exchange, the exportation of our goods would be balanced by the importation of foreign goods, and the sellers of bills would neither exceed nor fall short of the purchasers. ”

“ 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. ”

“ But whatever may be the source of the difference in price levels, equilibrium will eventually be restored through an international or interlocal redistribution of money and goods brought about by international and interlocal trade. Other elements in the equation of exchange than money and commodities cannot be transported from one place to another. ”

“ No extension of foreign trade will immediately increase the amount of value in a country, although it will very powerfully contribute to increase the mass of commodities, and therefore the sum of enjoyments. As the value of all foreign goods is measured by the quantity of the produce of our land and labour, which is given in exchange for them, we should have no greater value, if by the discovery of new markets, we obtained double the quantity of foreign goods in exchange for a given quantity of ours. ”

“ Of course, in all exchange of commodities between two countries, besides that supply of the respective wants of each which constitutes the foundation or sustaining element of the commerce, a certain portion of what the consumer pays must fall to the share of the persons by whose agency the commerce is carried on. It is this that properly forms the profits of the commerce, as distinguished from its mere advantages or conveniences. ”

“ I must be permitted to add that no scheme of governmental policy unaided by individual exertions can be available for ameliorating the present condition of things. Commercial modes of exchange and a good currency are but the necessary means of commerce and intercourse, not the direct productive sources of wealth. ”

“ By sensible trade arrangements which will not interrupt our home production we shall extend the outlets for our increasing surplus. A system which provides a mutual exchange of commodities, a mutual exchange is manifestly essential to the continued and healthful growth of our export trade. We must not repose in fancied security that we can forever sell everything and buy little or nothing. ”

“ 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. ”

“ The different effects of a capital employed in the direct, and of one employed in the round-about foreign trade of consumption, have already been fully explained.
There is not, probably, between any two countries, a trade which consists altogether in the exchange, either of native commodities on both sides, or of native commodities on one side, and of foreign goods on the other. Almost all countries exchange with one another, partly native and partly foreign goods. ”

“ The direct benefits of commerce consist in increased Efficiency of the productive powers of the World. From this exposition we perceive in what consists the benefit of international exchange, or, in other words, foreign commerce. Setting aside its enabling countries to obtain commodities which they could not themselves produce at all, its advantage consists in a more efficient employment of the productive forces of the world. ”

“ As bills of exchange—or their equivalent—are the means by which both importers and exporters get paid for their goods, the difficulty of getting paid naturally began to have a serious effect on trade. ”

“ Nay, more, this subdivision of functions shows itself not only among the different parts of the same nation, but among different nations. That exchange of commodities which free-trade promises so greatly to increase, will ultimately have the effect of specializing, in a greater or less degree, the industry of each people. ”

“ The subject of foreign exchange should be familiar, the fluctuations having an important bearing on purchasing power and trade, while exchange itself is dependent on foreign trade conditions, being an index of international transactions. ”

“ There are, in the first place, all the foreign investments in what might be called private enterprise—‌the English money, for instance, invested in fruit orchards, gold and copper mines, etc., in the western states. ”

“ Money in the summer months is apt to be low and exchange high, affording a good basis on which to sell exchange. Then, if the expected crops materialize, large amounts of exchange drawn against exports will come into the market, forcing down rates and giving the operator who has previously sold his long bills an excellent chance to cover them profitably as they come due. ”

“ Just as unusually large imports of commodities mean a sharp demand for exchange with which to pay for them, unusually large exports mean a big supply of bills. In a previous chapter it has been explained how, when merchandise is shipped out of the country, the shipper draws his draft upon the buyer, in the currency of the country to which the merchandise goes. When exports are heavy, therefore, a great volume of bills of exchange drawn in various kinds of currency comes on the market for sale, naturally depressing rates. ”

“ If, when you are obliged to check foreign trade, and lay prohibitions on the exportation of coin, exchange is found to rise to a great height against you, yet will this exchange produce no national 623loss: it will be paid within the country by those who consume foreign commodities, to those who are at the trouble and expence of transacting the balance. ”

“ Here is another instance of a magnificently comprehensive law, by which Nature vindicates her right to reign in the domain of Exchange. It is through this natural and beneficent law of automatic compensations, stimulating exportations on the one side and slackening them on the other, that most of the casual disturbances of the commercial par as between two countries are easily and perfectly rectified. ”

“ All the main elements of the problem of foreign exchange have now been examined—British exchange control, the sterling area, the payments agreements with foreign countries, the value of British reserves and external investments and the process of turning the latter into current cash, import restrictions, the export drive, the mounting total of overseas war expenditure. ”

“ But lest such an alteration in the exchange, or undervaluing foreign money, should lessen the export of goods: it may not be adviseable, unless a fund were given, out of which draw-backs might be payed to encourage export, and an addition be made to the money, whereby the people may be set to work. for without some addition to the money, ’tis not to be supposed next year’s export can be equal to the last: it will lessen as money has lessened ”

“ This theory then may be held to explain in a satisfactory manner the origin and development of international trade; but the question of values is still undetermined. Consistently with exports paying for Reciprocal demand.imports many different rates of exchange are possible, and the particular rate actually adopted is said to depend entirely on reciprocal demand. And in an extreme case, in which new countries trade solely in articles of which each has a monopoly, this answer would seem to be correct ”

“ The causes which bring money into or carry it out of a country through the exchanges, to restore the equilibrium of trade, and which thereby raise its value in some countries and lower it in others, are the very same causes on which the local value of money would depend, if it were never imported except as a merchandize, and never except directly from the mines. ”