EXCHANGE.

In political economy the term exchange is commonly employed to designate that species of mercantile transactions by which the debts of individuals residing at a distance from each other are either partially or wholly liquidated, without the intervention of money. The object of this article is to explain the nature of these transactions, and the principles on which they are founded.

This will be best effected by treating, first, of the exchange between different parts of the same country; and, secondly, of that between different and independent countries.

Inland Exchange.

Suppose a merchant of London orders his agent in Glasgow to purchase and send to him a thousand pounds worth of cottons; then, although it should not suit the Glasgow merchant to commission goods of equal value from his London correspondent, the latter may nevertheless be under no necessity of remitting cash to Glasgow to discharge his debt. Among cities, or countries, having a considerable intercourse together, the debts mutually due by each other are round, in ordinary cases, to be nearly equal. And, therefore, the Glasgow merchant, who has shipped the cottons for London, does not transmit the bill drawn by him bn his correspondent for their price directly to London to be cashed, for that would subject him to the expense of conveying the money home from London to Glasgow, but he gets its value from some other merchant i η Glasgow, who has payments to make in London, on account of teas, wines, &c. imported from that city, and who, unless he could procure such a bill, would be obliged to remit their price in money. The bill on account of the cottons is, therefore, either drawn in favour of the person to whom the money for the tea and wine is owing in London, or it is drawn in favour of the tea merchant in Glasgow, and indorsed to him; and this last person, by presenting the bill to the purchaser of the cottons, receives its value, and consequently the price of the cottons, and the price, or part of the price, of his tea and wine, at the same moment. By this simple contrivance the expense and risk attending the double transmission, first, of money from London to Glasgow to pay the cottons, and, second, of money from Glasgow to London to pay the teas and wines, is entirely avoided. The debtor in one place is changed for the debtor in the other; and both accounts are settled without the intervention of a single farthing.

The bill drawn and negotiated in such a transaction as this is termed an inland bill of exchange. If the transaction had taken place between London or Glasgow and a foreign city, it would have been termed a foreign bill of exchange.

A bill of exchange may, therefore, be defined to be, “an order addressed to some person residing at a distance, directing him to pay a certain specified sum to the person in whose favour the bill is drawn, or his order.”^[1. In mercantile phraseology, the person who draws a hill is termed the drawer; the person in whose favour it is drawn the rerrn - ter; the person on whom it is drawn the drawee, and after he has accepted, the acceptor. Those persons into whose hands the bill may pass previously to its being paid, are, from their writing their names on the back, termed indorsers; and the person in whose possession the bill is at any given period, is termed the holder or possessor. ]

The price of bills of exchange fluctuates according to ’ the abundance or scarcity of them in the market, compared with the demand. Thus, to revert to our former example, if we suppose the debts reciprocally due by London and Glasgow to be equal, whether they amount to∣ L. 10,000, L. 100,000, or any other sum, they may all be discharged without the agency of money, and the pnce of< bills of exchange will be at par ; that is, a sum of L.lθθ [7:9:437]or L.1000 in Glasgow will purchase a bill for L.100 or L.1000 payable in London, and vice versa. But if these two cities are not mutually indebted in equal sums, then the price of bills of exchange will be increased in the city which has the greatest number of payments to make, and will be proportionally reduced in that which has the fewest. If Glasgow owe London L. 100,000, whilst the debts due by London to Glasgow only amount to L.90,000, it is clear, inasmuch as the merchants of Glasgow have a larger sum to remit to London than the merchants of London have to remit to Glasgow, that the price of bills on London would rise in Glasgow, because of the increased competition; and that the price of bills on Glasgow would fall in London, because of the proportionally diminished competition. And hence a larger sum would be-required to discharge any given amount of debt due by Glasgow, and a less sum would be required to discharge a corresponding amount of debt due by London; or, which is the same thing, the exchange would be in favour of London, and against Glasgow. Bills on London would sell in Glasgow for a premium, and bills on Glasgow would sell in London ât a discount, the amount of the premium in the one case, and of the discount in the other, being obviously equal.

On the supposition that the balance of L.10,000, due by Glasgow, depressed the exchange of that city on London one per cent., it would at first sight appear as if it would cost Glasgow L.101,000 to discharge its debt of L.100,000 due to London; and that, on the other hand, L.89,108 would be sufficient to discharge the debt of London to Glasgow. But a very little consideration will serve to show that this could not really be .the case. No exchange transactions can take place between different cities, until there be both debtors and creditors of the one residing in the other. And hence, when the exchange became unfavourable to Glasgow, the premium paid by the Glasgow merchants for bills drawn on London would not go into the pockets of their creditors in that city, but into the pockets of their neighbours in Glasgow, to whom London was indebted, and from whom the bills had been purchased. The loss to Glasgow would, therefore, be limited to the premium paid on the balance of L.10,000. Thus, supposing that A of Glasgow owes D of London L.100,000, and that Cof London owes B of Glasgow L.90,000; A will pay to B L.91,000 for a bill, or order, on C to pay D L.90,000. In this way, the L.90,000 London debt at Glasgow would be quite cleared off; the premium, which is lost by the debtor to London in Glasgow, being gained by its creditor in the same place. If the business had been transacted in London, C, with L.89,108, would have purchased of D a bill for L.90,000 payable by A, so that, in this case, the gain would have fallen to the share of the debtor C, and the loss to that of the creditor D, both of London. The complexity of real transactions does not affect the principles on which they are founded; and to whatever extent Glasgow might be indebted to London, or London to Glasgow, the only disadvantage under which either of them would in consequence be placed, would be the unavoidable one of paying the expense of remitting the balance of debt.

The expense of transmitting money from one place to another forms the natural limit to fluctuations in the exchange. If20s. sufficed to cover the expense and risk attending the transmission of L.100 from Glasgow to London, it would be indifferent to a Glasgow merchant, whether aθ paid one per cent. premium for a bill of exchange on London, or remitted money direct to that city. If the premium were less than one per cent, it would be clearly his interest rather to make his payments by means of bills of exchange than by remittances; and that it could not exceed one per cent, is obvious, for every individual would ra ther directly remit money, than incur an unnecessary expense, by purchasing a bill on London at a greater premium than would suffice to cover the expense of a money remittance. If, owing to the badness of the roads, to disturbances in the country, or to any other cause, the expense of remitting money from Glasgow to London should be increased, the difference in the rate of exchange between them might also be proportionally increased. But in every case, the extent to which this difference could attain would necessarily be limited by, and could not, for any considerable period, exceed, the cost of m aki ng remittances in cash.

Exchange transactions become more complex, when one place, as is very often the case, discharges its debts to another by means of bills drawn on a third place. Thus, although London should owe nothing to Glasgow, if Glasgow be indebted to London, London to Manchester, and Manchester to Glasgow; Glasgow would either wholly or partially discharge its debt to London by a bill drawn on Manchester. It would wholly discharge it, provided the debt due to Glasgow in Manchester was equivalent to the debt due by Glasgow to London. But if this be not the case, Glasgow must either remit money to London to discharge the balance of debt, or bills drawn on some other place indebted to her.

Transactions in inland bills of exchange are almost entirely conducted by bankers, who charge a certain rate per cent, for their trouble, and who, by having a credit in those places to which they are in the habit of remitting bills, are enabled, on all occasions, to supply the demands of their customers. In Great Britain, London, because of its intimate connection with other parts of the country, occasioned partly by its immense commerce, partly by its being the seat of government, and the place to which the revenue is remitted, and partly by its currency consisting of Bank of England paper, for which the paper currency of the country banks is rendered exchangeable, has become the great focus in which all the money transactions of the empire centre, and in which they are ultimately adjusted. In consequence of these various circumstances, but chiefly of the demand for bills on London to remit revenue, and of the superior value of Bank of England currency, the exchange between London and the other parts of the country is invariably in its favour. Bills on London drawn in Edinburgh and Glasgow were formerly made payable at forty days’ date, which is equivalent to a premium of about one half per cent.; but, owing to the greater facility of communication, this premium is now reduced to twenty days’ interest, or to about one fourth per cent. Bills for remitting the revenue from Scotland are now drawn at thirty days; previously to 1819 they were drawn at sixty days.

What has been already stated is sufficient to show, that, however well fitted bills of exchange may be for facilitating the operations of commerce, and saving the trouble and expense attending the transportation of money, it is impossible to adjust mercantile transactions by their means, except in so far as the accounts mutually balance each other. A real bill of exchange is merely an order entitling the holder to receive payment of a debt previously contracted by the person on whom it is drawn. It is essential to the existence of such a bill that an equivalent amount of debt should first be due. And hence, as the amount of the real bills of exchange drawn on any number of merchants cannot exceed the amount of their debts, if a greater sum be owing them than they owe to others, the balance, it is obvious, must either be paid in money, or by the delivery of some sort of commodities. If, as in the example just given, Glasgow owe London L.100,000, while London only owes Glasgow L.90,000, a reciprocal transfer of debts may be made to the extent of L.90,000. But the Glasgow merchants cannot discharge [7:9:438]the additional L.10,000 by means of bills drawn on London; for, by the supposition, London only owed them L.90,000, and they have already drawn for its amount. The balance, therefore, must be discharged by an actual money payment, or by the delivery of some species of commodity, or by bills drawn on some third party who may be indebted to Glasgow.

We do not mean by this to insinuate that there are no fictitious bills of exchange, or bills drawn on persons who are not really indebted to the drawer, in the market. In every commercial country, bills of this description are always to be met with; but they are only a device for obtaining loans, and do not and cannot transfer real debts. A merchant in London may form a connection with a merchant in Glasgow, and draw bills of exchange upon him payable a certain number of days after date, which the latter may retire by selling in Glasgow an equal amount of bills drawn upon his correspondent in London. The merchants who purchase, or the bankers who discount these bills, really advance their value to the drawers, who, as long as they continue, by means of this system of drawing and redrawing, to provide funds for their payment, continue in fact to command a borrowed capital equal to the amount of the fictitious paper in circulation. It is clear, however, that the negotiation of such bills has no effect in the way of transferring and settling the real bona fide debts reciprocally due between any two or more places. Fictitious bills mutually balance each other. Those drawn by London on Glasgow are exactly equal to those drawn by Glasgow on London, for the one set is drawn to pay the other—the second destroys the first, and the result is nothing.

The method of raising money by the discount or sale of fictitious bills, has been severely censured by Dr Smith, as entailing a ruinous expense on those engaged in it, and as being resorted to only by projectors, or persons of suspicious credit. When fictitious bills are drawn at two months’ date, it is common, in addition to the ordinary interest of five per cent, to charge a commission of One half per cent., which must be paid every time the bill is discounted, or, at least, six times in the year. The total expense of money raised in this way could not, therefore, supposing the transaction to be always on account of the same individual, be estimated at less than eight per cent, per annum; and the payment of so high a rate of interest on borrowed capital, in a country where the ordinary rate of mercantile profit is only supposed to average from six to ten per cent., could not fail to be generally productive of ruin to the borrower. It seldom happens, however, that in transactions carried on by means of fictitious bills, the whole charge for commission falls on one individual. Loans obtained in this way are almost always on account of two or more persons. Thus, at one time a fictitious bill may be drawn by A of London on B of Glasgow; and, in this case, the Glasgow merchant will, before the bill becomes due, draw upon his London correspondent for the proceeds of the bill, including interest and commission. At another time, however, the transaction will Joe on account of B of Glasgow, who will then have to pay commission to his friend in London; so that each party may, on the whole, as Mr Thornton has observed, gain about as much as he pays in the shape of commission.

It is often extremely difficult to distinguish between a fictitious bill and one which has arisen out of a real mercantile transaction. Neither does it seem to be of any very material importance. The credit of the persons whose names are attached to the bills offered for discount, is the only real criterion by which either a private merchant or a banker can judge whether he ought to negotiate them. The circumstance of a merchant offering considerable quantities of accommodation paper for discount, ought, unquestionably, if discovered, to excite suspicions as to his credit. But unless in so far as the drawing of fictitious bills may be held to be indicative of over-trading, or of a deficiency of capital to carry on the business in which the party is engaged, there does not appear to be any good reason for refusing to discount them.

These few observations will, perhaps, suffice to explain the manner in which transactions between different parts of the Same country are settled by means of bills of exchange. They are, in general, extremely simple. The uniform value of the currency of a particular country renders all comparison between the value of money at the place where the bill is drawn and negotiated with its value where it is to be paid, unnecessary; while the constant intercourse maintained amongst the different commercial cities of the same kingdom, by preventing those derangements to which the intercourse between distant and independent countries is always subject, prevents those sudden fluctuations which so frequently occur in the market price of foreign bills of exchange. We shall, therefore, leave this part of our subject, and proceed to investigate the circumstances which influence the course of exchange between different and independent countries.

Foreign Exchange.

The price of foreign bills of exchange depends entirely on two circumstances, first, on the value of the currency at the place where they are made payable, compared with the value of the currency at the place where they are drawn; and, secondly, on the relation which the supply of bills in the market bears to the demand.

If the real and nominal value of the currencies of the different nations having an intercourse together remained invariable, such fluctuations in the price of bills of exchange as arise from the first of these circumstances would be altogether unknown. But as the comparative value of the pound sterling, dollar, franc, guilder, florin, &c. is subject to perpetual variation, the price of bills of exchange must vary accordingly. Such variations, however, as proceed from this cause, affect merely their nominal, or rather numerical value. It is those only which arise from variations in the supply and demand for bills, or, which is the same thing, in the payments a country has to make compared with those it has to receive, that can be considered as real ; and hence the distinctions of nominal, real, aŋd computed exchange. The first depends on alterations m the value of the currencies compared together; the second depends on the supply of bills in the market compared with the demand; and the third or computed exchange depends on the combined effects of the other two. For the sake of perspicuity we shall treat of these separately.^[2. Supposing every country to be in possesion of its proper supply of bullion, the exchange may be said to be nominally affected by the amount of the difference between the market and mint price of bullion, and to be really affected by any deviation from par exceeding or falling short of that difference. ]

SECT. I NOMINAL EXCHANGE.

Bullion being everywhere recognised as the standard currency of the commercial world, the comparative value of the currencies of particular countries must depend, 1st, on the value of bullion in those countries; and, 2dly, on [7:9:439]the quantity of bullion contained in their coins, or on the quantity of bullion for which their paper money, or other circulating media, will exchange.

I. The real price of commodities being always proportioned not merely to the cost of their production, but also to the cost of their conveyance from where they have been produced to where they are to be made use of, it follows, that if the trade in the precious metals were perfectly free, and if the commodities produced in different countries were nearly all equally well fitted for exportation, the value of bullion in different countries would be chiefly regulated by their respective distances from the mines. Thus, on the supposition that neither England nor Poland had any other commodities except corn to exchange with the South Americans for bullion, it is evident that the precious metals would possess a greater value in Poland than in England, because of the greater expense of sending so bulky a commodity as corn the more distant voyage, and because of the greater expense of conveying the gold to Poland. If Poland, however, had succeeded in carrying her manufactures to a higher pitch of improvement than England, her merchants might be able, notwithstanding the disadvantage of distance, by exporting commodities possessed of great value in small bulk, and on which the expense of freight would be comparatively trifling, to sell bullion on cheaper terms than those of England. But if, as is actually the case, the advantages of skill and machinery were possessed by England, another reason would be added to that derived from her less distance from the mines, why gold and silver should be less valuable in England than in Poland, and why the money price of commodities should be higher in the former. (Ricardo, Principles of Political Economy, &c. 1st ed. p. 175.)

Hence, after nations have attained to different degrees of excellence in manufacturing industry, the value of bullion in different countries no longer depends entirely on their distance from the mines. But, whatever variations a different progress in the arts may occasion in the value of bullion in different countries, it is certain that it must always be less valuable in those into which it is imported, than in those where it is produced. Bullion, like every other commodity, is exported to find, not to destroy its level. And unless its value in Europe exceeded its value in America by a sum sufficient to cover the expenses attending its importation, and to yield the ordinary rate of profit to the importer, we should not, although the mines of Mexicoand Peru were infinitely more productive, import from them a single ounce of bullion. It is obviously incorrect, therefore, to lay down as a general proposition, “that the par of exchange between tw χ o countries is that sum of the currency of either of the two, which, in point of intrinsic worth, is precisely equal to a given sum of the other, that contains precisely an equal weight of gold and silver of the same fineness^ (Bullion Report, p. 22, 8vo ed.) For a given quantity of gold and silver is not always, as is here assumed, of the same intrinsic value in different connues. It ∏ la y no t, indeed, differ very materially among nations in the immediate vicinity of each other, and which are all destitute of mines. But although, to use a familiar illustration, the value of sugar approaches nearly to a level in the great trading cities of Europe, it cannot surely be maintained that its value in the West Indies is the same with its value in Bordeaux or Liverpool, or that the exchange would be really at par, if a bill, which cost a hundred hogsheads of sugar in London, only brought a hun-red in Jamaica. Now, this is precisely the case with bul- 1 on. I hough the value of gold and silver, as compared with corn, labour, &c. may, and indeed must, vary very °nsiderably among the different European nations, these variations are only the necessary result of their different progress in industry, and of the different quality of their cultivated lands, &c. Such differences of price are in the natural order of things; and bullion has only found its propel level when a quantity has been introduced into those countries which excel in manufactures, sufficient to raise the price of their corn and labour. These variations have, therefore, no effect on the exchange. An ounce of bullion in one country, notwithstanding this difference of price, will, because of the facility of intercourse, be very near equivalent to an ounce of bullion in another; and, supposing the trade in the precious metals to be perfectly free, the exchange will be at true par when bills are negotiated on this footing. But when we compare the values of the precious metals in distant countries, and especially in those where they are produced, with those into which they are imported, it is obvious they must differ considerably. Gold and silver, like iron, coal, tin, &c. are necessarily cheaper in countries possessed of extraordinarily productive mines, than in those possessed only of mines of a secondary degree of fertility, or when they have to be entirely imported from abroad. And the exchange between such places is not at true par, unless adequate allowance be made for this difference of value. Thus, if, because of the expense of carriage, the value of bullion in Great Britain is five per cent, greater than in Rio Jeneiro, a hundred ounces of pure gold in Rio Janeiro would not be worth a hundred ounces of pure gold in London, but five per cent, less; and the exchange would be at true par when bills for a hundred and five ounces of standard bullion payable in Rio Janeiro, sold in London for a hundred ounces.

The differences in the value of the precious metals in different countries have not been confined to those depending on their respective distances from the mines, or on their different progress in the arts. The opinion formerly so very prevalent, that gold and silver were the only articles that constituted real wealth, induced almost every commercial nation to fetter and restrict their exportation, and to adopt a variety of measures intended to facilitate their importation. But these regulations, even when most rigorously enforced, have been singularly ineffectual; the great value and small bulk of the precious metals rendering it not only extremely advantageous, but also comparatively easy, clandestinely to export them, whenever their relative value declined.

“When,” says Dr Smith, “the quantity of gold and silver imported into any country exceeds the effectual demand, no vigilance of government can prevent their exportation. All the sanguinary laws of Spain and Portugal are not able to keep their gold and silver at home. The continual importations from Peru and Brazil exceed the effectual demand of those countries, and sink the price of these metals below their price in the neighbouring countries. If, on the contrary, in any particular country their quantity fell short of the effectual demand, so as to raise their price above that of the neighbouring countries, the government would have no occasion to take any pains to import them. If it were even to take the pains to prevent their importation, it would not be able to effect it. Those metals, when the Spartans had got wherewithal to purchase them, broke through all the barriers which the laws of Lycurgus opposed to their entrance into Lacedaemon. All the sanguinary laws of the customs are not able to prevent the importation of teas of the Dutch and Gottenburg East India Companies, because somewhat cheaper than those of the British Company. A pound of tea, however, is about a hundred times the bulk of one of the highest prices, 16s., that is commonly paid for it in silver, and more than two thousand times the bulk of the same price in gold, and is consequently just so many times [7:9:440]more difficult to smuggle.” ( Wealth of Nations, vol. ii. p. 149.)

But, however ineffectual as a means of entirely preventing the egress of the precious metals, the restrictions on their exportation have nevertheless contributed to occasion some slight variations in their value in different countries. The risk incurred by the clandestine exporters of bullion from Spain is supposed to be equivalent to about two per cent.; or, which is the same thing, it is supposed that the restrictions maintain such an excess of gold and silver in that country as to sink their value two per cent, below their value in countries having a free trade in bullion. In calculating the true par of exchange between Spain and other countries, this circumstance must be taken into account. For to whatever extent the value of bullion in one country may be reduced below its value in those with which it maintains an intercourse, the nominal exchange must necessarily be unfavourable to that extent.^[3. All restraints on the exportation of the precious metals were abolished in Great Britain in 1819. Their effect for many years previous could not be estimated at above one fourth per cent. ]

It consequently results, that whatever occasions a rise or fall in the value of the precious metals in a particular country, must proportionally affect its nominal exchange with other countries. If more coin, or convertible paper, circulated in Great Britain, compared with the business it has to perform, than what circulates in other countries, its relative value would, in consequence, be diminished. Foreign bills would sell for a premium, the amount of which would be precisely equal to the excess of the value of the precious metals in the foreign market, caused by their redundancy in the home market; and, on the other hand, in the event of the currency becoming relatively deficient, its value would be proportionally increased ;—bills drawn on foreign countries would sell at a discount, the amount of which would measure the excess of the value of the currency of this over that of other countries.

II. In estimating the quantity of bullion contained in the currencies of different countries, a particular coin of one country, such as the British pound sterling, is selected as an integer or standard of comparison, and the proportion between it and the coins of other countries, supposing •them to be of their mint standard weight and fineness, is ascertained by experiment. A par of exchange is thus established, or rather it is ascertained that a certain amount of the standard currency of a particular country contains precisely as much gold or silver of the same fineness, as is contained in the coin or integer with which it has been compared. This relation, or par as it is technically termed, is considered invariable; and allowance is made for subsequent variations in the quantities and purity of the bullion contained in the currencies of countries trading together, by rating the exchange at so much above or below par. In mercantile language, that country, by a comparison with one or other of whose coins the par of exchange has been established, is said to give the certain for the uncertain, and conversely. Thus, in the exchange between London and Paris, London and Hamburg, &c. London gives the certain, or the pound sterling, for an uncertain or variable number of francs, florins, &c. Hence, the higher the exchange between any two countries, the more is it in favour of that which gives the certain, and the lower, the more is it in favour of that which gives the uncertain.

On the supposition, which is very near the truth, that twenty-five francs contain the same quantity of standard bullion as a pound sterling (twenty-five francs, twenty centimes, is the exact par), and supposing also that the value of bullion is the same in both countries, the exchange between London and Paris will be at par, when a bill drawn, by a merchant in the one on his correspondent in the other sells at that rate; that is, when a bill of exchange for 2500 or 25,000 francs payable in Paris, sells in London, for L.100 or L∙1000, and vice versa. It is but seldom,, however, that the coins of any country correspond exactly' with their mint standard; unless, when newly issued, they' are all either more or less worn; and whenever this is the* case, an allowance corresponding to the difference between the actual value of the coins and their mint value must be made in estimating “the sum of the existing currency O ĵ either of two countries which contains precisely the same quantity of bullion as is contained in a given sum of the other” Thus, if the one pound sterling were so worn, clipped, rubbed, &c. as not to contain so much bullion as twenty-five francs, but ten per cent, less, the exchange between London and Paris would be at real par when it was nominally ten per cent, against London;^[4. It is necessary to observe, that it is here supposed that the clipped or degraded money exists in such a degree of abundance as on y o pass current at its bullion value. If the quantity of clipped money were sufficiently limited, it might, notwithstanding the' minu ion o weight, pass current at its mint value; and then the par would have to be estimated, not by its relative weight to' reign money, but by the mint price of bullion. This is a principle which must be constantly kept in view. ] and if, on the other hand, the pound sterling was equal to its mint standard, while the franc was ten per cent, less, the exchange between London and Paris would be at real par when it was nominally ten per cent, against Paris and in favour of London. If the currency of both countries were equally reduced below the standard of their respective mints, then it is obvious there would be no variation in the real par. But whenever the currency of countries trading together is depreciated in an unequal degree, the exchange is nominally in favour of that country whose currency is least depreciated, and nominally against that whose currency is most depreciated.

It is almost unnecessary to refer to the history of exchange to show the practical operation of this principle; and we shall content ourselves with selecting the following, from an infinite number of equally conclusive instances.

In a pamphlet printed in 1604, but written in 1564, it is mentioned, that when Henry VIII. degraded the several species of coin then current, there began to be “some disorder’ in the price of all wares and commodities, which Edward VI. attempted to remedy by diminishing still farther the quantity of pure silver contained in each coin; the consequence was, that the English pound sterling, which heretofore exchanged abroad for twenty-six Flemish schillings, became worth no more than thirteen Flemish schillings, the price of English commodities being at the same time proportionally increased. (Mr John Smith’s Memoirs of Wool, vol. i. p. 105, 8vo. ed.)

Previously to the great re-coinage in the reign of William III., silver being at that time a legal tender, the nominal exchange between England and Holland, calculated according to the standard of their respective mints, was twenty-five per cent, against England; but inasmuch as English silver coins were then, owing to rubbing and clipping, depreciated more than twenty-five per cent, below their mint value, the real exchange may notwithstanding have been in favour of England. The circumstance of the nominal exchange having become favourable to this country as soon as the new coin was issued, renders this conjecture extremely probable. {Wealth of Nations, vol. ii∙ p∙ 215.)

Before the reformation of our gold coin in 1774, the guinea contained so much less than its standard weight as [7:9:441]to be degraded from two to three per cent, when compared with the current French coins, and the exchange between England and France was computed to be two or three per cent, against this country. Upon the reformation of the gold coin the exchange rose to par. The Turkish government, in the course of the last forty years, has made three great alterations in the value of its coin. Before these frauds were committed, the Turkish piastre contained nearly as much silver as the English half crown ; and, in exchange, the par was estimated at eight piastres to the pound sterling. The consequence of these repeated adulterations has been, the reduction of the silver in the piastre to one half, and a fall in the exchange of 100 per cent.; bills on London having been bought in Turkey, in 1803, at the rate of sixteen piastres for every pound sterling.^[5. II est impossible d’indiquer exactement le pair des monnoies Turques. On voit des pieces du meme nom,, et rappees a meme année, qui different de 100 pour cent, dans leur valeur intrinsèque. (Storch, Cours d’Economic Politique, tom. vi. p· à ·) ] Now, although it is not absolutely certain that these fluctuations in the nominal exchange were entirely owing to the alterations in the value of the coin, because the real exchange, or that which depends on the abundance or scarcity of bills in the market, might not be constant; yet the exact correspondence of the fall of exchange with the acknowledged degradation of the coin, renders it more than probable that it proceeded almost entirely from that degradation.^[6. Observations on the Principles which regulate the Course of Exchange, by William Blake, Esq. p. 41. # aoz ,rnr1 ]

When one country uses gold as the standard of its currency, and another silver, the par of exchange between them is affected by every variation in the relative value of these metals. When gold rises in value compared with silver, the exchange becomes nominally favourable to that country which has the gold standard, and vice versa. And hence, in estimating the state of the exchange among countries using different standards, it is always necessary to advert to the comparative values of the metals selected for standards.

“For example,” to use the words of Mr Mushet, “if 34 schillings 11 grotes and ⅛ of Hamburg currency be equal in value to a pound sterling, or ĝ¢- of a guinea, when silver is at 5s. 2d. per oz. they can no longer be so when silver falls to 5s. Id. or 5s. an oz. or when it rises to 5s. 3d. or 5s. 4d.; because a pound sterling in gold being then worth more or less silver, is also worth more or less Hamburg currency.

“To find the real par, therefore, we must ascertain what was the relative value of gold and silver when the par was fixed at 34s. 1 lįg. Hamburg currency, and what is their relative value at the time we wish to calculate it.

“For example, if the price of standard gold was L.3. 17s. 10⅜d. per oz. and silver 5s. 2d., an ounce of gold would then be worth 15∙07 ounces of silver, and twenty of our standard shillings would then contain as much pure silver as 34s. 11 grotes and -ļ-Hamburg currency. But it the ounce of gold were L.3. 17s. lOģd. and silver 5s. (which it was on 2d January 1798), the ounce of gold would then be worth 15∙57 ounces of silver. If L.I sterling at par, therefore, be worth 15∙07 ounces of silver, thenat lu∙57 it would be at three per cent, premium; and three per cent, premium on 34s. 1 Iļd. is 1 schilling 1 grote and ¶¾, so that the par, when gold is to silver as 15∙57 to 1, will be 36 schillings 1 grote and τ 1 σ ∙ The above calculation will be more easily made by stating as e 15∙07: 34-114-:: 15∙57: 36-1 τ 1 σ . 5 "^[7. An Inquiry into the Effects produced on the National Currency by the Bank Restriction Bill, &c. by Robert Mushet, Esq. , seconü edit. p. 94. . . ] fe t

As it is by their intrinsic worth as bullion that the values of the coins of particular countries is estimated in exchange, two coins of equal weight and purity are reckoned equivalent to each other, although the one should have been coined at the expense of the state, and the other charged with a seignorage, or duty on its coinage. Coins on which a seignorage is charged may, if not issued in excess, pass current in the country where they are coined, at a value so much higher than their value in bullion; but they will not pass at any higher value in other countries.^[8. Previously to 1817, no seignorage had for a very long period been deducted from either the gold or in^ the ŋroŋo ř- am; but in the great recoinage of that year the value of silver was raised from 5s. 2d. to 5s. Gd. an ounce, θ r P ea ^ ”⅛⅛2 d ⅛ n of 6į per cent. The gold coins, however, are still coined free of expense, and no variation has been ⅛" t ⅛ The Bntish mint proportion of silver to gold is now as 14√⅞¾¾ to 1; that is, one ounce of standard gold bulliorι isrendered ţ^ļ ıan g ab e for 14⅛¾ ounces of standard silver. In France the mint proportion of the two metals is as lo⅜ to 1, a seignorage bem n ac ea 01 nearly įd per-cent, on gold, and lį per cent, on silver. ]

But the principal source of fluctuations in the nominal price of bills of exchange is to be found in the varying value of the paper currency of commercial countries. The disorders which universally arose in rude ages from the diminution of the quantity of standard bullion contained in the coins of different countries are now reproduced in another form, and often to a still more ruinous extent, in the depreciation of their paper currency.

The impossibility of retaining a comparatively large quantity of coin or bullion, or of convertible paper, in a particular country, effectually limited the issues of the Bank of England previously to the Restriction Act of 1797, and sustained the value of our currency on a par with that of other countries. When the bank issued less paper than was necessary for this purpose, the value of the currency becoming relatively great, it became profitable to import bullion, and to send it to the mint to be coined. And, on the other hand, when the bank issued too much paper, and thereby depressed its value relatively to gold, it became profitable to demand payment of its notes, and thereafter to export the species thus obtained either in the shape of coin or as bullion. In this way the bank was compelled to limit its issues when excessive, and, consequently, to put a stop to the demand for gold, by rendering its paper of equal value.

Had the Bank of England, subsequently to the restriction, issued only such quantities of paper as were required to sustain its value on a par with the value of gold, the act of 1797 would not have occasioned any real difference in our monetary system. But after the bank had been released from the obligation to pay its notes, it was not to be expected that it should be very careful about limiting their number. The restriction enabled the directors to exchange bits of engraved paper, worth perhaps not more than five shillings a quire, for as many, or the value of as many hundreds of thousands of pounds. And under such circumstances, the only thing to be wondered at is, not that paper money became depreciated, but that its value was not more degraded,—that a still greater quantity of bank-notes were not forced into circulation.

A country with an inconvertible paper currency, of which an undue quantity has been issued, is in the same situation as a country would be in were it possessed of a redundant gold and silver currency, and subjected to laws prohibiting the melting or exportation of the coin that were carried into full effect. Such a currency is necessarily[7:9:442] confined to the country where it is issued; it cannot, when too abundant, diffuse itself generally amongst others.

The level of circulation is destroyed; and the value of the currency becoming less than the value of the currency of other countries, the nominal exchange is rendered proportionally unfavourable.

Supposing that nothing but silver coin of the standard weight and purity (twenty-five francs of which would exchange for a pound sterling of the British mint standard) circulates at Paris, and that the circulating medium of London is composed entirely of paper only worth half its nominal value, or which is depreciated 100 per cent.; in that case the exchange between London and Paris would be at real par, when it was nominally cent, per cent, against London. Double the amount of such depreciated London currency would be required to purchase a bill of exchange on Paris where the currency retained its value, while half the former amount of Parisian currency would now suffice to purchase a bill payable in London. A depreciation of this sort would have exactly the same effects as an equal reduction in the value of metallic money. While paper money, depreciated 100 per cent, constituted our legal currency, a pound note, instead of being worth 25 francs, would only be worth 121; and the nominal or numerical value of the bills of exchange negotiated between this country and France would be regulated accordingly; that is, a biHof exchange for L.100 or L.1000 payable in London, would sell in Paris for 1250 or 12,500 francs, and conversely. If, while the currency of London remained steady at 100 per cent, below its mint value, Parisian currency should, either from the coins becoming deficient in weight, or because of an inordinate issue of paper money, become also depreciated, the nominal exchange would be rendered proportionally less unfavourable to London. On the hypothesis that the currency of Paris is depreciated 50 and that of London 100 per cent, the nominal exchange would be 50 per cent, against the latter, and so on. Thus it appears that the nominal exchange between any two or more places will always be adjusted according to the value of their currencies; being most favourable to that country whose currency approaches nearest to its mint standard, and most unfavourable to that whose currency is most degraded.

The state of exchange between Great Britain and Ireland, subsequently to the restriction on cash payments in 1797, furnishes a striking proof of the effects which inordinate issues of paper have in depressing the exchange.

; The nominal value of the Irish shilling having been raised from 12d. to 13d., or, which is the same thing, L.108. 6s. 8d. of Irish money having been rendered only equal to L.100 of British money, it followed, that when the exchange between Great Britain and Ireland was at 81 per cent, against the latter, it was said to be at par. In the eight years previous to 1797, when the paper currency both of England and Ireland was convertible into gold, the exchange between London and Dublin fluctuated from 7⅜∙ to 9 per cent, that is, from per cent, in favour of Dublin, to ⅝ per cent, against it. In September 1797 it was so low as 6 per cent., or 2X per cent, in favour of Dublin. 1 he amount of Bank of Ireland notes in circulation in January 1797 was only L.621,917; but in April 1801 they had increased to L.2,286,471, and the exchange was then at 14 per cent., or 5f per cent, against Dublin. In 1803, the Bank of Ireland notes in circulation averagedL.2,707,956, and in October of that year the exchange rose to 17 per cent, that is, to 8; per cent, against Dublin!

The fact of the exchange between London and Dublin having fluctuated so very little from real par for ei<>ht years previous to the restriction, shows that the circulating medium of Great Britain and Ireland had then been adjusted nearly according to the wants of the two countries. But, in these circumstances, it was evidently i m .1 possible, supposing the value of British currency to remain ' stationary, that the quantity of Irish bank paper could be nearly quintupled in the short space of six years, without rendering the currency of Ireland comparatively redundant, and sinking its value below that of England. Had the Bank of England increased its notes nearly in the same ratio as the Bank of Ireland, then, as the currency of both countries would have been equally depreciated, the exchange between London and Dublin would have continued at par. But while the notes of the Bank of Ireland were increased from L.621,917 to L.2,707,956, or in the proportion of 1 to 4∙3, those of the Bank of England were only increased from L.9,181,843 (their number on 7th January 1797), to L.16,505,272, or in the proportion of 1 to 1 ’ 8. If the Bank of England had not made this addition to its issues, the exchange would obviously have been still more unfavourable to Dublin.

In the debates on the Bullion Report, it was contended that the∙increase of Bank of Ireland paper could not be the cause of the exchange becoming unfavourable to Dublin, inasmuch as it had again become favourable to the latter, after the issues of the Bank of Ireland had been still further increased. Nothing, however, can be more inconclusive than such reasoning. To give it the least weight, it must be shown that the currency of Great Britain had in the interim retained its value, or that it had not been depreciated to the same extent as that of Ireland. Unless this be established, the circumstance that the exchange between London and Dublin came to par, while as many notes of the Bank of Ireland circulated as in the period of its greatest depression, will not authorise us to conclude that the increase of Irish bank paper was not the cause of the fall in the exchange previously to 1804. For it is obvious that the depreciation of Irish bank paper might be going on subsequently to 1804; and yet, supposing English bank paper had been depreciated still more rapidly, the exchange would become more favourable to Dublin. This is merely supposing the circumstances which took place in the first six years of the restriction to be reversed in the second six. Let us examine how the fact stands.

We have seen that, in 1803, when the exchange was nominally ten per cent, against Dublin, the issues of the Bank of England amounted to L.16,505,272, and those of the Bank of Ireland to L.2,707,956. And, by referring to the account of the issues of the Bank of Ireland from 1797 to 1819, annexed to the article Money in this work, it will be seen that, in 1805, 1806, 1807, and 1808, they were rather diminished ; and that, in 1810, they only amounted to L.3,251,750, being an increase of not more than L.543,794 in the space of seven years, or at the rate of two and six-sevenths per cent, per annum; but in the same period (from 1803 to 1810) the issues of the Bank of England had increased from L.16,505,272 to L.22,54l,52⅝ or at the rate of five per cent, per annum. But this is not all. According to Mr Wakefield (Account of Ireland, vol. ii. p. 17t), who has left no subject untouched which could throw light on the state of Ireland, there were fifty registered bankers in that country in 1804, and only thirty di ιτee in 1810, of which fourteen were hew houses, thirty-one o, the old establishments having disappeared; and I believe, says Mr Wakefield, “ for the most part failed! This extraordinary diminution of the country paper of Ireland, ftr the reduction of the issues was at least proportional to the reduction in the number of banks, must have greatly raise its value, and would have countervailed a very great ltl ' crease in the issues of the national bank. Now the very reverse of all this took place in Britain. In 180θ there were 386 country banks in this country; and in 1810; t 15 [7:9:443] number, instead of being diminished, as in Ireland, had increased to 721, having at least three times the number of notes in circulation in the latter as in the former period!

It appears, therefore, that when, in the period between 1797 and 1804, the quantity of paper in circulation in Ireland was increased, and consequently its value depressed, faster than in England, the exchange between London and Dublin became proportionally unfavourable to the latter; and, on the other hand, it appears, that when, in the six years subsequent to 1804, the paper currency of England was increased more rapidly than the paper currency of Ireland, its relative value was diminished, and the nominal exchange became more favourable to Dublin.

This is sufficiently conclusive; but there is still more decisive evidence to show that the unfavourable exchange of Dublin upon London in 1802, 1803, 1804, &c. was entirely owing to the comparative redundancy or depreciation of Irish bank paper. The linen manufacturers, weavers, &c. and the majority of the other inhabitants of a few counties in the north of Ireland, being, at the period of the restriction, strongly disaffected towards government, almost unanimously refused to receive bank notes, either in payment of commodities or as wages. The landlords, having also stipulated for the payment of their rents in specie, the consequence was, that a gold currency was maintained in the north of Ireland long after it had been entirely banished from the southern part of the island. If, therefore, the depressed state of the exchange between London and Dublin had been occasioned, as was contended by the advocates of the restriction, by an unfavourable balance of trade between Ireland and Great Britain, or by remittances from the former on account of absentee landlords, &c. it would have been equally depressed between London and the commercial towns in the northern counties. But, so far from this being the case, in December 1803, when the exchange of Dublin on London was at sixteen and one-fourth per cent, that of Belfast on London was at five and one-fourth; or, in other words, at the same time that the exchange between Dublin and London was about eight per cent, against Ireland, the exchange between Belfast, which had a gold currency, and London, was about three per cent, in its favour. Nor is this all. There was not only a difference of eleven per cent, in the rate of exchange between Dublin and London, and Belfast and London, but the inland exchange between Dublin and Belfast was, at the same time, about ten per cent, in favour of the latter; that is, bills drawn in Dublin, and payable in the gold currency of Belfast, brought a premium of ten per cent.; while bills drawn in Belfast, and made payable in the paper currency of Dublin, sold at ten per cent, discount.^[9. Farther information on this interesting subject mav be obtained from the very able Report of the Committee oftheHoιιte ofCom-nom, appointed in 1804 to inquire into the state of the circulating paper in Ireland, its specie, &c. and the state of the exchange between it and Great Britain; in Sir Henry Parnell’s excellent pamphlet on the same subject; and in the pamphlets 4 Lord King, Mr Huskisson, &c. ]

It is unnecessary to refer to the history of the French assignats, or of the paper currency of the continental powers generally, and of the United States, to corroborate what has been advanced. Such of our readers as wish for detailed information as to these points may have recourse to the fourth volume of the Cours d’Economic Politique of Μ. Storch, where they will find an able and instructive ccount of the effects produced by the issues of paper on the price of bullion and the exchange, in almost every country of Europe. They are, in every case, precisely similar to those now stated.

It only remains to determine the effects of fluctuations in the nominal exchange, on the export and import trade of the country.

When the exchange is at par, the operations of the merchant are regulated entirely by the difference between foreign prices and home prices. He imports those commodities which can be sold at home for so much more than theiι price abroad as will indemnify him for the expense of freight, insurance, &c. and yield an adequate remuneration for his trouble, and for the capital employed in their importation; and he exports those whose price abroad is sufficient to cover all expenses, and to afford a similar profit. But when the nominal exchange becomes unfavourable to a particular country, the premium which its merchants receive on the sale of foreign bills has been supposed capable of enabling them to export with profit in cases where the difference between the price of the exported commodities at home and abroad might not be such as would have permitted their exportation had the exchange been at par Thus, if the nominal exchange were ten per cent, agains! this country, a merchant who had consigned goods to his agent abroad would receive a premium of ten per cent, or the sale of the bill; and if we suppose freight, insurance, mercantile profit, &c. to amount to six or seven per cent, it would at first sight appear as if our merchants might, in such circumstances, export commodities although their price at home were three or four per cent, higher than in other countries. If, on the other hand, the nominal exchange were in our favour, or if bills on this country sold at a premium, it would appear as if foreigners would then be able to consign goods to our merchants, or our merchants to order goods from abroad, when the difference of real prices was not such as would of itself have led to an importation.

But a very little consideration will convince us that fluctuations in the nominal exchange can have no such effect. That fall in the value of the currency which renders the exchange unfavourable, and causes foreign bills to sell at a premium, must equally increase the price of all commodities. And hence, whatever might be the amount of the premium which the exporter gained by the sale of the bill drawn on his correspondent abroad, it would do no more than indemnify him for the enhanced price of the goods exported. Mercantile operations are in such cases conducted precisely as they would be were the exchange really at par; that is, by a comparison of the real prices of commodities at home and abroad, meaning, by real prices, the prices at which they would be sold provided there were no depreciation of the currency. If those prices be such as to admit of exportation or importation with a profit, the circumstance of the nominal exchange being favourable or unfavourable will make no difference whatever on the transaction.

“Suppose,” says Mr Blake, who has very successfully illustrated this part of the doctrine of exchange, “the currencies of Hamburg and London being in their due proportions, and therefore the nominal exchange at par, that sugar, which, from its abundance in London, sold at L.50 per hogshead, from its scarcity at Hamburg would sell at L.100. The merchant in this case would immediately export. Upon the sale of his sugar he would draw a bill upon his correspondent abroad for L.100, which he could at once convert into cash by selling it in the bill market at home, deriving from this transaction a profit of L.50, under deduction of the expenses of freight, insurance, commission, &c. Now, suppose no alteration in the scarcity or abundance of sugar in London and Hamburg, and that the same transaction were to take place after the currency in England had been so much increased that the prices [7:9:444]were doubled, and, consequently, the riomitial exchange 100 per cent, in favour of Hamburg, the hogshead of sugar would then cost L.100, leaving apparently no profit whatever to the exporter. He would, however, as before, draw his bill on his correspondent for L.100; and, as foreign bills would bear a premium of 100 per cent, he would sell this bill in the English market for L.200, and thus derive a profit from the transaction of L.100 depreciated, or L.50 estimated in undepreciated currency, deducting, as in the former instance, the expense of freight, insurance, commission, &c.

“The case would be precisely similar, mutatis mutandis, with the importing merchant. The unfavourable nominal exchange would appear to occasion a loss amounting to the premium on the foreign bill which he must give in order to pay his correspondent abroad. But ií the difference or real prices in the home and foreign markets were such as to admit of a profit upon the importation of produce, the merchant would continue to import, notwithstanding the premium; for that would be repaid to him in the advanced nominal price at which the imported produce would be sold in the home market.

“Suppose, for instance, the currencies of Hamburg and London being in their due proportions, and, therefore, the nominal exchange at par, that linen, which can be bought at Hamburg for L.50, will sell here at L.100. The importer immediately orders his correspondent abroad to send the linen, for the payment of which he purchases at L.50 a foreign bill in the English market, and on the sale of the consignment for L.100, he will derive a profit amounting to the difference between L.50 and the expense attending the import.

“Now, suppose the same transaction to take place without any alteration in the scarcity or abundance of linen at Hamburg and London, but that the currency of England has been so augmented as to be depreciated to half its value, the nominal exchange will then be 100 per cent, against England, and the importer will not be able to purchase a L.50 foreign bill for less than L.100. But as the prices of commodities here will have risen in the same proportion as the money has been depreciated, he will sell his linen to the English consumer for L.200, and will, as before, derive a profit amounting to the difference between L.100 depreciated, or L.50 estimated in undepreciated money, and the expenses attending the import.

“The same instances might be put in the case of a favourable exchange; and it would be seen in the same manner that nominal prices and the nominal exchange being alike dependent on the depreciation of currency, whatever apparent advantage might be derived from the former would be counterbalanced by a loss on the latter, and vice versa.” ( Observations, &c. p. 48.)

It appears, therefore, that fluctuations in the nominal exchange have no effect on export or import trade. A fall in the exchange obliges the country to which it is unfavourable to expend a larger nominal sum in discharging a foreign debt than would otherwise be necessary; but it does not oblige it to expend a greater real value. The depression of the nominal exchange can neither exceed nor fall short of the comparative depreciation of the currency. If the depreciation of British currency amounted to 10 or 100 per cent, the nominal exchange would be 10 or 100 per cent, against us; and we should be compelled, in all our transactions with foreigners, to give them 22s. or 40s. for what might otherwise have been procured for L.l. But as neither 22s. nor 40s. of paper, depreciated to the extent of 10 or 100 per cent, would be more valuable than L.l of undepreciated paper, payment of a foreign debt might, it is evident, be as easily made in the one currency as in the other; and mercantile transactions would, in such circumstances, be conducted exactly as they would have been had the currency been undepreciated, and the nominal exchange at par.

It is necessary, however, before dismissing this part of our subject, to examine the effects of fluctuations in the nominal exchange on the importation and exportation of bullion. In certain cases they form an exception to the general principle we have been endeavouring to elucidate.

If the nominal exchange were unfavourable to a country which had entirely discarded the precious metals from! its circulation, Mr Blake’s opinion that the fall of the ex-’ change has no effect on the export and import of bullion, 1 more than of any other commodity, would be perfectly well 1 founded. In this case the price of all sorts of commodities, and of bullion among the rest, w ould be increased pre-; cisely according to the depreciation of the currency; and the merchants who should, under such circumstances, attempt to export bullion, would find that its increased price in the home market w ould be exactly equivalent to whatever premium they might gain by the sale of the bills drawn on their agents abroad for its price. But when the nominal exchange becomes unfavourable to a country whose currency consists entirely of the precious metals, or partly of them and partly of paper, a different effect is produced.

In this case the depreciation necessarily adds to the stock of bullion in the country. For as soon as the currency has been depreciated to such an extent as to render the excess of the market above the mint price of bullion sufficient to cover the very trifling expenses attending the melting of the coin, and to afford some little remuneration for the trouble of the melters, they immediately set about converting it into bullion. If, indeed, it were possible to realize a greater profit by the exportation than by the fusion of the coins, they would not be converted into bullion, and, of course, its real price would continue stationary. But this is very seldom the case. The operation of melting is so extremely simple, and requires so very little apparatus, that it may, in almost every instance, be carried on at a less expense than would be necessary to export the coins. The cost attending the conveyance of gold to Paris varies in a season of peace, from one to two per cent.; while a profit of one fourth or one half per cent, is sufficient to indemnify the melters of guineas or sovereigns. It is obvious, therefore, that of the two modes of restoring the value of the currency when it becomes depreciated, or relatively redundant, that of fusion will be generally resorted to in preference to exportation. Should the redundancy of the currency be inconsiderable, all the addition which the operations of the melters could make to the supply of bullion, would most probably be insufficient to occasion any perceptible fall in its real price. But, in every case in which the redundancy or depreciation of the currency is considerable, the fusion of the coined money never fails to increase the quantity of bullion beyond the effectual demand, and, consequently, to occasion a fall in its real price, and to render it a profitable article of export. The demand for bullion, though it must always vary with the varying wealth and riches of the community, fluctuates very little in periods of limited duration; and no considerable addition can ever be made to the stock on hand in a particular country, without sinking its value and causing its egress.

Mr Blake contends that this exportation of bullion is the effect of the melting of the coin, and not the cause of it 5 and in so far he is certainly right. But we do not see how this in the least strengthens his opinion, that fluctuations in the nominal exchange, even in those cases in which the currency consists either wholly or partially of the precious metals, have no influence on the export and import of bu - lion. Surely it is impossible to deny that the fusion of the [7:9:445]coin, of which Mr Blake admits the exportation of bullion is , a necessary consequence, is occasioned by a redundancy of the currency, or by the same cause which occasions an unfavourable nominal exchange.

Bullion, therefore, forms an exception, and it is the only one, to the general principle that a fall in the value of the currency, or an unfavourable nominal exchange, has no effect on importation or exportation. But this exception does not take place, except in those cases in which the currency consists either in whole or in part of the precious metals. When the currency consists entirely of paper, or of any commodity other than gold or silver, its depreciation has no influence whatever on the importation of bullion.

SECT. II REAL EXCHANGE.

Having thus endeavoured to trace the effects which variations in the value of the currencies of countries maintaining an intercourse together have on the exchange, we now proceed to consider how far it is influenced by fluctuations in the supply and demand for hills. To facilitate this inquiry, we shall exclude all consideration of changes in the value of money; or, which is the same thing, we shall suppose the currencies of the different countries having an intercourse together to be all fixed at their mint standards, and that each has its proper supply of bullion.

When two nations trade together, and each purchases from the other commodities of precisely the same value, their debts and credits will be equal, and, of course, the real exchange will be at par. The bills drawn by the one are, in such a case, exactly equivalent to those drawn by the other, and their respective claims may be adjusted without the transfer of bullion, or other valuable produce. But it very rarely happens that the debts reciprocally due by any two countries are equal. There is almost always a balance owing on one side or other; and this balance must affect the exchange. If the debts due by London to Paris exceeded those due by Paris to London, the competition in the London market for bills on Paris would, because of the comparatively large sum which our merchants had to remit to France, be greater than the competition in Paris for bills on London; and, consequently, the real exchange would be in favour of Paris and against London.

The expense of the transfer of bullion from one country to another constitutes the limit within which the rise and fall of the real exchange between them must be confined. In this respect, as in most others, transactions between foreign countries are regulated by the very same principles which regulate those between different parts of the same country. We have already shown how the fluctuations in the real exchange between London and Glasgow could never exceed the expense of transmitting money between those cities. The same principle holds universally. Whatever may be the expense of transmitting bullion,—the money of the commercial world,—between London and Paris, Hamburg, New York, &c., it is impossible that the real exchange of the one on the other should, for any considerable period, be depressed to a greater extent. For a merchant will not pay a greater premium for a bill to discharge l debt abroad, than would suffice to cover the expense of transmitting bullion to his creditor.

Hence it appears that whatever has a tendency to obstruct or fetter the intercourse among different countries, must also tend to widen the limits within which fluctuations in the real exchange may extend. This enables us to account for its varying so much more in time of war than in time of peace. The amount of the bills drawn on a country engaged in hostilities is, from various causes which we shall afterwards notice, liable to be suddenly increased, though it is certain that whatever may be the amount of the bills thus thrown upon the market, the depression of the exchange cannot, for any length of time, 1 exceed the expense of conveying bullion from the debtor to the creditor country. But during war this expense is increased; the charges on account of freight, insurance, c. being then necessarily augmented. It appears, from the evidence annexed to the Report of the Bullion Committee, that the expense of conveying gold from London to Hamburg, which, prior to the war, only amounted to two or two and a half per cent, had, in the latter part of 1809, increased to about seven per cent.; showing that the limit vithin which fluctuations in the real exchange were confined in 1809 were about three times as great as those within which they were confined in 1793.

This principle also enables us to account for the greater steadiness of the real exchange between countries in the immediate vicinity of each other. The expense of transmitting a given quantity of bullion from London to Dublin or Paris, is much less than the expense of transmitting the same quantity from London to New York or Petersburg. And, as fluctuations in the real exchange can only be limited by the cost of transmitting bullion, they may consequently extend much farther between distant places than between those that are contiguous.

It will now be proper to investigate the circumstances which give rise to a favourable or an unfavourable balance of payments, and to appreciate their effects on the real exchange, and on the trade of the country in general. As this is one of the most important inquiries in the whole science of political economy, it will require to be discussed at some length.

A very great, if not the principal, source of the errors into which practical merchants, and the majority of writers on the subject of exchange, have been betrayed, appears to have originated in their confounding the sum which imported commodities are worth in the home market, with the sum which they cost in the foreign market. It is obviously, however, by the amount of the latter only, that the balance of payments, and consequently the real exchange, is influenced. A cargo of iron, for example, which cost L.1000 free on board at Gottenburg, might be worth L.1200 or L.1300 when imported into England; but the foreign merchant would not be entitled to draw on London for more than its original cost, or L.1000. It is clear, therefore, on the slightest consideration, that the circumstance of the value of the imports exceeding the value of the exports, does not authorise the conclusion that the balance of payments is unfavourable. A favourable or an unfavourable balance depends entirely on the sum due to foreigners for commodities imported from abroad being less or more than the sum due by them for the commodities they have purchased; but it has nothing to do with the prices eventually obtained for the imported or exported commodities.

The great object of the mercantile system of commercial policy, a system which still continues to preserve a considerable influence in this and in every other country in Europe, is, the creation of a favourable balance of payments, and consequently of a favourable real exchange, by facilitating exportation and restricting importation. It is foreign to the object of this article to enter into any examination of the principles of this system, except in so far as they are connected with the subject of exchange; but we hope to be able to show, in opposition to the commonly received opinions on the subject, that, under ordinary circumstances,, the value of the imports must always exceed the value of the exports; and that this excess of importation has not, speaking generally, any tendency to render the real exchange unfavourable.

It is the business of the merchant to carry the various [7:9:446]products of the different countries of the world from those places where their value is least, to those where it is greatest; or, which is the same thing, to distribute them according to the effective demand. It is clear, however, that there could be no motive to export any commodity, unless the commodity which it was designed to import in its stead was of greater value. When an English merchant orders a quantity of Polish wheat, he calculates on its selling for so much more than its price in Poland as will be sufficient to pay the expense of freight, insurance, &c.; ’and to yield, besides, the common and ordinary rate of profit on the capital employed in the business. If the wheat did not sell for this sum, its importation would obviously occasion a loss to the importer. No merchant ever did or ever will export, but in the view of importing a greater value in return. And so far from an excess of exports over imports being any criterion of an advantageous commerce, it is quite the reverse; and the truth is, notwithstanding all that has been said and written to the contrary, that unless the value of the imports exceeded that of the exports, foreign trade could not be carried on. Were this not the case—were the value of the exports always greater than the value of the imports, merchants would lose on every transaction with foreigners, and the trade with them would either not exist at all, or, if begun, would be speedily relinquished.

In England, the rates at which exports and imports are valued were fixed so far back as 1696. But the very great alteration that has since taken place, not in the value of money only, but in the cost of most part of the commodities produced in this and other countries, has rendered this official valuation, though valuable as a means of determining their quantity, of no use whatever as a criterion of the true value of the imports and exports. To obviate this defect, an account of the real or declared value of the exports is annually prepared from the declarations of the masters, and laid before parliament. There is, however, no such account of the imports; and, owing to the difficulties which high duties throw in the way, it is, perhaps, impossible to frame one with any thing like accuracy. It has also been alleged, and apparently with some foundation, that merchants have not unfrequently exaggerated the value of articles entitled to drawbacks on exportation; but the recent extension and improvement of the warehousing system, and the decrease in the number of drawbacks, must materially lessen whatever fraud or inaccuracy may have arisen from that source. Indeed, as most articles are charged with an ad valorem duty of 10s. per cent, on exportation, the fair presumption is, that their value will be underrated. We believe, however, that the declared value of the exports comes pretty near the truth, at least sufficiently so for all practical purposes.

But if perfectly accurate accounts could be obtained of the value of the exports and imports, there can be no manner of doubt that in ordinary years the latter would always exceed the former. The value of an exported commodity is estimated when it is shipped, before its value is increased by the expense incurred in transporting it to the place of its destination; but the value of the commodity imported in its stead is estimated after it has arrived at its destination, and, consequently, after it has been enhanced by the cost of freight, insurance, importer’s profit, &c.

It is of very little importance, in so far at least as the interests of commerce are concerned, whether a nation act as the carrier of its own imports and exports, or employ others. A carrying nation appears to derive a comparatively large profit from its commercial transactions; but this excess of profit is nothing more than a fair remuneration for the capital it employs, and the risk it incurs, in transporting commodities from one country to another. Were the whole trade between this country and France carried on in British bottoms, our merchants, in addition to the value of the goods exported, would also receive the cost of their carriage to France. This, however, would not occasion any loss to that country. The French merchants must pay the freight of the commodities they import; and if the English can afford it on cheaper terms than their own countrymen, there is no good commercial reason, though there may be others of a different kind, why they should not employ them in preference.

In the United States the value of the imports, as ascertained by the customhouse returns, always exceeds the value of the exports. And although our practical politicians have been in the habit of considering the excess of exports over imports as the only sure criterion of an advantageous commerce, “it is nevertheless true, that the real gain of the United States has been nearly in proportion as their imports have exceeded their exports.”^[10. Pitkin on the Commerce of the United States. 2d ed. p. 280. ] The great excess of American imports has been in part occasioned by the Americans generally exporting their own surplus produce, and consequently receiving from foreigners, not only an equivalent for their exports, but also for the cost of conveying them to the foreign market. “In 1811,” says the author just quoted, “flour sold in America for nine dollars fifty cents per barrel, and in Spain for fifteen dollars. The value of the cargo of a vessel carrying 5000 barrels of flour would, therefore, be estimated, at the period of its exportation, at 47,500 dollars; but as this flour would, because of freight, insurance, exporter’s profits, &c. sell in Spain for 75,000 dollars, the American merchant would be entitled to draw on his agent in Spain for 27,500 dollars more than the flour cost in America, or than the sum for which he could have drawn had the flour been exported on account of a Spanish merchant. But the transaction would not end here: the 75,000 dollars would be vested in some species of Spanish or other European goods fit for the American market; and the freight, insurance, &c. on account of the return cargo, would perhaps increase its value to 100,000 dollars; so that in all, the American merchant might have imported commodities worth 52,500 dollars more than the flour originally sent to Spain.” It is as impossible to deny that such a transaction as this is advantageous, as it is to deny that its advantage consists entirely in the excess of the value of the goods imported over the value of those exported. And it is equally clear, that America might have had the balance of payments in her favour, though such transactions as the above had been multiplied to any conceivable extent.

Instead, therefore, of endeavouring to fetter and restrict the trade with those countries from which we should otherwise import a greater value than we exported, we ought to give it every possible facility. Every man considers that market as the best in which he is able to obtain the highest price, or the greatest value in exchange for his goods; why then should he be excluded from it? .Why compel a merchant to dispose of a cargo of muslin for L.10,000 rather than L.12,000? The wealth of a state is made up of the wealth of individuals; and we have yet to learn that any more effectual method of increasing individual w calth can be devised than to permit every person to make his purchases in the cheapest and his sales in the dearest market.

It would be difficult to estimate the mischief which absurd notions relative to the balance of trade have occasion-cd[7:9:447] in almost every commercial country. In Great Britain they have been particularly injurious. It is principally to the prevalence of prejudices to which they have given rise, that the restrictions imposed on the trade between this country and France are to be ascribed. The great, and, indeed, the only argument insisted on by those who prevailed on the legislature to declare the trade with France a nuisance (^Prohibition Act, Isŕ William and Mary), was founded on the fact, that the value of the imports from that kingdom considerably exceeded the value of the exports. The balance was termed a tribute paid by England to France; and it was sagaciously asked, what had we done that we should be obliged to pay so much money to our deadly enemy? It never occurred to these wise persons, that no merchant would import any commodity from France, unless it brought a higher price in this country than the commodity exported in its stead; and that the profit of the merchant, or, which is the same thing, the national gain, would depend on this excess of price. The reason assigned for prohibiting the trade, affords the best proof of its having been a lucrative one. There cannot, indeed, be a doubt, that an unrestricted freedom of intercourse between the two countries would be of the greatest service to both. The peculiarities in the soil and climate, and in the national character of the people, of Great Britain and France, enable the one to produce various species of raw and manufactured commodities at a cheaper rate than they can be produced by the other. If we were allowed freely to purchase and import under moderate duties, the silks, the wines, and the brandies of France, those things which we can supply cheaper than our ingenious neighbours would be taken in payment. An extensive market would thus be created for a vast variety of articles, and a natural and powerful stimulus would be applied to the industry of both countries. Nobody denies that the trade with America, Portugal, and the Baltic is advantageous; and if so, why is the trade with France to be considered as prejudicial? Supposing the trade between the two countries were perfectly free, does any one imagine that our merchants would export or import any commodity to or from France, provided they could either sell or buy it on better terms anywhere else? If the restrictions on the French trade be not really injurious, that is, if the trade with France be either a losing or a less advantageous one than that with other countries, we may rest assured that the throwing it open would not make-a single individual engage in it.

As the real price of commodities is always proportioned not only to the expense of their production, but also to the expense necessarily incurred in conveying them to the place where they are to be consumed, it is plain that a nation which prohibits trading with the countries in her vicinity must pay a higher price for her imported commodities, and be obliged to exact a higher price for those which she exports, than would be necessary were she able to procure the one or to dispose of the other in her immediate neighbourhood. If the same sort of wine could be bought at Bordeaux equally cheap as at Lisbon, the difference of freight would enable it to be sold cheaper in London. It is this principle, in fact, which renders the home trade pe-ιliarly advantageous. The parties engaged in it live near each other, and consequently each obtains the commodity °t which he stands in need at its cheapest rate, and without being obliged to pay any great additional sum on account of carriage. When, therefore, we restrict the trade with countries in our immediate vicinity, we act in the seth of that very principle which is, in every other case, admitted to be advantageous. We compel such of our Pθople as purchase foreign commodities, to buy them at a comparatively high price; while, by raising the price of the commodities we export, the market for them is injuriously contracted.

But the partisans of the exclusive or mercantile system will perhaps tell us, that they do not mean to contend that it is profitable to export a greater value than is imported, but that, by exporting an excess of raw and manufactured commodities, the balance of payments is rendered favourable, and that this balance (which they consider as representing the entire net profit made by the country on its transactions with foreigners) is always paid in bullion.

It will, however, be easy to show that this statement is altogether erroneous; that a balance, whether on the one side or the other, is seldom or never cancelled by means of bullion; and that this balance is not a measure, and has in fact nothing to do with the profit or loss attending foreign commercial transactions.

1. So long as the premium on foreign bills is less than the expense attending the transit of bullion from a country which has an unfavourable real exchange, no merchant ever thinks of subjecting himself to an unnecessary expense, by exporting bullion to pay a foreign debt. But though the premium on foreign bills had increased, so as to equal the cost of exporting the precious metals, for it cannot exceed this sum, it does not by any means follow that they would therefore be exported. That depends entirely on the fact, whether bullion be, at the time, the cheapest exportable commodity, or, in other words, whether a remittance of bullion be the most advantageous way in which a debt may be discharged. If a London merchant owe L.100 in Paris, he sets about finding out the cheapest method of paying it. On the supposition that the real exchange is two per cent, below par, and that the expense of remitting bullion, including the profit of the bullion merchant, is also two per cent., it will be indifferent to him whether he pay L.2 of premium for a bill of L.100 payable in Paris, or incur an expense of L.2, by remitting L.100 worth of bullion directly to that city. If the prices of cloth in Paris and London be such, that it would require L.103 to purchase and send as much cloth to Paris as would sell for L.100, he w ould undoubtedly prefer buying a bill or exporting bullion. But if, by incurring an expense of L.101, the debtor be able to send as much hardware to Paris as would sell for L.100, he would as certainly prefer paying his debt by an exportation of hardware. By doing so, he saves one per cent, more than if he bought a foreign bill or remitted bullion, and two per cent, more than if he exported cloth. If there had been any other commodity that might have been exported with more advantage, he would have used it in preference.

It is obvious, therefore, that the exportation of bullion is regulated by precisely the same principles which regulate the export and import of other commodities. It is exported when its exportation is most advantageous; that is, when it is less valuable at home and more valuable abroad than any other commodity; and it cannot be otherwise exported. The balance of payments might be a hundred millions against a country, without depriving it of a single ounce of bullion. No merchant would remit L.100 worth of gold or silver from England to discharge a debt in Paris, if he could invest L.98, L.99, or any smaller sum in any other species of merchandise which, exclusive of expenses, would sell in France for L.100. Those who deal in the precious metals are, we may depend upon it, as much under the influence of self-interest as those who deal in coffee or indigo. But w ho would attempt to discharge a foreign debt, by exporting coffee which cost L.100, it he could effect the same object by sending abroad indigo which cost only L.97? No person in his senses would export a hat to be sold for 20s. provided he could sell it at home for a guinea; nor would any person export an [7:9:448]ounce of bullion, if its value were not less in the export- ∙ing than in the importing country, or if there were any other commodity whatever that might be exported with greater advantage.

2. It is in vain to contend, that by permitting an unrestricted freedom of trade, one country might become indebted to another, which had no demand for any sort of ordinary merchandise, and which would only accept of cash or bullion in exchange for its exports. Such a case never did, and never will occur. A nation which is in want of money must also be in want of other things; for men only desire money because of its being the readiest means of increasing their command over the necessaries and enjoyments of life. The extreme variety, too, in the soil and climate, in the machinery, and in the skill and industry of the artisans belonging to different countries, must always occasion a considerable difference in the prices of their products. And until the cost of production be equalized, there must always be a foreign demand for those commodities which can be produced cheaper at home than abroad; and until the desire to accumulate be banished from the human breast, there must always be an inclination to send commodities from those countries where their exchangeable value is least, to where it is greatest.

3. In treating of the nominal exchange, we endeavoured to show, that it is impossible that any country should be able, for any length of time, to import or export a greater quantity of bullion than may be necessary to preserve the value of bullion in it in its proper relation to the bullion of other countries; or, which is the same thing, to have the real exchange either permanently favourable or unfavourable. But though this principle be strictly true in reference to its aggregate exchanges, it is incorrect when the state of its exchange with one country only is considered. Great Britain, for example, may constantly have the exchange in her favour with Portugal, provided she have it constantly, and to an equal extent, against her with the East Indies, or some other country, “She may,” to use the words of Mr Ricardo, “be importing from the north the bullion which she is exporting to the south. She may be collecting it from countries where it is relatively abundant, for others where it is relatively scarce, or where, from some particular causes, it is in great demand. Spain, who is the great importer of bullion from America, can never have an unfavourable exchange with her colonies; and as she must distribute the bullion she receives among the different nations of the world, she can seldom have a favourable exchange with the countries with which she trades.”^[11. See Reply to Mr Bosanquet s Observations on the Report of the Bullion Committee, p. 17; one of the best pamphlets that has ever been published on the subject of exchange. ]

It was by this principle that Lord King ingeniously, and, we think, successfully accounted for the nearly continued favourable exchange between this country and Hamburg, from 1770 to 1799. His Lordship showed that the importation of bullion from Hamburg and other countries was only equivalent to the quantity exported to the East Indies and consumed at home; that the demand corresponded to the supply; and that its value remained pretty stationary. The extraordinary influx of bullion into this country from the Continent at the era of the bank restriction in 1797, and the very favourable state of the exchange, were undoubtedly owing, in a very great degree, to the reduction in the issues of bank paper, and to the diminution of the gold currency caused by the hoarding of guineas, &c. In 1797 and 1798, above five millions of guineas were coined at the mint; and this extraordinary demand for gold is of itself abundantly sufficient to account for the very favourable exchange of that period, and for the length of time which it continued. But, at the same time that the demand for gold bullion for the mint was thus increased, the demand for silver bullion, for the purpose of exportation by the East India Company, had also been proportionally augmented. In 1795, the quantity exported on account of the Company, and of private persons, amounted to only 151,795 ounces.
[table]

From this period the exportation of silver to the East Indies was very much reduced; and, in the years in which the exchange was most unfavourable, it had almost entirely ceased.

Instead, therefore, of the extraordinary importation of bullion from Hamburg in 1797 and 1798 affording, as Mr Bosanquet and others have supposed, a practical proof of the fallacy of the opinion of those who contend that it is impossible, for any length of time, to destroy the natural equality in the value of bullion in different countries, it is a striking example of its truth. Without this influx, bullion in this country could not have maintained its proper value, as compared with that of other countries. We imported it, because, owing to the reduction of the paper currency, and the increased exports by the East India Company, its value was rendered higher here than on the Continent; and, consequently, because the Continental merchants found it advantageous to send bullion to us, in the same manner as they would have sent corn, or any other commodity for which there happened to be an unusual demand in Great Britain. For, however favourable the real exchange between Hamburg and London might have been to the latter, we should not have imported a single ounce of bullion, had it not been, at the time, the most advantageous article with which Hamburg could discharge its debt to London.

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4. In the absence of all other arguments, it would be sufficient to state, that it is physically impossible that the excess of exports over imports, as indicated by the custom-house returns, should be paid in bullion. Every country in the world, with the single exception of the United States, has its apparently favourable balance; and of course, if they really existed, they would have to be paid by an influx of bullion from the mines correspondent to their aggregate amount. It is certain, however, that the entire produce of the mines, though it were increased in a tenfold proportion, would be insufficient for this purpose’. 1his of itself is decisive of the degree of credit which ought to be attached to the commonly received opinions on this subject.

5. In the last place, the profit on transactions with foreigners does not consist in the quantity of bullion imported from abroad, but in “the excess of the value of the imports over the value of the exports.” If, in return for exported commodities worth ten or twenty millions, we import such as are worth fifteen or thirty, we shall gain 50 per cent, by the transaction, though the exports should consist entirely of bullion, and the imports of corn, sugar, coffee, &c. It is a ridiculous prejudice that would mak( us import bullion rather than any other commodity, nut whatever the partisans of the exclusive system may say about its being a preferable product, a marchandise P ατ excellence, we may be assured that it will never appear in [7:9:449]the list of exports or imports, while there is any other commodity with which to carry on trade that will yield a larger profit.

Thus it appears that the excess of exports over imports, instead of being any proof of an advantageous commerce, is distinctly and completely the reverse ;—that a commercial country may, and almost always does, import commodities of greater value than it exports, without rendering itself indebted to foreigners ;—and that when a balance of debt has been contracted, that is, when the sum payable to foreigners for imported commodities is greater than the sum receivable from them for exported commodities, the balance will not be paid by sending bullion from the debtor to the creditor country, unless it be at the time the most profitable article of export.

We have, in the previous section, shown that fluctuations in the nominal exchange have no effect on foreign trade. When the currency is depreciated, the premium which an exporter derives from the sale of the bill drawn on his correspondent abroad, is barely equivalent to the increase in the price of the goods exported, occasioned by the depreciation. But when the premium on a foreign bill is not a consequence of a fall in the value of money, but of a deficiency in the supply of bills, there is no rise of prices, and under such circumstances the unfavourable exchange undoubtedly operates as a stimulus to exportation. As soon as the real exchange diverges from par, the mere inspection of a price current is no longer sufficient to regulate the operations of the merchant. If it be unfavourable, the premium which an exporter receives on the sale of bills must be included in the estimate of the profit he is likely to derive from the transaction. The greater that premium, the less will be the difference of prices necessary to make him export. And hence an unfavourable real exchange has exactly the same effect as a bounty on exportation equal to the premium on foreign bills.

But for the same reason that an unfavourable real exchange increases exportation, it proportionally diminishes importation. When the exchange is really unfavourable, the price of foreign commodities brought to our markets must be so much under their price at home, as not merely to afford, exclusive of expenses, the ordinary profit on their sale, but also to pay the premium which the importer must give for a foreign bill, if he remit one to his correspondent, or for the discount, added to the invoice price, if the latter draw upon him. A much less quantity of foreign goods will therefore suit our markets when the real exchange is unfavourable; and fewer payments having to be made abroad, the competition for foreign bills is diminished, and the real exchange rendered proportionally favourable. In the same way, it is easy to see that a favourable real exchange must operate as duty on exportation, and as a bounty on importation.

It is thus that fluctuations in the real exchange have a necessary tendency to correct themselves. They can never, for any considerable period, exceed the expense of transmitting bullion from the debtor to the creditor country. But the exchange cannot continue permanently favourable or unfavourable to this extent. When favourable, it corrects itself by restricting exportation and facilitating importation; and when unfavourable, it produces the same effect by giving an unusual stimulus to exportation, and by throwing obstacles in the way of importation. 1he true par forms the centre of these oscillations; and though the thousand circumstances that daily and hourly affect the state of debt and credit, prevent the ordinary course of exchange from being almost ever precisely at par, its fluctuations, whether on the one side or the other, are confined within certain limits, and have a constant tendency to disannear.

The natural tendency which the exchange has to correct itself is powerfully assisted by the operations of the bill merchants.

England, for example, may owe an excess of debt to Amsterdam, yet, as the aggregate amount of the debts due by a commercial country, is generally balanced by the amount of those which it has to receive, the deficiency of bills on Amsterdam in London will most probably be countervailed by a proportional redundancy of them in some other quarter. Now, it is the business of the merchants who deal in bills, as of those who deal in bullion or any thing else, to buy them where they are cheap, and to sell them where they are dear. They therefore buy up the bills drawn by other countries on Amsterdam, and dispose of them in London; and, by so doing, prevent any great fall in the price of bills on Amsterdam in those countries in which the supply exceeds the demand, and any great rise in Great Britain and those countries in which the supply happens to be deficient. In the trade between Italy and this country, the bills drawn on Great Britain amount almost invariably to a greater sum than those drawn on Italy. The bill merchants, however, by buying up the excess of the Italian bills on London, and selling them in France, Holland, and other countries indebted to England, prevent the real exchange from ever becoming very much depressed.

An unusual deficiency in the supply of corn, or of any other article of prime necessity, the demand for which could not be immediately contracted, by causing a sudden augmentation of the imports from abroad, materially affects the state of debt and credit with foreign countries, and depresses the exchange. In time of war the balance of payments is liable to be still further deranged; the amount of the bills drawn on a country carrying on foreign hostilities, being increased by the whole expense of its armaments abroad, and of subsidies to foreign powers. But neither the conjoined nor separate influence of both or either of these causes can exert any permanent influence over the exchange. A sudden increase in the accustomed supply of bills must, in the first instance, by glutting the market, occasion their selling at a discount; but this effect can only be of temporary duration. The unusual facilities which are then afforded for the exportation of manufactured produce to the foreign market, and the difficulties which are thrown in the way of importation, never fail speedily to bring the real exchange to par.

In a period of profound peace we may, by exporting an excess of raw or manufactured produce, overload the foreign market, and occasion such a decline in the price of British goods abroad, as to render the imported less valuable than the exported commodities with which they have been purchased. ‘ But such a state of things speedily effects its own cure. The distress which it necessarily occasions leads to an immediate diminution of exports; and the supply of British commodities in the foreign market being thus rendered more nearly commensurate with the demand, they of course sell for an adequate profit; and the value of the imports again exceeds, as it always ought to do, the value of the exports. But whenever a country has a large foreign expenditure to sustain, its exports are proportionally augmented. Such an expenditure can only be discharged either by the government directly sending abroad an equivalent amount of commodities, or by means of bills of exchange drawn against produce exported by private individuals. Supposing the foreign expenditure of Great Britain during the late war to have amounted to ten or twenty millions a-year, it is evident we must have annually exported an equal amount of the produce of ou land, capital, and labour, for which payment would be received, not, as in ordinary cases, by a corresponding importation[7:9:450] of foreign commodities, but from the treasury at home. This is strictly true, even though it were admitted that the expenditure had, in the first instance, been entirely discharged by remittances of bullion; for the increased supply of bullion which was thus required could be obtained only by an equally increased exportation of other produce to the countries possessed of mines, or from which it could be advantageously imported. Foreign expenditure, by increasing exports precisely in proportion to its own amount, is incapable of exerting any permanent effect on the exchange.

Thus it appears that a really great excess of exports, instead of being any criterion of increasing wealth at home, is only a certain indication of great expenditure abroad. “When,” says Mr Wheatley, “the exports exceed the imports, as they must do when there is a large foreign expenditure, the equivalents for the excess are received abroad in as full and ample a manner as if the produce which they purchased were actually imported and entered in the custom-house books, and afterwards sent to the seat of war for consumption. But from the circumstance of its not being inserted in the custom-house entries as value received against the produce exported for its payment, the latter is deemed to constitute a favourable balance, when it is in reality exported to liquidate a balance against us.” (Wheatley On the Theory of Money, p. 219.)

But however conclusive this reasoning may appear, it has nevertheless been contended, that it is at variance with the fact ; and that the rise of the exchange in autumn ] 814, and its restoration to par in 1816, when the restriction on cash payments at the bank was in full operation, is a practical and convincing proof that its previous depression had not been a consequence of the depreciation of the currency, but of the excessive supply of bills on London in the foreign market, occasioned by the expensive contest in which we were then engaged. According to our view of the matter, however, this fact leads to a precisely opposite conclusion. It is of no use to tell us that the exchange came to par while the restriction act was unrepealed. It was never contended that the fact of such law being in existence had any effect on the currency. The restriction was justly condemned, because it enabled the Bank of England to deluge the country with paper. If the bank had never abused that power,—if the proprietors had sacrificed their own individual interests to those of the public, and had constantly kept their paper on a level with bullion,—the restriction act, though unwise, would, as to consequences, have been the same as if it had never existed. The question is not, therefore, whether the exchange came to par while the restriction continued, but whether it came to par while as many notes circulated as in the period of its greatest depression ? If this could be shown, and if it could also be shown that the effective demand for paper had not, at the same time, been proportionally increased, the argument would be conclusive; and we should be compelled to admit that a great comparative increase of paper money has no tendency to diminish its value, or to render the nominal exchange unfavourable!

But it would be worse than idle to set about proving by argument a fact so notorious as the prodigious diminution of bank paper in 1814, 1815, and 1816. In that period above 240 country banks stopped payment; and ninety-two commissions of bankruptcy were issued against these establishments; being at the rate of one commission against every seven and a half of the total number of banks existing in 1813! The Board of Agriculture estimated, that in the county of Lincoln alone above three millions of bank paper had been withdrawn from circulation; and the total diminution of the currency during the three years in question has seldom been estimated at less than from sixteen to twenty millions, though it probably amounted to a great deal more. Mr Horner, the accuracy and extent of whose information cannot be called in question, made the following statement on this subject, in his place in parliament:

“From inquiries he had made, and from the accounts on the table, he was convinced that a greater and more sudden reduction of the circulating medium had never taken place in any country than had taken place since the ρeaee in this country, with the exception of those reductions that had taken place in France after the Mississippi scheme, and after the destruction of the assignats. The reduction of the currency had originated in the previous fall of the prices of agricultural produce. That fall had produced a destruction of country-bank paper, to an extent which would not have been thought possible, without more ruin than had actually ensued. The Bank of England had also restricted its issues. As appeared by the accounts recently presented, the average amount of its currency was not, during the last year, more than between L.25,000,000 and L.26,000,000; while two years ago it had been nearer L.29,000,000, and at one time even amounted to L.31,000,000. But without looking to the diminution of Bank of England paper, the reduction of the country paper was enough to account for the rise which had taken place in the exchange.”

Here, then, is the cause of the exchange coming to par in 1815 and 1816. It had nothing to do with the cessation of hostilities, but was entirely a consequence of the increased value of our currency, caused by the sudden reduction of its quantity. Instead, therefore, of being at variance with the principles we have been endeavouring to elucidate, this fact affords the strongest confirmation of their perfect correctness. And having been sanctioned by the fullest experience, they may be considered as beyond the reach of cavil and dispute.

An objection of a different sort has been made, by a very able economist, to another part of the theory maintained in this section, of which it may here be proper to take some notice.

When the exchange becomes unfavourable, the premium, procured by the sale of the bill drawn on a foreign ∣ merchant to whom bullion has been consigned, is no 1 greater than would be obtained by consigning to him J coffee, tea, sugar, indigo, &c. of equal value. An unfa·, vourable real exchange permits a merchant to export i commodities which could not be exported were the reak exchange at par, or favourable; but the advantage still’ remains of exporting those commodities in preference,! whose price in the country from which they are exported, l compared with their price in the country into which they f are imported, is lowest. Suppose, for example, that thei expense of transmitting bullion from this country to France ♯ is three per cent., that the real exchange is four per cent/ against us, that the price of bullion is the same in h° t ^ 1 countries, and that coffee, exclusive of the expenses of carriage, is really worth four per cent, more in France than in England. In such a case, it is obvious, the exporter of bullion would realize only a profit of one per cent., while the exporters of coffee would realize, inclusive of the premium on the sale of the foreign bill, a profit of seven per cent. And hence the opinion maintained by Colonel Torrens (Comparative Estimate, &c.)> t ^ ιat when the exchange becomes unfavourable, those commodities which contain the greatest value in the smallest bulk, or on which the expense of carriage is least, would be exported in preference, appears to rest on no good foundation. The prices of the commodities which nations trading together are in the habit of exporting and [7:9:451]importing, are regulated not merely by the cost of their production, but also by the expense necessarily incurred in carrying them from where they are produced to where they are consumed. If Great Britain were in the constant habit of supplying France with corn and bullion, the average price of corn in France, because of the expense required to convey it from this country, would plainly be from ten to fifteen per cent, higher than in Britain; while, because of the comparative facility with which bullion might be transported from the one to the other, its value in Paris would not exceed its value in London more than one or two per cent. Now, supposing that when the prices of both corn and bullion in Great Britain and France are adjusted according to their natural proportions, the real exchange becomes unfavourable to us; it is clear, that this fall in the exchange gives no more advantage to the exporters of bullion than to those of corn. The rise in.the price of foreign bills does not increase the expense attending the exportation of corn or bullion. It leaves the cost of producing and transporting these commodities exactly where it found it. During the depression of the exchange, the exporters of both articles derive a premium from the sale of the bills drawn on their foreign correspondents. But there can be no inducement to export bullion in preference to corn, unless the real price of bullion should increase more rapidly in France, or decline more rapidly in Great Britain, than the real price of corn.

Whatever, therefore, may be the depression of the exchange, the merchant invariably selects those commodities for exportation, which, exclusive of the premium, yield the greatest profit on their sale. If bullion be one of these commodities, it will of course be exported; if not, not. Bullion, however, of all commodities, is that of which the value approaches nearest to an equality in different countries, and hence it is the least likely to be exported during an unfavourable exchange. The demand for it is comparatively steady, and no great surplus quantity could be imported into one country without reducing its value, or exported from another without raising its value, so as to unfit it either for exportation or importation. A very small part only of an unfavourable balance is ever paid in bullion. The operations of the bullion merchant are chiefly confined to the distribution of the fresh supplies which are annually dug from the mines proportionally to the effective demand of different countries. Its price is too invariable, or, which is the same thing, its supply and demand are too constant, to admit of its ever becoming an important article in the trade between any two countries neither of which possesses mines.

In corroboration of this argument, we may mention that, according to the official statement laid on the table of the House of Commons, it appears that the expenses incurred by this country on account of the armies acting m Portugal and Spain during the following years, were as under:
[table]

θt which, according to the same official statement, only the following sums were remitted in coin or bullion :—
[table]

Of the sum of five millions voted to our allies in 1813 and 1814, not more than L.300,000 was sent in bullion, the rest being made up by the exportation of manufactured goods and military stores. (Edinburgh Peview i vol. xxvi. p. 154.) The high market price of gold and silver in 1809, 1810, &c. could not, therefore, be owing to the purchases made by government, for they were not greater than the sums exported by the East India Company in 1798 and 1799, and in 1803, 1804, and 1805, when there was scarcely any perceptible rise in the price of bullion. The immense additions made to the paper currency of the country in 1809, 1810, &c. sunk its value compared with bullion, and was the true cause of the unfavourable nominal exchange of that period.

SECT. III. COMPUTED EXCHANGE.

Having thus endeavoured to point out the manner in which variations in the comparative value of the currencies of nations trading together, and in the supply and demand for bills, separately affect the exchange, it now only remains to ascertain their combined effect. It is on this that the computed or actual course of exchange depends.

From what has been already stated, it must be obvious, that when the nominal and real exchange are both favourable or both unfavourable, the computed exchange will express their sum ; and that when the one is favourable and the other unfavourable, it will express their difference.

When, for example, the currency of Great Britain is of the mint standard and purity, and the currency of France five per cent, degraded, the nominal exchange will be five per cent, in favour of this country. But the real exchange may, at the same time, be either favourable or unfavourable. If it be also favourable to the extent of one, two, three, &c. per cent, the computed exchange will be six, seven, eight, &c. per cent, in favour of this country. And, on the other hand, if it be unfavourable to the extent of one, two, three, &c. per cent, the computed exchange will be only four, three, two, &c. per cent, in our favour. When the real exchange is in favour of a particular country, provided the nominal exchange be equally against it,* the computed exchange will be at par, and vice versa.

A comparison of the market with the mint price of bullion affords the best criterion by which to ascertain the state of the exchange at any particular period. When no restrictions are imposed on the trade in the precious metals, the excess of the market over the mint price of bullion affords a pretty accurate measure of the depreciation of the currency. If the market and mint price of bullion at Paris and London exactly corresponded, and if the value of bullion was the same in both countries, the nominal exchange would be at par; and whatever fluctuations the computed exchange might exhibit, must, in such a case, be traced to fluctuations in the real exchange, or, which is the same thing, to the supply and demand for bills. If, when the market price of bullion in Paris is equal to its mint price, it exceeds it ten per cent, in London, it is a proof that our currency is ten per cent, depreciated, and consequently the nominal exchange between Paris and London must be ten per cent, against the latter. Instead, however, of the computed or actual course of exchange being ten per cent, against London, it may be against it to a greater or less extent, or in its favour. It will be more against it provided the real exchange be also unfavourable,—it will be less against it provided the real exchange be in favour of London, though to a Jess extent than the adverse nominal exchange,—and it will be in favour[7:9:452] of London, should the favourable real exceed the unfavourable nominal exchange. Thus, if while British currency is ten per cent, depreciated, and French currency at par, the computed or actual course of exchange between Paris and London were twelve or fifteen per cent, against the latter, it would show that the real exchange was also against this country to the extent of two or three per cent. And if, on the other hand, the computed exchange was only five or six per cent, against London, it would show that the. real exchange was four or five per cent, in its favour, and so on.

It has already been shown, that, in so far at least as the question of exchange is involved, the differences in the value of bullion in different countries are limited by the expense of its transit from one to another. And hence, by ascertaining whether a particular country exports or imports bullion to or from other countries, we are able to determine its comparative value in these countries. Suppose, for example, that the expense of conveying bullion from this country to France, including the profits of the bullion dealer, is two per cent.; it is clear, inasmuch as bullion is only exported to find its level, that whenever our merchants begin to export it to France, its value there must be two per cent, greater than in England; and, on the contrary, when they import bullion from France, it must be two per cent, more valuable here than in France. In judging of the exchange between any two countries, this circumstance must always be attended to. If no bullion be passing from the one to the other, we may conclude that its value is nearly the same in both; at all events, it is certain that the difference of its value is not greater than the expense of transit. On the supposition that the entire expense, including profit, &c. of conveying bullion from Rio Janeiro to London is five per cent., and that the London merchants are importing bullion, then it is clear, provided the real exchange be at par, and that the currency of both cities is at the mint standard, that the nominal, or, which in this case is the same thing, the computed exchange, will be five per cent, in favour of London. But if the currency of London be five per cent, depreciated, or, in other words, if the market price of bullion at London be five per cent, above its mint price, the computed exchange between it and Rio Janeiro, supposing the real exchange to continue at par, will obviously also be at par. It may therefore be laid down as a general rule, that as soon as bullion begins to pass from one country to another, the expense of transit, provided the mint and market price of bullion in the exporting country correspond, will indicate how much the value of bullion in it falls short of its value in the country into which it is imported; or, which is the same thing, will be equal to its unfavourable nominal exchange; and that, when the market exceeds the mint price of bullion in the exporting country, the expense of transit added to this excess will give the total comparative reduction of the value of the precious metals in that country. The converse of this takes place in the country importing bullion. When its currency is of the mint standard, the expense of transit measures the extent of its favourable nominal exchange; but when its currency is relatively redundant or degraded, the différence between the expense of transit and the excess of the market above the mint price of bullion, will measure the extent of the favourable or unfavourable nominal exchange. It will be favourable when the depreciation is less than the expense of transit, and unfavourable when it is greater.

From 1809 to 1815 inclusive, Great Britain continued to export gold and silver to the Continent. During this period, therefore, we must add the expenses attending its transit to the excess of the market over the mint price of bullion, in order to ascertain the true relative value of

British currency, and the state of the real exchange. Mr Goldsmid stated to the bullion committee that, during the last five or six months of the year 1809, the expense of transporting gold to Holland and Hamburg, inclusive of freight, insurance, exporter’s profits, &c. varied from four to seven per cent. But at the same time that the relative value of bullion in Britain was at five and a half (medium of four and seven) per cent, below its value in Hamburg, the market price of gold bullion exceeded its mint price to the extent or sixteen or twenty per cent, or eighteen per cent, on a medium; so that the currency of this country, as compared with the currency of Hamburg, which differed very little from its mint standard, was really depreciated to the extent of twenty-three and a half per cent. Now, as the computed or actual course of exchange varied, during the same period, from nineteen to twenty-one per cent, against London, it is clear that the real exchange could not be very different from par. Had the computed exchange been less unfavourable, it would have shown that the real exchange was in favour of London; had it been more unfavourable, it would, on the contrary, have shown that the real exchange was decidedly against London.

Provided an accurate account could be obtained of the expense attending the transit of bullion from this country to the Continent during the subsequent years of the war, we have no doubt it would be found, notwithstanding the extraordinary depression of the nominal, that the real exchange fluctuated very little from par; and that the exportation of gold and silver was a consequence, not of the balance of payments being against this country, but of its being advantageous to export bullion, because of its being less valuable here than on the Continent. No person will contend that, in 1809, 1810, &c. there was such a redundancy of gold or silver currency in this country as to sink the relative value of these metals. Any such supposition is altogether out of the question. During the period referred to, the precious metals were sent out of the country, because the depreciation of the paper currency exceeded the cost of the transit of bullion; and hence, because it was every body’s interest to pay their debts in the depreciated currency, and to export that which was undepreciated to other countries where there was no law to prevent its passing at its full value as coin, or in which there was a greater demand for bullion. It is indisputably certain that, if our paper currency had been sufficiently reduced, the supply of gold in the kingdom in 1809, 1810, &c. compared with the demand which must, under such circumstances, have been experienced, was so very small, that, instead of exporting, we should have imported the precious metals from every country in the world.

It has been very generally supposed, that the extraordinary exportation of British goods to the Continent during the latter years of the war, was in a great measure owing 1 to the depression of the exchange. But, in so far as this∣ depression was occasioned by the redundancy or déprécia- 1 tion of the currency,· it could have no such effect. It ιsι impossible', indeed, to form any opinion as to the influence 1 of fluctuations in the computed exchange on export and< import trade, without previously ascertaining whether they 1 are a consequence of fluctuations in the real or nominal ↑ exchange. It· is only by an unfavourable real exchange< that exportation, is facilitated; and it may be favourable at 1 the very moment that the computed exchange is decidedly unfavourable. “Suppose,” to use an example given by Mr Blake, “the computed exchange between Hamburg and London to be one per cent, against this country, and that this arises from a real exchange which is favourable to the amount of four per cent, and a nominal exchange unfavourable to the extent of five per cent.; let the real [7:9:453]price of bullion at Hamburg and London be precisely the same, and, consequently, the nominal prices different by the amount of the nominal exchange or five per cent; now if the expenses of freight, insurance, &c. on the transit of bullion from Hamburg are three per cent., it is evident that a profit would be derived from the import of that article, notwithstanding the computed exchange was one per cent, against us. In this case the merchant must give a premium of one per cent, for the foreign bill, to pay for the bullion: L.100 worth of bullion at Hamburg would therefore cost him L.101, and the charges of importation would increase the sum to L.104. Upon the subsequent sale, then, for L.105 of depreciated currency in the home market, he would derive from the transaction a profit of L.l. This sum is precisely the difference between the real exchange and the expenses of transit, that part of the computed exchange which depends on the nominal producing no effect; since whatever is lost by its unfavourable state is counterbalanced by a corresponding inequality of nominal prices.” ( Observations, &lc. p. 91.) In the same manner it may be shown, that, though the computed be favourable, the real exchange may be unfavourable; and that, consequently, it might be really advantageous to export, when it was apparently advantageous to import. But it would be tedious to multiply instances, which, as the intelligent reader will readily conceive, may be infinitely varied, and which have been sufficiently explained in the foregoing sections.

The real cause of the extraordinary importation of British produce into the Continent in 1809, 1810, &c. notwithstanding the anticomercial system of Napoleon, is to be found, not in the state of the exchange; for, inasmuch as that was occasioned by a fall in the value of the currency, it could have no effect whatever either in increasing or diminishing exportation; but in the annihilation of the neutral trade, and our monopoly of the commerce of the world. The entire produce of the East and of the West was placed at our disposal. The continental nations could neither procure colonial produce nor raw cotton for the purposes of manufacturing, except directly from England. British merchandise was thus rendered almost indispensable; and to this our immense exportation, in spite of all prohibitions to the contrary, is to be ascribed. (See Edinburgh Review, No. lxiii. p. 50.)

Negotiation of Bills of Exchange.

In conducting the business of exchange, a direct remittance is not always preferred. When a merchant in London, for example, means to discharge a debt due by him in Paris, it is his business to ascertain not only the state of the direct exchange between London and Paris, and, consequently, the sum which he must pay in London for a bill on Paris equivalent to his debt, but also the state of the exchange between London and Hamburg, Hamburg ι and Paris, &c.; for it frequently happens, that it will be more advantageous for him to buy a bill on Hamburg, Amsterdam, or Lisbon, and to direct his agent to invest the proceeds in a bill on Paris, rather than remit directly to the latter. This is termed the arbitration of exchange. An example or two will suffice to show the principle on which it is conducted.

Thus, if the exchange between London and Amsterdam be 35s. Flemish per pound sterling, and between Paris and Amsterdam Is. 6d. Flemish per franc, then, in order to ascertain whether a direct or indirect remittance to Paris ' v °uldbe most advantageous, we must calculate what would e * 31e value of the franc in English money if the remittance were made through Holland; for if it be less than lat resulting from the direct exchange, it will obviously be the preferable mode of remitting. This is determined by stating, as 35s. Flem. (the Amsterdam currency in a pound sterling): Is. 6d. Flem. (Amsterdam currency in a franc):: L.l.: 10d. the proportional or arbitrated value of the franc. Hence it the English money or bill of exchange, to pay a debt in Paris, were remitted by Amsterdam, it would require 10d. to discharge a debt of a franc, or L.l to discharge a debt of 24 francs: and, therefore, if the exchange between London and Paris were at twenty-four, it would be indifferent to the English merchant whether he remitted directly to Paris, or indirectly via Amsterdam; but if the exchange between London and Paris were above twenty-four, then a direct remittance would be preferable; while, if, on the other hand, the direct exchange were less than twenty-four, the indirect remittance ought as plainly to be preferred.

“Suppose,” to borrow an example from Dr Kelly (Universal Cambist, vol.ii. p. 137), “the exchange of London and Lisbon to be at 68d. per milree, and that of Lisbon on Madrid 500 rees per dollar, the arbitrated price between London and Madrid is 34d. sterling per dollar; for as 1000 rees: 68d.:: 500 rees: 34d. But if the direct exchange of London on Madrid be 35d. sterling per dollar, then London, by remitting directly to Madrid, must pay 35d. for every dollar; whereas, by remitting through Lisbon, he will pay only 34d.; it is, therefore, the interest of London to remit indirectly to Madrid through Lisbon. On the other hand, if London draws directly on Madrid, he will receive 35d.'sterling per dollar; whereas, by drawing indirectly through Lisbon, he would receive only 34d.; it is, therefore, the interest of London to draw directly on Madrid. Hence the following rules:

“1. Where the certain price is given, draw through the place which produces the lowest arbitrated price, and remit through that which produces the highest.

“2. Where the uncertain price is given, draw through that place which produces the highest arbitrated price, and remit through that which produces the lowest.”

In Compound Arbitration, or when more than three places are concerned, then, in order to find how much a remittance passing through them all will amount to in the last place, or, which is the same thing, to find the arbitrated price between the first and the last, we have only to repeat the different statements, in the same manner as in the foregoing examples.

Thus, if the exchange between London and Amsterdam be 35s. Flem. for L.l sterling; between Amsterdam and Lisbon 42d. Flem. for 1 old crusade; and between Lisbon and Paris 480 rees for 3 francs, What is the arbitrated price between London and Paris?

In the first place, as 35s. Flem.: L.l:: 42d. Flem.: 2s. sterling, = 1 old crusade.

Second, as 1 old crusade, or 400 rees: 2s. sterling:: 480 rees: 2s. 4∣d. sterling, — 3 francs.

Third, as 2s. 4∣. sterling: 3 francs:: L.l sterling: 25 francs, the arbitrated price of the pound sterling between London and Paris.

This operation may be abridged as follows:
[table]

This abridged operation evidently consists in arranging the terms so that those which would form the divisois in continued statements in the Rule of Three are multiplied [7:9:454]together for a common divisor, and the other terms for a common dividend. Arithmetical books abound with examples of such operations.

The following account of the manner in which a very large transaction was actually conducted, by indirect remittances, will sufficiently illustrate the principles we have been endeavouring to explain.

In 1804 Spain was bound to pay to France a large subsidy; and, in order to do this, three distinct methods presented themselves;

1. To send dollars to Paris by land.

2. To remit bills of exchange directly to Paris.

3. To authorise Paris to draw directly on Spain.

The first of these methods was tried, but it was found too slow and expensive; and the second and third plans were considered likely to turn the exchange against Spain. The following method by the indirect or circular exchange was therefore adopted.

A merchant, or banquier, at Paris, was appointed to manage the operation, which he thus conducted: He chose London, Amsterdam, Hamburg, Cadiz, Madrid, and Paris, as the principal hinges on which the operation was to turn; and he engaged correspondents in each of these cities to support the circulation. Madrid and Cadiz were the places in Spain from whence remittances were to be made; and dollars were, of course, to be sent to where they bore the highest price, for which bills were to be procured on Paris, or on any other places that might be deemed more advantageous.

The principle being thus established, it only remained to regulate the extent of the operation, so as not to issue too much paper on Spain, and to give the circulation as much support as possible from real business. With this view London was chosen as a place to which the operation might be chiefly directed, as the price of dollars was then high in England, a circumstance which rendered the proportional exchange advantageous to Spain.

The business was commenced at Paris, where the negotiation of drafts issued on Hamburg and Amsterdam served to answer the immediate demands of the state; and orders were transmitted to these places to draw for the reimbursements on London, Madrid, or Cadiz, according as the course of exchange was most favourable. The proceedings were all conducted with judgment, and attended with complete success. At the commencement of the operation, the course of exchange of Cadiz on London was 36d.; but, by the plan adopted, Spain got 39∣d. or above eight per cent, by the remittance of dollars to London, and considerable advantages were also gained by the circulation of bills through the several places on the Continent.^[12. Kelly’s Cambist, vol. ii. p. 168; Dubost’s Elements of Commerce, 2d edit. p. 218. ]

Bills of exchange are made payable at sight·, — at a certain specified time after sight, or afterdate ;—or at usance, which is the usual term allowed by the custom or law of the place where the bill is payable. Generally, however, a few days are allowed for payment beyond the term when the bill becomes due, which are denominated days of grace, and which vary in different countries. In Great Britain and Ireland three days of grace are allowed for all bills except those payable at sight, which must be paid as soon as presented.

The following is a statement of the usance and days of grace for bills drawn by London on some of the principal commercial cities:

[m∖d. m∖s. d∖d. d∖s. d∖α. respectively denote months after date, months after sight, days after date, days after sight, days after acceptance.}
[table]

In the dating of bills the new style is now used in every country in Europe with the exception of Russia.

In London, bills of exchange are bought and sold by' brokers, who go round to the principal merchants, and discover whether they are buyers or sellers of bills. A few of the brokers of most influence, after ascertaining the state of the supply and demand for bills, suggest a price at which the greater part of the transactions of the day are settled, with such deviations as particular bills, from their being in very high or low credit, may be subject to. The price fixed by the brokers is that which is published in Wettenhall’s list; but it is stated by Mr Goldsmid, that the first houses generally negotiate their bills on a half, one, one and a half, and two percent better terms than those quoted. In London and other great commercial cities, a class of middlemen speculate largely on the rise and fall of the exchange, buying bills when they expect a rise, and selling them when a fall is anticipated.

History and Advantages of Bills of Exchange.

It is not easy to discover the precise era when bills of exchange were first employed to transfer and adjust the· mutual claims and obligations of merchants. Their in-∣ vention has been ascribed to the Arabians and the Jews, of the middle ages; but it seems certain that bills were in use in remote antiquity. Isocrates states that a stranger who brought some cargoes of corn to Athens, furnished a merchant of the name of Stratocles with an order or bill of exchange, on a town on the Pontus Euxinus, where money was owing to him; and, because the person who had drawn the bill had no fixed domicile, Stratocles was to have recourse on a merchant in Athens, m the event of its being protested. The merchant, says Isocrates,-who procured this order found it extremely advantageous, inasmuch as it enabled him to avoid risking his fortune on seas covered with pirates and the hostile squadrons of the Lacedaemonians. (De Pauw, Recherches sur les Grecs, i. 258.)

There is also unquestionable evidence to show that the method of transferring and cancelling the debts of part∣< [7:9:455]residing at a distance, by means of letters of credit, or, which is in effect the same thing, by means of bills of exchange, was not unknown to the Romans. Cicero, in one of his epistles to Atticus (Epist. ad Atticum, χfi. 24), inquires whether his son must carry cash to defray the expense of his studies along with him to Athens, or whether he might not save this trouble and expense by obtaining αη assignment for an equivalent sum from a creditor in Borne on his debtor there. It is evident, from a subsequent epistle of Cicero’s, that the latter method had been preferred, and that the transference of the money had in consequence been rendered unnecessary. (Epist. ad Atticum, xii. 27.)^[15. “De Cicerone, ut scribis, ita faciam: ipsi permittam de tempore: nummorum quantum opus erit ut permutetur tu videbis. ∏ his notes on a parallel passage, Graevius remarks, Ρermιιtatiο est quod nunc barbare cambum dicitur. (Ερist∙ ad Atticurnxι∙ 24.) ]

Mr Macpherson states (Annals of Commerce, ĩ. p. 405), that the first mention of bills of exchange in modern history occurs in 1255. The pope having quarrelled with Manfred, king of Sicily, engaged, on Henry III. of England agreeing to indemnify him for the expense, to depose Manfred, and raise his second son Edmund to the Sicilian throne. The enterprise misgave. But the merchants of Sienna and Florence who originally advanced the money to carry it into effect, or rather to gratify the pope’s rapacity, were paid by bills of exchange drawn on the Prelates of England, who, although they protested they knew nothing at all about the transaction, were nevertheless compelled, under pain of excommunication, to pay the bills and interest!

Capmany, in his Memoirs respecting the Commerce, &c. of Barcelona, gives a copy of an ordonnance of the magistracy, dated in 1394, enacting that bills should be accepted within twenty-four hours after their presentation;—a sufficient proof that they were in general use in the beginning of the fourteenth century.

But whatever be the era of the introduction of bills of exchange, very few inventions have redounded more to the general advantage. Without this simple and ingenious contrivance, commerce could not have made any considerable progress. Had there been no means of settling and adjusting the mutual claims of debtors and creditors otherwise than by the intervention of metallic money (for bank paper is only another species of bills of exchange), a very great proportion,—many hundreds of millions,—of that capital which is now setting productive labour in motion in every quarter of the globe, and ministering to the wants and the enjoyments of mankind, must have been devoted to the expediting those exchanges which are much better accomplished by the agency of a few quires of paper. Instead of a perpetual importation and exportation of gold and silver, necessarily attended by an immensity of trouble and expense, a few bills of exchange, possessing little or no intrinsic worth, and which maybe transferred with the utmostfacility, suffice to adjust the most extensive and complicated transactions. But the mere setting free of an immense productive power, engaged in a comparatively disadvantageous employment, is only one of the many benefits we owe to the use of bills 01 exchange. By cheapening the instruments by which commerce is carried on, they have materially reduced the prices of most commodities; and have, in consequence» increased the command of all classes over the necessaries and luxuries of life, and accelerated the progress of civilization, by occasioning a much more extensive intercourse and intimate connection between different and independent countries, than could otherwise have taken place.

In a political point of view their effects have been equally salutary. They enable every individual imperceptibly to transfer his fortune to other countries, and to preserve it safe alike from the rapacity of his own government and the hostile attacks of others. The security of property has, in consequence, been prodigiously augmented. And though we should concede to the satirist that papercredit has “lent corruption lighter wings to fly,”^[16. thest paper credit! last and best supply! That lends corruption lighter wings to fly! Gold imp’d by thee can compass hardest things, Can pocket states, can fetch or carry kings; A single leaf shall waft an army o’er, Or ship of senates, to some distant shore; A leaf, like Sibyll’s, scatter to and fro Our fates and fortunes, as the wind shall blow; Pregnant with thousands flits the scrap unseen, And silent sells a king, or buys a queen— Pope. ] it is easy to show that it has powerfully contributed to render subjects less dependent on the policy, and less liable to be injuriously affected by injudicious measures on the part of their rulers. In countries in a low stage of civilization, the inhabitants endeavour, by burying all the gold and silver they can collect, to preserve a part of their property from the despots by whom they are alternately plundered and oppressed. This was universally the case in the middle ages; and in Turkey, India, Persia, and other eastern countries, the practice is still carried on to a very great extent. Some economists have endeavoured to account for the long-continued importation and high value of the precious metals in India, by the loss which necessarily attends the practice of hoarding; and undoubtedly this locking up of capital is one of the main causes of the extreme poverty of these countries. But the security afforded by bills of exchange is infinitely greater than any derived from the barbarous expedient of trusting property to the bosom of the earth. “Pregnant with thousands flits the scrap unseen,” and in a moment places the largest fortune beyond the reach of danger 1 Mr Harris was, therefore, right in saying, “that the introduction of bills of exchange was the greatest security to merchants, both as to their persons and effects, and consequently the greatest encouragement to commerce, and the greatest blow to despotism, of any thing that ever was invented.” (Harris on Coins, part i. p. 108.)

Previously to the peace of Paris in 1763, Amsterdam, because of its commerce, the wealth and punctuality of its merchants, and their intimate connection with all the other great trading cities of the world, was the chief place where the accounts of the different commercial countries were balanced and adjusted. But the entire loss of foreign trade, and the other vexations to which Holland was subjected during the ascendancy of the French, nearly divested Amsterdam of all share in this business. London has now become the trading metropolis of Europe, and of the world. The vast extent of its commercial dealings has necessarily rendered it the great mart for bills of exchange. Its bill merchants, a class of men remarkable for their shrewdness, and generally possessed of laŗge capitals, assist in trimming and adjusting the balance of debt and credit between the most remote countries. They [7:9:456]buy up bills where they are cheap, and sell them where they are dear; and, by the extent of their correspondence and the magnitude of their transactions, give a steadiness to the exchange, which it could not otherwise attain.

Laws and Customs Respecting Bills and Notes.

A bill of exchange may be defined to be an open letter of request or order from one person, the drawer, to another person, the drawee, who is thereby desired to pay a sum of money, therein specified, to a third person, the payee. When the drawee obeys the request or order, by subscribing the document, he becomes acceptor. If the contrary do not appear on the face of the bill, it is presumed that the drawee has funds of the drawer s in his hands to the amount of the bill, and that the drawer is indebted to theyjayee to that extent. The bill thus operates as a transfer ormercantile assignment to the payee, of the drawee’s debt to the drawer. But a bill may also be drawn payable to the drawer or his order, in which case, when accepted, the document is not an assignment, but merely the acknowledgment or constitution of a debt. This is also accomplishable by promissory note, which is a promise by one person, the maker (Scoticĕ granted), to pay a sum to another person, the payee (Scoticé granted). The bill and the promissory note have now equally the privilege of being assignable or transferable from one person to another by indorsement, that is, by the payee subscribing his name on the back of the document. In this case the payee becomes an indorser, and the person in whose favour the indorsement is made is called the indorsee, who may again indorse to another; and in this manner the bill or note may pass from hand to hand without limitation. Each indorsation may be made in full or in blank ; in full, by filling up the name and description of the party in whose favour it is made, which is attended with several advantages if the document should be lost or stolen; in blank, by merely subscribing the indorser’s name, which is equivalent to making it payable to the bearer. All the indorsements, or any one of them, may also be qualified by the words without recourse ; and when this is done, neither the indorsee nor any subsequent holder of the bill or note can have recourse on the indorser who thus qualifies his indorsation. If none of the indorsations be so qualified, the last holder for value, and in bona fide, has all the prior indorsers and other parties to the bill or note bound to him jointly and severally. He may select any one of them, or proceed against them all at the same time; and if all were to become bankrupt, he could claim on the estate of each for the whole debt, and be entitled to receive dividends from ail the estates until he obtained full payment, but which he must not exceed. An indorser may also qualify his indorsation by the condition that his indorsee shall not have the power of making an indorsement from himself.

From the negotiability thus conferred upon them, bills have been compared to bags of money; but it should be remembered that, in the former case, we transfer only a right, in the latter the property itself. The comparison is best supported in those transferences which are made without recourse, since, in those instances, the bill passes from hand to hand without any alteration in the rights and duties of those interested in it, and without any one acquiring an additional security. In the simplest case, however, the rights arising on a bill may be preserved or lost by the conduct of the holder; and where there has been even one unqualified indorsation, the duties of the holder are of a delicate and important nature. But these will be more readily understood after we have pointed out the requisites of a bill.

The general requisites of a bill are, that it must be payable at all events; that it must be for payment of money only; and that the money must not be payable from any particular fund. Of the more special requisites, the fast is, that any bill or note drawn or made in Great Britain (though dated abroad^[17. Chitty, õth edit. p. 70, 7 T. 11. G01, 4 Camp. La-x, 2G9. ]) or in its colonies, is, that it be written on paper stamped according to the law of the mother country or colony, as it happens to be drawn in the one or the other. The stamp-duty varies according to the sum in the bill, and the extension of the term of payment: but for these particulars, and the mode of complying with the provisions of the law, reference should be made to the statutes in force at the time. The present regulating statute is that of 55 Geo. III. c. 184, both as to inland bills and notes, and bills of exchange drawn here on foreign countries. As to bills truly drawn in foreign states, not colonies of Great Britain, on traders in this country, our law takes no cognizance of them as to whether they are or are not stamped; but promissory notes made out of Britain are declared not to be negotiable or payable unless stamped agreeably to our laws. Bills drawn at home must also be written on the stamp appropriated for bills. If on a stamp of another denomination, though of equal or superior value, they are invalid if not got re-stamped, which they may be for payment of the duty and a penalty of 40s. when carried to the stamp-office before they are due, but when after due, the penalty is L.10. If written on a stamp below the proper value, a penalty is incurred of L.50, and the bills, besides, are null (Bell’s Com. on Bankrupt Law, vol. ii. p. 249); but it has been found with us in England, that if a bill be not properly stamped, a neglect to present for acceptance or payment will not relieve parties who are otherwise liable in the original debt in respect of which the bill was granted. The relief in this case is granted by a court of equity, but this relief is not extended to remote indorsers not responsible for the original debt. Relief, however, is given when a party has bound himself to grant a valid note or bill, but gives one by mistake or design on a defective stamp. Negotiable bills under L.5 must, by 37 Geo. III. c. 32, be payable within twenty-one days, and bear the name of the place where they are made, without which also checks on bankers are liable to stamp-duty. Penalties are likewise imposed on the post-dating of such checks, or of bills, for the purpose of reducing the duty by apparently shortening the term of payment; and there are provisions in those laws respecting bills drawn in sets or otherwise, with which every trader should make himself acquainted. This, however, it is very difficult to do in all its bearings, since the penalties and provisions of the prior statutes are retained in every subsequent one, except as therein specially altered. This is one great evil in our fiscal regulations. Where the law cannot be known, transactions are rendered uncertain, property insecure, and litigation is increased to a mischievous extent. But the worst evil is, that this state of the law increases in a prodigious degree the influence of the crown, by the power over traders which is thus placed in the hands o solicitors of stamps, excise, customs, and other crown or-ficers∙

The other requisites of a bill are, 2<Ŵ/, That it should bear the name of the place at which it is made or drawn, and if the street and number of the house be added, it ιs [7:9:457]easier to give and receive the notices that may be necessary, in proper time. 3√Zy, The date should be distinctly marked, and, if written at length, a higher protection would be afforded against accidental or intentional alterations and vitiations. If a bill have no date, the date of issuing will be held as the date of the bill, ⅛thly, The time of payment should be clearly expressed, and a time certain is necessary to make the document negotiable ; that is to say, the payment must not depend on an event that may never happen, such as the marriage of a person, though it may on the death. 5thly, The place at which a bill is made payable should also, for the sake of safe negotiation, be distinctly stated; because at that place presentment must be made both for acceptance and payment. If no place be mentioned, the place of doing business, if the acceptor have one, or otherwise his dwelling-house, becomes the place of presentment. Qthly, The sum payable should be clearly written in the body of the bill, and the superscription of the sum in figures will aid an omission in the body. This sum must in all cases be above 20s.; and if payable more than twenty-one days after date, it must exceed L.5. t lthly, It should contain an order or request to pay. ⅛thly, Of bills drawn in parts or sets, each part or copy should mention the number of copies used, and be made payable on condition that none of the others has been paid. The forgery of an indorsement on one of the parts passes no interest even to a bona fide holder, and will not prevent the payee from recovering on the other part. 2thly, Every bill should specify distinctly to whom the contents are to be paid; but a bona fide holder, or his executor, may fill up a blank, if one be left, for the name of the payee, and recover payment. (Chitty, 82; Bell, vol. ii. p. 251, &c.) ∖ t0tldy, If it be intended that a bill is to be negotiable, it should contain the operative words of transfer “to order although, if the original intention be clear, these words may be inserted without a fresh stamp. (Chitty, 86.) ∖∖ thly, It is advisable in all cases to insert value received ; since, without these words, the holder of an inland bill for upwards of L.20 could not, in England, recover interest and damages against the drawer and indorser in default of acceptance or payment. Bills bearing for value received, and payable after date, seem also to possess advantages when lost, under the statutes 9 and 10 W. III. c. 17; but equity would probably extend these to indorsements; and 3 and 4 Anne, c. 9, it is thought, extends the same to notes. (Chitty, p. 196.) ∖ %thly, As to foreign bills, the drawee should attend to whether they are to be paid with or without further ad-rice ; since the propriety of his accepting or paying will, m the one case, depend on his having received advice, ‘he more carefully all these requisites are attended to, the greater is the security of all concerned against accidents and litigation. But traders, we fear, have too generally a prejudice in favour of that brevity which approaches to looseness of expression, and against that precision which alone can keep them out of difficulties.

When a bill, check, or note, is payable on demand, or then no time of payment is expressed, it should be presented within a reasonable time after receipt, and is payable on presentment, without the allowance of any days of grace. It is yet unsettled (Chitty, 344, et seq.) whether bills drawn at sight are entitled to days of grace, though ⅛e weight of authority is rather in favour of them. If rawn at one or more days after sight, the days of grace must be allowed. The day on which a bill is dated is not reckoned one; but all bills having days of grace, become ue, and must be presented and protested, on the third ,√* r, an ð if that day be a Sunday or holiday, on the second. e rule for giving notice of non-acceptance or non-payent is different, since, if the dav on which it should have been given be a day of rest, by the religion of the party, such as the Jews Sabbath, the noticeswill be good if given on the next day. Calendar months are always un- ' derstood with respect to bills; and if dated on the 29th, 30th, or 31st of January, payable one month after date, they will fall due on the last day of February·, from which the days of grace are to be calculated. Presentments of bills should be made within business hours. These are generally * considered to be in London from nine morning to six even-í ing, but a protest has been held good against an ordinary trader when made at eight. This would not have been good in the case of bankers, whose hours (from nine to five in London) must be attended to. In Edinburgh, bankers’ hours are from ten to three; traders from ten to three and from six to eight; but there are no Scotch decisions holding these as the only business hours. A verbal notice of the dishonour of an inland bill is good; but as such notice is always matter of parole evidence, it is better in every case to give notice in writing, and the regular mode of doing so is by post. Such notice, if put into the general post-office, or an authorized receiving-house, is good though it miscarry, provided the letter be regularly booked, and reasonable proof be made of its having been put into the post-office. If given only to a bellman in the street, it would not in such a case be good. When there is no post, the ordinary mode of conveyance, such as the first ship or carrier, is sufficient. As to foreign bills, notices of dishonour, with the respective protests, must be dispatched by post on the day when the bills become due, or on which the acceptance was refused, if any post or ordinary conveyance set out that day, and if not, by the next earliest conveyance. (Chitty, 291.) As to inland bills, notice should be made by the first post after the expiry of a day, when the parties reside at a distance; if in the same town it is enough if the notice be made so as to be received within business hours of the following day, and this may be done by the twopenny or penny post, if receivable within the time mentioned. When a holder deposits his bill at his banker’s, the number of persons entitled to notice is increased by one; and each party in succession is entitled to twenty-four hours for giving notice (6 East. 3 Bell, 263.) Such notice, as to inland bills, is necessary in England for preserving recourse as to the principal sum only. If protest be made and notice given within fourteen days, the recourse is preserved as to interest, damages, and expenses. In Scotland a protest is necessary in every case, and there is no distinction made as to the mode of recourse between principal and interest; but intimation to the drawer within fourteen days preserves recourse for the whole (Bell, vol. ii. p. 265); and it has been decided, that notice of an indorser may be good even after the fourteen days, if there has been no unnecessary delay. (Fac. Col. 2d June 1812.) But this applies only to inland bills, and a bill drawn from Scotland upon England is in Scotland held to be foreign. (Bell, vol. ii. p. 265.) Every bill should be presented for payment on the day upon which it falls due, unless that be rendered impossible by some unforeseen and inévitable accident, such as shipwreck, or sudden illness, or death. To preserve recourse, the accident, and the presentment of the bill as soon as possible afterwards, must be intimated without delay, and, if denied, proved by the party who seeks recourse. The same doctrine will hold as to presentments for non-acceptance and notices of dishonour. But the loss or destruction of a bill is no excuse for not demanding payment and protesting; the protest in that case being made upon a copy or statement of the bill, if the party who has right to hold the bill has it in his power to make such a statement. If the destruction of the bill can be proved, action will be sustained[7:9:458] in a court of law; if not, the ι edress is got upon giving an indemnity in a court of equity; but as equity will not interfere where law can, it is of importance in such a case, and indeed in all cases of difficulty, to resort at once to the best professional advice. Inconsiderate attempts to remedy neglects, or cure what is defective, generally make the case worse, and often implicate character. Cases of great hardship and difficulty frequently arose on bills granted partly for usurious consideration. A mighty benefit, however, has now been conferred by the statute 58 Geo. III. c. 93, which enacts, “That no bill of exchange or promissory note that shall be drawn or made after the passing of this act shall, though it may have been given for a usurious consideration, or upon a usurious contract, be void in the hands of an indorsee for valuable consideration, unless such an indorsee had, at the time of discounting or paying such consideration for the same, actual notice that such bill, &c. had been originally given for a usurious consideration, or upon a usurious contract.” It is much to be regretted that the same protection was not extended by this statute to the innocent holder of a bill granted for a game debt. Such bills are still void in the hands of a bona fide indorsee. In Scotland it has been decided otherwise, (25th January 1740, Nielson; Bell, vol. ii. p. 210.) The rage for legislation has not yet extended itself to lawyers, who, as a body, can hardly be expected to display an anxiety to remedy defects which add to their emoluments and consequence. How much of the learning of this profession is wasted on niceties and difficulties that would readily yield to the spell of an act of parliament! To the law, however, we owe this sound maxim, that “unless it has been so expressly declared by the legislature, as it formerly was in the case of usury, and still is as to bills for game debts, illegality of consideration will be no defence in an action at the suit of a bona fide holder, without notice of the illegality, unless he obtained the bill after it became due.” (Chitty, 105.) Υ ∖ nxs forgery does not vitiate a bill. The forged document is good to and against all parties but those whose names are forged. Against one whose name is forged, it is true, it will neither support an action nor ground a claim; “yet if he have given credit to acceptances or indorsations as binding on him, forged by the same hand, he will be liable.” (3 Esp'. N. P. 60; 2 Bell, 250.) Subsequent approbation also does away an objection on the head of forgery or fraud, and generally all sorts of objections otherwise competent. This doctrine holds as to vitiations when the stamp laws are not concerned; but without the consent of parties all vitiations or alterations of bills in material parts are fatal. (2 Bell, 252.) A clerk or servant may accept a bill for his master if authorized so to do; and authority will be inferred from a sanctioned practice. The law on this point is dangerous, and would require legislative revision. If the servant or agent do not explain the character in which he acts, but subscribes his own name simply, he will bind himself, not his employer. An acceptor may enlarge the term of payment, or accept for a part, or under any other condition not expressed in the bill; but in that case it is optional in the holder to take the acceptance as thus offered, or to proceed as if no such offer had been made; if rejected, the protest should bear the condition, and the rejection of it; it should also be kept in view, that a holder who accepts of a limited or conditional acceptance, liberates the drawer and prior indorser, unless he have their consent. Blank indorsements are held to be of the date of the bill, until the contrary is proved. Indorsements after the term of payment, though for value, do not protect the indorsees like indorsements before maturity; very slight evidence is admitted as proof of knowledge of dishonour, and the holder in that case becomes liable to all exceptions which can be stated against the right of his immediate indorser, or the person who held the bill when it became due. When acceptance is refused, and the bill returned with protest, action may be raised immediately against the drawer, though the regular time of payment is not arrived. His debt, in such a case, is considered as contracted the moment the bill was drawn· if the date of the bill be prior to that of a commission of bankrupt, the debt, in such a case, may be claimed upon. As to current bills and contingent claims, the case is unfortunately different; in these respects England mi+t derive great help from the law of Scotland.

The drawee, who, having funds, refuses to accept, is responsible for the consequences to the drawer, and may also be sued for payment by the payee or holder, the presentment and protesting of the bill for non-acceptance operating as an intimated assignment and complete transfer of the debt to the holder, who in Scotland is preferred to any subsequent arrester. The drawee who has no funds is not bound to accept; but, after protest for non-acceptance, he may accept supra-protest, for the honour of the drawer and indorsers, or either of them. A third party may thus accept for honour supra-protest ;'and whoever does so, if he give immediate notice, and send off the protest, may have immediate recourse on the party or parties for whose honour he has interfered.

It is the duty of a payee, when directed by the drawer, and of every one who is merely an agent for the owner, though acting gratuitously, to present a bill for acceptance. The time thought reasonable for this purpose is twenty-four hours, or at least within business hours of the day following that on which the bill was received. It is prudent in all holders of a bill to present for acceptance within this period; and in all cases where a presentment is made, and acceptance refused, notice should be given to all against whom it is meant to preserve recourse. A draught may be left twenty-four hours with the drawee, if no post go out in the mean time; but if he intimate within that time that he will not accept, or ask more time to consider, notice should be given. (Chitty, 288, 289.) A verbal acceptance, if it can be proved, or one by a separate writing, binds the drawee; but in Scotland none but a written acceptance on the bill will authorize the usual summary diligence. (Chitty, 217-270; 2 Bell, 69-240.) If the drawee had no funds, notice to the drawer is not necessary; but as the not having fundsis a matter of fact to be proved, it is safer in this, and indeed in all other cases, to give the usual and regular notice. When a bill is drawn at some certain time after sight, presentment is necessary to fix the term of payment. Respecting bills of this description, both foreign and inland, the general rule is, that due diligence must be used, foreign bills, so drawn, may be put into the circulation without acceptance as long as the convenience of the successive holders requires; and it has been found not to be laches (in Sçotland mora, or undue delay) to keep a bill (at three flays’ sight) out in the circulation for twelve months; but if, instead of circulating, a holder were to lock it up, this would be laches. An unacceptable inland bill may also be put into circulation; and any holder, who does not circulate it, has a reasonable time, such as the fourth day respecting a bill drawn within twenty miles of London, for presenting it there for acceptance. Dispatch and attention, however, are always advisable. It is said that when a bill has been already protested for non-acceptance, and due notice thereof given, it is not necessary to protest or to give notice on account of non-payment, but it is usual to do so, and the safer practice. Ibe same rules and the same time should be observed as to [7:9:459] non-payment, that are observed as to protest and notice, in the case of non acceptance. When inland bills are made payable on a day named and fixed in the bills, it is common to delay presenting them for acceptance, until they can also be presented for payment, and then, if necessary, to protest for both; but it is better to make a presentment for acceptance as soon as it can be done in the ordinary course of business. It has already been stated, that notice either of non-acceptance when a presentment has been made, or for non-payment, must be given io all the parlies to whom the holder intends to resort for payment. Bankruptcy is no excuse for neglecting any step in the negotiation of a bill. If a party be bankrupt, notice of recourse should be given to him and his assignees; if cføw/, to bis executor or administrator; if abroad, the notice should be left at his place of residence, if he have one, and a demand of acceptance or payment (when that is necessary) should be made of his wife or servant. Notice should also be made to one who merely guarantees payment; and a person who subscribes a bill not addressed to him is held to be a collateral security. If notice be made to one indorser, he may give notice to prior indorsers, or to the drawer; and if done timeously, it will be available to the bolder; but notice by a party, not party to the bill, nor agent for a party, will not be available.

Accommodation bills are subject to the same rules as other paper, except among those who agree to lend their names or credit. Among them the rule is, that he for whose use the money is to be raised shall provide for the bill; but as all the others have an action of relief when forced to pay, they are entitled to notice. In Scotland this has been extended to the drawer when he is not the party for whom the credit was intended. With respect to cross paper, it is held that mutual accommodations exchanged are good considerations for each other; that in case of bankruptcy, a dividend from any one estate is to be held as payment of all that can be demanded in respect of that debt; and that there can be no double ranking of the same debt. But questions often arise in such cases, which require the utmost professional skill to comprehend and decide. In a short digest of this nature it is impossible to enter.into the niceties of legal questions; and we can only observe generally, that parties should never act in cases of difficulty, without taking the best professional assistance.

The law respecting bills of exchange is more consonant to reason than almost any other branch of our law, since, where it is silent, recourse is had to the custom of merchants.

The best authorities respecting the law of bills are the treatises of Chitty and of Bayley as to English law, and AIr Bell’s Commentaries on Mercantile Jurisprudence as to Scotch law.

Par of Exchange between England and the following places, viz. Amsterdam, Hamburg, Paris, Madrid, Lisbon, Leghorn, Genoa, Naples, and Venice; the same being computed from the intrinsic Value of their principal Coins, by comparing Gold with Gold, and Silver with Silver, according to their Mint Regulations, and to Assays made at the London and Paris Mints. (Presented by Dr Kelly to the Committee of the House of Lords on the expediency of the Bank’s resuming Cash Payments.)
[table]
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Table containing the Value of the Monies of Account of different Places (expressed in Pence and Decimals or Pence), according t the Mint Price both of Gold and Silver in England; that is, L.3 17s. 10∣d. per Ounce for Gold, and 5s. 2d. per Ounce for Silver Kelly’s Cambist, ii. p. 149.
[table]
[7:9:461]

Exchange also signifies a place in most considerable trading cities, where the merchants, agents, bankers, brokers, interpreters, and other persons concerned in commerce, congregate on certain days, and at certain times of the day, to confer and treat together of matters relating to exchanges, remittances, payments, adventures, assurances, freightments, and other mercantile negotiations, both by sea and land.

In Flanders, in Holland, and in several cities of France, these places are called Bourses ; at Paris and at Lyons, Places de Change ; and in the Hanse Towns, Borsenhalle. These assemblies are held with so much exactness, and merchants and traders are so indispensably required to attend at them, that a person’s absence alone makes him suspected of a failure or bankruptcy. The most considerable exchanges in Europe are, first, that of Amsterdam, and, secondly, that of London, called the Royal Exchange.

Even in the time of the ancient Romans, there were places for merchants to meet, in most of the considerable cities of the empire. That which is said by some to have been built at Rome in the year of the city 259, or 493 years before Christ, under the consulate of Appius Claudius and Publius Servilius, was called Collegium Mercatorum, of which it is pretended there are still some remains, called by the modern Romans Loggia or the Lodge, and now usually the place of St George. This notion of a Roman exchange is supposed to be countenanced by the authority of Livy.