BOOK III. The in debtedness of India to England causes the exports attained, when France exported to England a sufficient amount of commodities not only to pay for the commodities she imports, but also to pay the amount which she annually owes to England. It therefore appears, that it is not correct to say that in all cases the equation of international trade requires that the exports of a country should be equivalent in value to the imports; on the contrary, if a country is in debt to other countries, her exports will exceed in value her imports by an amount equivalent to her annual indebtedness. If, on the other hand, a country should be a creditor and not a debtor of other countries, the value of her imports will exceed that of her exports by an amount which will be equivalent to the indebtedness of other countries to her. The enunciation of these principles at once affords an explanation of the circumstance to which allusion has already been made, namely, that England's imports largely exceed her exports, whereas in India, and in many other countries, the exports exceed the imports. From the large number of foreign loans that are raised in the London Money Market, and from the great amount of English capital that is embarked in various foreign investments, it is quite evident that a great amount is each year due to England from foreign countries, independently of the amount which may be due to England for the commodities purchased from her. Hence it follows that foreign countries will have to send to England an amount of commodities considerably in excess of the amount which would be required to pay for the commodities procured from England. It therefore appears that England's imports largely exceed her exports because of the great amount of capital which she has invested in foreign countries. After the explanation which has just been given, it is scarcely necessary to say that if a country borrows from other countries more capital than she lends to them, an exactly opposite phenomenon will occur to that which happens in England, for then the exports must be in excess of the imports. For instance, it is well known that scarcely any capital is embarked either by the Indian Government or by the Indian people in any foreign investment, whereas England has lent large sums to the Indian Government, and a great amount of English capital has also been invested in various undertakings in India, such The principles of international trade have now been examined in sufficient detail. In the next chapter these principles will be applied to a very important case. The laws will be investigated which determine the value of money, when the precious metals of which money is composed are considered as commodities, exported and imported, as ordinary articles of commerce. BOOK III. CH. VII. from India to exceed in value the imports which she receives land. from Eng BOOK III. CH. VIII. Gold may be transmitted CHAPTER VIII. ON THE TRANSMISSION OF THE PRECIOUS METALS FROM ONE COUNTRY TO ANOTHER. EACH lu the first place, gold and ACH country obtains its supply of the precious metals in silver are imported from the mining countries as ordinary commodities of commerce, and secondly, the precious metals, in the form of money', are sent from one country 1 In this chapter, it is assumed that the value of the metal which is chosen as the standard currency in each country is the same whether in coin or in bullion. Thus in England, the standard currency being gold, the value of a given weight of gold, whether in coin or in bullion, is the same; whereas, India having a silver standard, the same remark applies in that country to silver. It has already been stated that a certain weight of gold must have the same value whether in bullion or in specie, if no charge is made for the expense of coining this gold. In England the coining of gold is performed by the mint gratuitously. If therefore an ounce of gold is taken to the English mint, its value must be exactly represented by the amount of money into which it can be coined. As previously stated, silver and copper money have an exchange value as coins greater than the actual value of a corresponding weight of the metals of which they are composed. Hence the authorities of the mint very properly decline to coin silver and copper for private individuals; if this rule were departed from, individuals would be able to make, at the expense of the nation, a very considerable profit by bringing silver and copper bullion to the mint and getting it coined. If gold in bullion were in the slightest degree more valuable than when in coin, it would at once become profitable to melt money and thus convert it into bullion. If, on the other hand, gold bullion were less valuable than coin, bullion would be immediately taken to the mint to be converted into money. It is therefore evident when no charge is made for coining, that the value of bullion and specie must be exactly equivalent. It may however be thought expedient that the government should not bear the cost of coining. A certain sum might be charged, termed a seignorage, when bullion is converted into money. If it be assumed that this seignorage is one per cent. upon the amount coined, the value of a certain quantity of the precious metals when in the form of money would exceed by one per cent. the value of the same weight of bullion. The question whether or not it would be desirable to impose a seignorage at the English mint must be mainly to another for various purposes. For instance, loans are raised in England for India, and these loans are in a great part transmitted to that country either in bullion or in specie. England annually purchases from China an enormous amount of tea and silk, and China prefers to be paid in part for this tea and silk by the precious metals rather than by our manufactured goods. A great portion of the rent of the land in Ireland is paid in money to absentee landlords. Capital may be invested in our funds and railways by foreigners, whose dividends will be annually paid to them in money. Again, with regard to international trade, it must be remembered that commodities are not always exchanged by barter, but are almost always bought and sold for money. English merchants who purchase wheat from France pay for it in money, instead of offering other commodities, such as iron and coal, in exchange for this wheat. These and many other circumstances which might be enumerated, cause a considerable amount of the precious metals to be constantly passing, either in the form of money or bullion, from one country to another. It will be convenient, in the first place, to consider the precious metals as exports from the countries whence they are obtained. A considerable portion of the industry of Australia and California is devoted to gold-digging; gold is, to these countries, as truly a staple article of export as hardware or cotton cloth is in England. The precious metals may therefore be regarded as an ordinary article of export or import; the value of these metals is consequently regulated by the same laws as those which determine the value of any other commodity which is bought and sold in the transactions of foreign trade. For instance, Australia, like any other country, must pay for the commodities she imports by those which she exports. It makes no difference whatever that a principal part of Australia's exports happens determined by considering whether the inconvenience arising from even slightly altering a recognized standard of value would be compensated by removing the expense now imposed upon the nation at large by our present system of gratuitous coining of gold. It must moreover be borne in mind that as the representative value of our silver and copper coinage is greater than its intrinsic value, the state makes a profit upon the coinage of silver and copper, which more than compensates for the slight loss in the gratuitous coining of gold. BOOK III. CH. VIII. either as an article of com merce or as money. Gold forms part of the ordinary exports of some coun tries, and its value is determined on the same prin ciples as that of other commodities. BOOK III. A great increase in the production of gold would be absorbed way as a great increase in the production of iron. to be gold. It may in fact be shown, that the discovery of rich gold mines in Australia exerts on the industry of that country an influence similar to that which would be produced by the discovery of rich deposits of some material which England exports; such, for instance, as iron. If the discovery of very rich deposits of iron-stone caused a great increase in the quantity of iron annually produced in England, iron would inevitably decline in price. This decline in price would increase the home demand for iron, and the foreign demand would also be increased, because iron would be offered to foreign countries at lower rates. An equality between the demand and the supply would in this manner again be restored, and the whole of the increased quantity of iron produced would be quickly absorbed. In a similar way, the results may be traced which would ensue from a great increase in the yield of gold in Australia, or of silver in Mexico and California. At the present time the annual produce of gold in Australia is about 2,500,000 ounces. Suppose that, from the discovery of richer deposits, or from improvements in quartz-crushing, Australia annually yielded 5,000,000 ounces of gold, instead of 2,500,000 ounces. How would this increased quantity of the precious metals be absorbed ? It has been seen that additional supplies of iron would be absorbed by a decline in its value increasing the demand for it. Let us now enquire if an additional supply of gold will not be absorbed in a similar way. It is evident that Australia would not require this additional 2,500,000 ounces of gold for her own use. She in the same will therefore export the gold to other countries; but in what form, and for what purpose, will this gold be exported? In the first place, Australia, having become so much wealthier, would more largely purchase foreign commodities. Every article of luxury or utility which Australia has been previously accustomed to obtain from foreign countries, she would now purchase in larger quantities. The consequence of this would inevitably be, that these commodities would advance in price, on account of the increased demand. Suppose the exports from England to Australia were doubled, this increased demand would cause the price of the articles which compose these exports |