to rise in England, as well as in Australia. The value of gold, estimated in these commodities, would therefore decline, and thus a tendency is exerted, just in the same way as in the case of the iron, to cause the increased yield of gold to be absorbed, in consequence of a decline in its value. Having now considered the case in which the precious metals are sent from the mining countries as a staple commodity of commerce, we will proceed to investigate the second of the two modes by which the precious metals are distributed over the world. At the commencement of this chapter an enumeration was made of some of the various purposes for which gold and silver are transmitted from one country to another in the form of money. The reason of this constant transmission is, that gold and silver contain great value in small bulk, and therefore can be sent from one country to another at comparatively little cost. The precious metals, moreover, are willingly accepted in exchange for goods purchased by every trading community in the world. Each year we purchase an enormous quantity of tea and silk from China. The Chinese are not very willing to accept any of our manufactured goods in exchange, but they seem eager to sell us as much tea and silk as we choose to take, if we will only pay them for it by gold and silver. In former years vast sums of specie were sent from England to India, to pay the wages of those engaged upon the railways, and other public works which were constructed principally by English capital. BOOK III. CH. VIII. Gold is also transmitted in the form of money, for the payment of debts, vestment. The precious metals are also transmitted from one or for incountry to another, for the purpose of investment. If, according to our former example, the yield of gold in Australia should be doubled, it would be reasonable to conclude, that the whole of this increased gold would not be entirely absorbed by the consequent expansion of trade. Many of those who possessed the gold would send a portion of it to England and other countries, to be invested in various securities, such as funds, railway shares, &c. Statistical returns prove that this is the course pursued. Almost the entire gold which Australia annually yields is sent to England. A portion of this pays for the commodities which England exports to Australia; a great part of the remainder is invested in our funds, in railway shares, BOOK III. The quantity of money in circulation must in crease as commerce increases in order may not fluctuate. bank shares, and various other securities, which are bought and sold in our money market. The precious metals which are thus poured into England she again redistributes, having sent in some years no less a sum than 14,000,000l. sterling to India and China. In the remarks on price, it was shown that the general prices which prevail in a country are regulated by the extent of its commerce, and by the amount of the precious metals which exist in the country in the form of money. It may, in general terms, be stated, that if the population and wealth of a country increase, prices will decline, unless a greater amount of money is brought into circulation. that prices On the other hand, prices will rise if a greater amount of money is brought into circulation, when there is neither an expansion of commerce nor an increased production of wealth. It is most undesirable that there should be any great fluctuations in general prices; it is true, however, that popular feeling is not unfrequently opposed to this idea, for there are many who still think that general high prices are advantageous to the producers of commodities, and that a general decline in prices would benefit those who purchased the commodities. A general rise or fall in prices means that the standard of value is altered; if there is a general rise in prices to the extent of one hundred per cent., two sovereigns will be only worth as much as one sovereign was worth before; the country would not be richer; the only result would be, that the terms of every monetary contract would be altered. Those who had fixed money payments to make would only have to give half as much value as before, and all whose incomes were derived from such investments as funds, guaranteed stocks, &c., would have their real incomes diminished one half, for 300l. a year would now be worth no more than 150l. a year was worth previously. Such consequences would not only be disastrous to individuals, but would also, if of frequent occurrence, give to all monetary transactions an uncertainty which would act most prejudicially upon the interests of commerce. It is therefore of great importance that general prices, or, in other words, the value of gold, should fluctuate as little as possible. General prices are, as previously stated, regulated by the quantity of money in circulation, compared with the amount of the nation's wealth and commerce; hence, in order to prevent a fluctuation in the general prices which prevail in a country, the quantity of money in circulation ought to increase or decrease as the commerce of the country increases or decreases. It may appear that such an adjustment can have little chance of being made in England, because she receives gold from so many sources, and again sends it to other countries for so many various purposes. But, in spite of this apparent complexity, there is an agency constantly at work to regulate the quantity of money in circulation, so that the value of gold exhibits great steadiness, and, except within certain limits, is subject to few fluctuations. The mode in which this agency acts may be explained in the following manner. Suppose that the quantity of gold imported by England from the gold-producing countries during the next year were to exceed by 4,000,000l. the amount which she imports during the present year, but that in every other respect there should be no difference with regard to her commerce, either home or foreign, between the next year and the present one. This extra 4,000,000l. of gold, it may be further supposed, is converted into coin. It might, therefore, appear that an additional 4,000,000l. of money is brought into circulation, and that, in consequence of this increased specie circulation, general prices would inevitably rise. But this rise in general prices could not long continue; a force would be brought into operation which would exert a tendency to restore prices to the point at which they previously stood. For if such a general rise in price should occur in England during the next year, and no similar rise should take place in other countries, it would manifestly be to the interest of England to purchase such commodities as wheat from foreign countries, in order to avoid the higher prices prevailing in England. Foreign merchants would also be anxious to participate in the high prices current in England, and would therefore increase, as far as possible, the quantity of goods which they export to England. Both of these causes would act in the same direction, and would alike exert an influence to increase England's imports and to diminish her exports. The equation of international trade would therefore be disturbed, and a large amount of BOOK III. CH. VIII. Method of adjustment which tends to keep prices constant in England. BOOK III. money would be sent abroad to pay for these increased imports; in this manner the gold temporarily added to England's circulation would in great part be rapidly withdrawn. The extra 4,000,000l. of gold would not be permanently added to England's specie circulation, but would be gradually distributed over every trading country. The various modes in which the precious metals are transmitted from one country to another have now been described. A special chapter will be devoted to the consideration of the leading effects which have been produced by the remarkable gold discoveries which have been made during the last few years. Allusion will also be made to the probable results of the recent discovery in the United States of silver mines of such extraordinary richness that the annual production of silver has been suddenly more than doubled. IT CHAPTER IX. FOREIGN EXCHANGES. T was remarked in the last chapter that, in foreign commerce, commodities are seldom exchanged by barter; each country usually purchases its imports by money, and sells its exports for money. If coal is exported to France and silk is imported from that country, a cargo of coal is not bartered for so many bales of silk, but the coal is sold for money and the silk is purchased with money. Let it be supposed that A, an English merchant, sells a cargo of coal to B, a French merchant, for 1000l., and that Č, another English merchant, purchases from D, a French merchant, a certain number of bales of silk for 1000l. It is manifest that there are two distinct ways in which such trading transactions as these may be settled. In the first place, B may pay for the coal he purchases by sending to A 1000l. from France to England; in a similar way C may pay for the silk which he purchases by sending to D 10007. from England to France. It is evident that, if this plan were adopted, the risk and expense would be incurred of sending 1000l. from France to England, and also of sending 1000l. from England to France. A second very obvious course might be adopted, which would avoid the necessity of transmitting any money from one country to the other, and consequently the expense just alluded to would be saved. If Ĉ were instructed to pay the English merchant A 1000l., instead of paying the same amount to D, who lives in France; if also the French merchant B were instructed to pay D 1000l., instead of sending this amount to A in England, the debts due to A 1 The currencies of France and England are, in this case, supposed to be identical. BOOK III. Methods tional debts may be settled. |