32

THE EXCHANGES.

him a bill due by a French debtor for English goods sent to France. If the purchases in the two countries are equal, so will be the bills created by them. If not, then some debtor will be unable to find a bill, and every debtor in the country which has to pay most to the other will compete with all the others not to be the man who will have to incur the expense of sending gold. He will offer for a bill rather more than its value in metal at the par of exchange. The Frenchman will give at Paris say 254 francs for a pound due in London rather than send gold. If trade had moved in the opposite direction, and England owed more to France than France to England, it will be the English debtor in London who will be eager to buy in London a bill due by a Frenchman in France; he will give a sovereign for 2434 francs to be paid in France. In the former case the exchange is said to be in favour of England; the Englishman gets a quarter of a franc more than the gold of his pound at par. In the second case, the exchange is pronounced unfavourable; the Englishman gets less gold in 2434 francs than he gave away in his pound. A favourable exchange implies that England has sold more than she has bought; she has a balance to receive in gold. An unfavourable exchange implies the reverse, that is, she is a debtor on that day's settlement. But the exchange will not rise above par beyond the cost of carriage and insurance for the transmission of gold. If it costs half-a-franc to send a pound's weight

of gold to England, the Parisian debtor will accept an exchange which makes him give 251⁄2 francs for a pound to be paid in England, but he will refuse one of 2534; it will cost him less to send the gold.

Falser and more misleading expressions cannot be conceived than the terms favourable and unfavourable exchanges. They survive still the memorable refutation of their untruth by Adam Smith; they involve ignorance of the very nature of all trade; they efface the living fact that men buy of foreign countries to procure goods for use and consumption, that all trade is only an exchange of goods. This language is profoundly unconscious that gold is a mere tool. It teaches that gold, or coin, or money, is an end, a good thing for its own sake, an article worth giving one's wealth to obtain. It is saturated with the Mercantile Theory, so utterly in vain has Adam Smith written. These words express satisfaction at the proof that England has sold more than she has bought, spreading the delusion that an excess of exports over imports is an excellent state of trade; that it is a good thing to spend and consume wealth in making iron and yarns, and to get gold in the place of them,—for what object they do not say. They perpetuate the merchant's and the shopkeeper's absurdity that to sell is everything, ignorant that to sell without buying is to convert a man into a Midas, and to make him perish amidst piles of gold. The value set on favourable exchanges

с

34

A DOUBLE STANDARD.

is the greatest intellectual and literary wonder of our

age.

It remains to say a few words on a double standard. In some countries a gold or a silver coin is a legal tender for the payment of debts. The expression legal tender arises only on the payment of a contract to pay money, of a debt; it means that the law will declare the debt to have been paid, if the legal tender, money, has been given. A double standard gives the debtor the choice of paying in gold or silver coin as he pleases. Now if the value of the metal given in the metal market is the same, whether gold or silver has been offered, the contract is justly fulfilled, and neither party has an advantage over the other. The law fixes the relative quantities of the two coins or metals which may be given. In England it says that twenty shillings and one sovereign are the same money. But unfortunately the law cannot secure that the metallic value of either silver or gold will remain unchanged; if there is an alteration in the value of either, it is plain that twenty shillings may be worth more or less than a sovereign. A debtor will always choose to pay in the coin which is cheapest, which it costs him less of his wealth to obtain. If silver becomes cheaper than gold, the English gold sovereign will be sold abroad to buy silver, which will be brought to the English Mint to be coined, and debts will be paid with it with a profit. Hence the practical rule has been laid down that the inferior currency will

expel all others from a country, that is, the money whose metal is valued too highly in the coin in the proportions established between the coin of both metals will be sought by all debtors, because they can purchase it with a profit with the metal which is introduced in the coin. In England the proportion of twenty shillings to the pound has long existed, in spite of many fluctuations in the metallic value of silver. The banishment of the gold has been prevented by the declaration that silver shall not be a legal tender beyond forty shillings. This has kept shillings a purely subsidiary money -over-valued, with too little silver in them to be a twentieth part of a golden sovereign, but not so little, and they not so numerous, as to make it worth while for coiners to manufacture them out of honest silver. A double standard seems to me unsupported by adequate reasons, and it entails the injustice that a debtor is enabled by it to pay his creditor with a smaller value of metal than was contracted for.*

* See Appendix A, page 173.

CHAPTER II.

PAPER CURRENCY.

Section I-Convertible Bank-Notes.

We have now ascertained the nature and principles of a metallic currency; we proceed to paper currency, and we shall find the same general principles to prevail here also, subject only to such modifications of detail as are created by the difference between paper and metal. Coin and bank-notes perform generally the same work. They transfer property, and thus exchange commodities. Both were invented to effect the same purpose. What we have gained in the study of metallic currency must be firmly adhered to, or mischievous untruth will be the result.

But it is necessary to explain the word currency. In America the expression is frequently used to denote instruments of exchange other than money-all those, namely, that consist of paper; but this is a practice much to be deprecated. There is too much confusion already in currency to excuse the increase of it by affixing new senses to old words. This mode of speaking is further open to the objection that it classes under one