The Theory of the Foreign Exchanges/Introduction
Introduction
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The inquiry which is conducted in the following pages belongs to that class of discussion for which, owing to the prevalent belief that they are peculiarly abstruse and technical, it is difficult, in ordinary times, to obtain a hearing. The moment must be seized for the ventilation of such subjects, when peculiar combinations of circumstances bring them into prominent and exception notice, and when they are exhibited as influencing or explaining events which are of universal interest and importance. To those who make the Foreign Exchanges their constant study, and examine them not only in the light in which they present themselves to the political economist, as an index of the balance of trade between different countries, but also from the point of view from which they are regarded by bankers and merchants, as a reliable barometer of the state of the money-market, of the soundness of credit, of the rate of interest, and of the comparative position of the circulation in different countries, all monetary phases and mercantile incidents furnish an opportunity for correcting their theories by the test of facts. But comparatively few, even of leading bankers and merchants, with the exception of those who are exclusively or mainly engaged in international transactions, are as conversant with the subject as its immense importance deserves; and it is thought that the present situation of monetary affairs, in which the Foreign Exchanges are exercising an abnormal and extraordinary influence, affords a peculiarly suitable opportunity for a discussion, which otherwise might be considered uninviting and superfluous. The object proposed is by no means to propound any dogmatic theories, but rather to call attention to many facts which are commonly believed to be peculiarly complicated and unintelligible, which, however, if carefully analysed and illustrated, may be presented in a simple form, and under such an aspect as to command general assent.
If the present treatise should in any way contribute towards producing a better and clearer understanding of many principles, the true appreciation of which is absolutely indispensable for the formation of just and comprehensive views as to the laws which govern our money-market and our foreign commerce, it will have attained its end.
In the treatment of the subject, the main difficult has been to decide what degree of acquaintance with the matters discussed, the readers of the present essay might be presupposed to possess; and, further, from what point of view they might have been accustomed to regard it. The inquiry may be conducted on several distinct principles according to the class of readers who are likely to interest themselves in the investigation, and thus it is not easy to adopt a mode which shall be equally satisfactory to all. If addressed to those who have studied the subject theoretically themselves, much may be taken for granted, the exposition of which would be tedious and unnecessary, and would only serve to encumber the examination of the more interesting problems and theories; while, on the other hand, if the general public is to share in the discussion, it seems necessary to adopt the opposite plan, and to presume that as yet the first axioms and leading features of the subject are but vaguely and inaccurately understood. Under this supposition, it would be desirable to proceed as systematically and completely as possible, even at the risk of enumerating or illustrating much which, in the opinion of some, might be passed over in silence. A third and distinct course might be most suitable for those who, on the hand, have ample practical acquaintance with the Foreign Exchanges, and accordingly may be addressed as person conversant with the subject; but who, on the other hand, have not in any ways systematised their experiences, or drawn any conclusions from the facts which they have observed. The Foreign Exchanges should be an object of interest as well to the political economist as to the general reader, but they will mainly fix the attention of the mercantile part of the community, who consciously or unconsciously are always under their influence. It is to this class that the present essay - which attempts to exhibit the relations of the Foreign Exchanges to our own money-market,a s well as generally to international transactions, and to bring into clearer relief some of the hazy and indefinite notions which surround the subject - is primarily and mainly address. But while in this sense the inquiry is conducted from a mercantile point of view with the special desire of throwing light upon mercantile questions, the author has attempted to be sufficiently precise in his arguments as not to offend the scientific theorist, and sufficiently diffuse in his illustrations and explanations as to make himself understood by the general and uninitiated reader. His only qualification for the undertaking is to be found in his having daily opportunities of studying many various forms of international transactions, of practically feeling the effect of each different phase of the Foreign Exchanges. Without such opportunities it is exceedingly difficult to correct and test the various opinions which may be theoretically formed; but even with their aid, the author is conscious that he may prove unequal to his task. His motive for undertaking it is to be found in his conviction that the subject urgently requires ventilation, and in his hope that even an imperfect attempt in this direction may lead to further and more able investigation.