788 EXCHANGE cot of on- The 5 per ceut. claimed from San Francisco is for a relative clearness of gold in London, which can only be overcome by carrying the gold from the one place to the other ; but it would be illogical to charge in a bill of exchange for a transport of specie which it is the express object and effect of the bill to supersede. The merchant in London would be entitled to sell a bill on San Francisco for a sum equal to 100 ounces of gold, and to include the costs of ex change, if any; or his debtor in San Francisco might buy a bill on London for a sum sterling equal to 100 ounces of gold ; and if the course of exchange were such that this bill cost him only 99 ounces, the merchant in London would yet have no reason to complain. If neither of these modes of settlement were available, the debtor in San Francisco would hive to send 100 ounces of gold to London, in which case there would be no rate of exchange in question. But, apart from the less value of bullion in some coun tries than in others owing to nearness to the mines or other causes, there is a cheapness of the metallic money, as well as the general currency of a country, which operates directly on the rate of exchange, and requires in one form or other the recognition of a different par from that established under other conditions. The standard may be tampered with; the alloy may be increased; the weight of the coins may be diminished and diminished, till, like the Turkish piastre, they become scarce a shadow of themselves. It is obvious that innovations of this kind compel a rectification of the estimated par of exchange. In other cases coins are legitimately changed ; and these variations, in so far as they supersede or modify coins which entered into the par esti mate, are bound to have a new rating. A country which
- illovs its coinage to be much worn, defaced, and generally
light in weight, is in the same position as one which has deliberately lowered its standard of value ; for though its light coins, when sent abroad, which they are not apt to be, count for no more than they weigh, there is the other and more serious effect that they may have been already well weighed at home, and have so raised the prices of the goods of the country as to place all dealings in them under a de lusion as to their real value. One may well believe, how ever, that this is a form of monetary evil which has now passed away. There will always be some more or less worn and light coins in a metallic circulation, and as long as these are limited in number, and circulate in the country of their coinage at the mint price, they do little or no harm. There is a much more convenient process by which to cheapen the money of a country than any form of debasing the coinage, namely, to dispense wholly or almost wholly with metallic money in favour of an inconvertible paper currency. When a country is impelled to issue paper money not payable on demand in gold or silver, its monetary value s }ipg awa y f rorn a n fi xec i reckoning. The first effects are so agreeable as naturally to lead to a larger and a still larger issue, and the agreeable effects are prolonged until the real situation begins to be disclosed, and, finally, de rangement has spread so widely on all sides that extrica tion becomes a task of the gravest difficulty. The effects even on the foreign exchanges are for a time somewhat illusive. There being no more need for gold and silver, nearly the whole stock of bullion passes out, and like a new found capital gives ample power of purchase abroad. The importer, finding that there are increasing prices for every commodity in the paper money, goes into his business with new heart and will. The premium, which has early begun to be established on foreign bills, soon becomes so l;:rge that the exporter imagines that he can make a fair profit out of the premium on his foreign bill alone, though there may not be a margin of a fraction of one per cent, of profit in the actual trade. Supposing such a result possible to the exporter, it is clear that he makes his profit entirely out of his neighbour the importer, who has to buy his bill, and consequently to pay the premium. Both cannot be right in their views, and in point of fact both are wrong until they begin to realize that the inconvertible paper dollar, rouble, or florin is not so valuable and has not the same purchasing power as the metallic money, or as the paper notes maintained in a constant practical convertibility. This fact is demonstrated within the country itself by the more or less gradual and uniform, but inevitable, rise of prices of all commodities, and of bullion among others, in this new currency. It is discovered very early in the foreign exchanges, not only since there is likely to be an excess of imports over exports when a country is in the act of denuding itself of specie, but because the foreigner has to be careful to get the value of his goods or produce as it is known to him in his own money ; and any important change in the money of a country, therefore, obtains a sharp valuation abroad. Both at home and abroad it is soon dis covered that the par of exchange, as formerly established, has passed away, and that a new par has come into operation under the pure force of the natural relations of the case. The importer finds no advantage from the advancing prices of what he imports in the domestic markets, since he has to pay more of the domestic money for the foreign bill of exchange by which he discharges the debt for his imports ; and the exporter finds no advantage in the premium on his foreign bill which he sells to the importer, since it only re places what he has already paid in the increased cost of his commodities and other outlays, This action of exchange is now so familiar as to require little illustration; but a commonplace example may be given, to render more obvious the result on both sides. A, a merchant in London, at a period when the rate of ex change between London and Hamburg is at exact par, can sell a hogshead of sugar worth 50 in London to B in Hamburg for 100, or weight for weight in gold of 100 sovereigns. He exports, draws his bill on B, which he sells for 100, and derives his profit of 50 on the sugar, lews expenses of transit, At another period of equal scarcity and clearness of sugar in Hamburg as compared with London, but when the currency of England has been under suspension of specie payment, and has been so much in creased in quantity that prices of sugar and other commo dities have doubled in the meanwhile, the hogshead of sugar now sells in London for 100. A, however, again exports, draws on B for 100, and, the rate of exchange 1 being now 100 per cent, in favour of Hamburg against the currency of England, sells the bill for 200 in London, and makes a profit in the English currency of 100, equal to 50 in undepreciated money the same profit as he made before. The results to B, all things being equal as sup posed save the depreciation of the English currency, are also the same in both transactions. The case of a British importer, in corresponding circumstances, would not differ from that of A, the exporter ; because, however unfavourable the nominal exchange might be in the bills by which he paid for his imports from abroad, he would be repaid by the increased nominal prices obtained for them in the home market. As long as a change in the par of the money of two countries is not recognized or clearly underwood, there may be much miscalculation and irregular profit and loss among the merchants on both sides. On the other hand, as soon as noted and brought under generally acknowledged estimate, it does not interfere, per se, with the movement of produce or the fair profits of those engaged in foreign trade. But how is the depreciation of an inconvertible paper
currency to be measured ? As a convertible paper currency