Xxviii Contents, Chapter IX. Foreign Exchavges. The commodities bought and sold in foreign commerce are usually paid for by bills of exchange : this course is adopted in order as far as possible to obviate the transmission of specie — A bill of exchange is a written acknowledgment given to a creditor, that a debt due to him shall be paid on a particular day — If the exports sent to a particular country are equivalent in value to the imports received from a par- ticular country, bills of exchanse enable the transmission of specie to be as completely obviated as if the exports were exchanged for the imports by barter — If the imports from France exceed in value the exports from England to France, English merchants will have a ereater demand for bills drawn upon France, than French merchants for bills drawn upon England— bills drawn upon France will conse- quently be at a premium — When this is the case, the exchange is said to be against England, and in favour of France — A country has con- sequently to export specie when the exchange is against her — Hence the expressions * favourable' and 'unfavourable' exchange are remnants of the mercantile system — If the exchange is against a country, its money will be depreciated in value, when compared with the money of a country which has a favourable exchange — When a scarcity of gold is anticipated, bills may rise to a greater premium or fall to a greater discount than is represented by the cost of carriage — As an example, bills drawn on France rose lo per cent, when it was known that Napoleon had landed from Elba — If an unfavourable exchange always required specie to be actually exported, the premium upon bills would always closely approximate to the cost of trans- mitting specie — There are, however, constant fluctuations in the premium upon bills, because an unfavourable exchange may be rapidly succeeded by a favourable exchange — An unfavourable ex- change cannot be of long continuance, because it exerts a tendency to diminish the imports, and to iucrease exports — An export of the precious metals, as ordinary commodities of commerce, does not necessarily denote an unfavourable exchange pages 427 — 436 Chapter X. The Functions of Credit Credit si^ifies borrowing and lending, and therefore implies confidence — Credit is said to be good when there is confidence in those. who borrow — The credit of an individual, as well as the credit of a State, is measured by the rate of interest paid for money borrowed — The oft-repeated maxim, that credit is capital, is u meaningless expression — Credit greatly assists the production of wealth, because wealth which is employed as capital is often borrowed from those who would not themselves employ productively the wealth which they lend — The deposit accounts which are held by banks illustrate the extent to which credit increases the capital of a country — Large public works, such as railways, could not be carried out if credit did not exist ; the capital which they require is so large, that it must be borrowed from a great number of individuals— Credit enables all wealth which is saved to be applied to the most productive purposes. 437—444 Digitized by
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