§ 1. Money imported on two modes; as a Commodity, and as a medium of
Exchange.
The degree of progress which we have now made in the theory of foreign
trade puts it in our power to supply what was previously deficient in our
view of the theory of money; and this, when completed, will in its turn
enable us to conclude the subject of foreign trade.
Money, or the material of which it is composed, is, in Great Britain, and
in most other countries, a foreign commodity. Its value and distribution
must therefore be regulated, not by the law of value which obtains in
adjacent places, but by that which is applicable to imported
commodities—the law of international values.
In the discussion into which we are now about to enter, I shall use the
terms money and the precious metals indiscriminately. This may be done
without leading to any error; it having been shown that the value of
money, when it consists of the precious metals, or of a paper currency
convertible into them on demand, is entirely governed by the value of the
metals themselves: from which it never permanently differs, except by the
expense of coinage, when this is paid by the individual and not by the
state.
Money is brought into a country in two different ways. It is imported
(chiefly in the form of bullion) like any other merchandise, as being an
advantageous article of commerce. It is also imported in its other
character of a medium of exchange, to pay some debt due to the country,
either for goods exported or on any other account. The existence of these
two distinct modes in which money flows into a country, while other
commodities are habitually introduced only in the first of these modes,
occasions somewhat more of complexity and obscurity than exists in the
case of other commodities, and for this reason only is any special and
minute exposition necessary.
§ 2. As a commodity, it obeys the same laws of Value as other imported
Commodities.
In so far as the precious metals are imported in the ordinary way of
commerce, their value must depend on the same causes, and conform to the
same laws, as the value of any other foreign production. It is in this
mode chiefly that gold and silver diffuse themselves from the mining
countries into all other parts of the commercial world. They are the
staple commodities of those countries, or at least are among their great
articles of regular export; and are shipped on speculation, in the same
manner as other exportable commodities. The quantity, therefore, which a
country (say England) will give of its own produce, for a certain quantity
of bullion, will depend, if we suppose only two countries and two
commodities, upon the demand in England for bullion, compared with the
demand in the mining country (which we will call the United States(272))
for what England has to give.
The bullion required by England must exactly pay for the cottons or other
English commodities required by the United States. If, however, we
substitute for this simplicity the degree of complication which really
exists, the equation of international demand must be established not
between the bullion wanted in England and the cottons or broadcloth wanted
in the United States, but between the whole of the imports of England and
the whole of her exports. The demand in foreign countries for English
products must be brought into equilibrium with the demand in England for
the products of foreign countries; and all foreign commodities, bullion
among the rest, must be exchanged against English products in such
proportions as will, by the effect they produce on the demand, establish
this equilibrium.
There is nothing in the peculiar nature or uses of the precious metals
which should make them an exception to the general principles of demand.
So far as they are wanted for purposes of luxury or the arts, the demand
increases with the cheapness, in the same irregular way as the demand for
any other commodity. So far as they are required for money, the demand
increases with the cheapness in a perfectly regular way, the quantity
needed being always in inverse proportion to the value. This is the only
real difference, in respect to demand, between money and other things.
Money, then, if imported solely as a merchandise, will, like other
imported commodities, be of lowest value in the countries for whose
exports there is the greatest foreign demand, and which have themselves
the least demand for foreign commodities. To these two circumstances it
is, however, necessary to add two others, which produce their effect
through cost of carriage. The cost of obtaining bullion is compounded of
two elements; the goods given to purchase it and the expense of transport;
of which last, the bullion countries will bear a part (though an uncertain
part) in the adjustment of international values. The expense of transport
is partly that of carrying the goods to the bullion countries, and partly
that of bringing back the bullion; both these items are influenced by the
distance from the mines; and the former is also much affected by the
bulkiness of the goods. Countries whose exportable produce consists of the
finer manufactures obtain bullion, as well as all other foreign articles,
_cæteris paribus_, at less expense than countries which export nothing but
bulky raw produce.
To be quite accurate, therefore, we must say: The countries whose
exportable productions (1) are most in demand abroad, and (2) contain
greatest value in smallest bulk, (3) which are nearest to the mines, and
(4) which have least demand for foreign productions, are those in which
money will be of lowest value, or, in other words, in which prices will
habitually range the highest. If we are speaking not of the value of
money, but of its cost (that is, the quantity of the country’s labor which
must be expended to obtain it), we must add (5) to these four conditions
of cheapness a fifth condition, namely, “whose productive industry is the
most efficient.” This last, however, does not at all affect the value of
money, estimated in commodities; it affects the general abundance and
facility with which all things, money and commodities together, can be
obtained.(273)
The accompanying Chart, No. XIV, on the next page, gives the
excess of exports from the United States of gold and silver coin
and bullion over imports, and the excess of imports over exports.
The movement of the line above the horizontal baseline shows
distinctly how largely we have been sending the precious metals
abroad from our mines, simply as a regular article of export, like
merchandise. From 1850 to 1879 the exports are clearly not in the
nature of payments for trade balances; since it indicates a steady
movement out of the country (with the exception of the first year
of the war, when gold came to this country). The phenomenal
increase of specie exports during the war, and until 1879, was due
to the fact that we had a depreciated paper currency, which sent
the metals out of the country as merchandise. This chart should be
studied in connection with Chart No. XIII.
[Illustration: Chart XIV.]
Chart XIV. _Chart showing the Excess of Exports and Imports of Gold and
Silver Coin and Bullion, from and into the United States, from 1835 to
1883. The line when above the base-line shows the excess of exports; when
below, the excess of imports._
From the preceding considerations, it appears that those are greatly in
error who contend that the value of money, in countries where it is an
imported commodity, must be entirely regulated by its value in the
countries which produce it; and can not be raised or lowered in any
permanent manner unless some change has taken place in the cost of
production at the mines. On the contrary, any circumstance which disturbs
the equation of international demand with respect to a particular country
not only may, but must, affect the value of money in that country—its
value at the mines remaining the same. The opening of a new branch of
export trade from England; an increase in the foreign demand for English
products, either by the natural course of events or by the abrogation of
duties; a check to the demand in England for foreign commodities, by the
laying on of import duties in England or of export duties elsewhere; these
and all other events of similar tendency would make the imports of England
(bullion and other things taken together) no longer an equivalent for the
exports; and the countries which take her exports would be obliged to
offer their commodities, and bullion among the rest, on cheaper terms, in
order to re-establish the equation of demand; and thus England would
obtain money cheaper, and would acquire a generally higher range of
prices. A country which, from any of the causes mentioned, gets money
cheaper, obtains all its other imports cheaper likewise.
It is by no means necessary that the increased demand for English
commodities, which enables England to supply herself with bullion at a
cheaper rate, should be a demand in the mining countries. England might
export nothing whatever to those countries, and yet might be the country
which obtained bullion from them on the lowest terms, provided there were
a sufficient intensity of demand in other foreign countries for English
goods, which would be paid for circuitously, with gold and silver from the
mining countries. The whole of its exports are what a country exchanges
against the whole of its imports, and not its exports and imports to and
from any one country.