essay3 [7]
many deniers de gros of Holland, but the parity of exchange between Paris and Amsterdam is always 100 ounces of gold or silver against 100 ounces of gold or silver of the same weight and fineness. 102 ounces paid at Paris to receive 100 ounces at Amsterdam always comes to 2 per cent above par. The banker who effects the remittance of the balance of trade must always know how to calculate parity. But in the language of foreign exchange the price of exchange at London with Amsterdam is made by giving a pound sterling in London to receive 35 Dutch escalins at the bank: with Paris in giving at London 30 deniers or pence sterling to receive at Paris one ecu or three livres tournois. These methods of speech do not say whether exchange is above or below par, but the banker who remits the balance of trade reckons it up well and knows how much foreign money he will receive for the money of his own country which he despatches. Whether we fix the exchange at London for English silver in Muscovy roubles, in Mark Lubs of Hamburg, in Rixdollars of Germany, in Livres of Flanders, in Ducats of Venice, in Piastres of Genoa or Leghorn, in Millreis or Crusadoes of Portugal, in Pieces of Eight of Spain, or Pistoles, etc. the parity of exchange for all these countries will be always 100 ounces of gold or silver against 100 ounces; and if in the language of exchange it happens that one gives more or less than this parity, it comes to the same in effect as if exchange is said to be so much above or below par, and we shall always know whether or not England owes a balance to the place with which the exchange is settled just as in our example of Paris and Chalons.
Chapter 3
Further explanations of the nature of the Exchanges
We have seen that the exchanges are regulated by the intrinsic value of specie, that is at par, and their variation arises from the costs and risks of transport from one place to another when the valance of trade has to be sent in specie. Argument is unnecessary in a matter which we see in fact and practice. Bankers sometimes introduce refinements into this practice. If England owes France 100,000 ounces of silver for the balance of trade, if France owes 100,000 ounces to Holland, and Holland 100,000 to England, all these three amounts may be set off by bills of exchange between the respective bankers of these three states without any need of sending silver on either side. If Holland sends to England in January merchandise of the value of 100,000 ounces of silver and England only sends to Holland in the same month merchandise to the value of 50,000 ounces (I suppose the sale and payment made in January on both sides) there will be due to Holland in this month a balance of trade of 50,000 ounces, and the exchange on Amsterdam will be in London in January 2 or 3 per cent above par, or in the language of exchange, the exchange on Holland which was in December at par or at 35 escalins to the pound sterling in London will rise there in January to about 36 escalins. But when the Bankers have sent this balance of 50,000 ounces to Holland the exchange on Amsterdam will naturally fall back to par or 35 escalins in London. But if an English banker foresees in January, owing to the sending into Holland of an unusual quantity of merchandise, that at the time of payments and sales in March Holland will be indebted considerably to England, he may instead of sending the 50,000 ecus or ounces due in January to Holland, furnish in that month bills of exchange on his Amsterdam correspondent payable at double usance or two months, the amount of the value to be paid on maturity, and by this method profit on the exchange which in January was above par and in March will be below par, and so gain doubly without sending a sol to Holland. This is what bankers call speculation, which often causes variations in the exchanges for a short period independently of the balance of trade; but in the long run we must get back to this balance which fixes the constant and uniform rule of exchange. And though the speculations
Chapter 3
Further explanations of the nature of the Exchanges
We have seen that the exchanges are regulated by the intrinsic value of specie, that is at par, and their variation arises from the costs and risks of transport from one place to another when the valance of trade has to be sent in specie. Argument is unnecessary in a matter which we see in fact and practice. Bankers sometimes introduce refinements into this practice. If England owes France 100,000 ounces of silver for the balance of trade, if France owes 100,000 ounces to Holland, and Holland 100,000 to England, all these three amounts may be set off by bills of exchange between the respective bankers of these three states without any need of sending silver on either side. If Holland sends to England in January merchandise of the value of 100,000 ounces of silver and England only sends to Holland in the same month merchandise to the value of 50,000 ounces (I suppose the sale and payment made in January on both sides) there will be due to Holland in this month a balance of trade of 50,000 ounces, and the exchange on Amsterdam will be in London in January 2 or 3 per cent above par, or in the language of exchange, the exchange on Holland which was in December at par or at 35 escalins to the pound sterling in London will rise there in January to about 36 escalins. But when the Bankers have sent this balance of 50,000 ounces to Holland the exchange on Amsterdam will naturally fall back to par or 35 escalins in London. But if an English banker foresees in January, owing to the sending into Holland of an unusual quantity of merchandise, that at the time of payments and sales in March Holland will be indebted considerably to England, he may instead of sending the 50,000 ecus or ounces due in January to Holland, furnish in that month bills of exchange on his Amsterdam correspondent payable at double usance or two months, the amount of the value to be paid on maturity, and by this method profit on the exchange which in January was above par and in March will be below par, and so gain doubly without sending a sol to Holland. This is what bankers call speculation, which often causes variations in the exchanges for a short period independently of the balance of trade; but in the long run we must get back to this balance which fixes the constant and uniform rule of exchange. And though the speculations