native habitation, resemble bills of exchange on the places where they are redeemed, and are bought and sold at nearly the same rates as exchange.

COURSE OF EXCHANGE.

ART. 122. Having ascertained the par of exchange we have a basis for computation. The nominal exchange modifies that computation, by showing the relative value of the metallic currency affected by scarcity and abundance or abrasion, and also the depreciation arising from the use of a paper currency not equivalent to coin, though bearing the same denomination in the money of account.

The course of exchange relates to the relative supply and demand for bills, or the relative amount of indebtedness between different countries or cities. If the debts and credits between two countries are equal, the real exchange is at par, if unequal it will fluctuate with the inequality. If New York owes London more than London owes New York, bills on London will be at a premium. The range of this course of exchange will be limited by the expense of transmitting coin or bullion, and the premium cannot for a long time exceed that expense. The current, or computed rate of exchange, includes both the real and nominal exchange, taking the true par for a basis. Within the United States it is reckoned by percentage. Between the United States and England it is reckoned also by percentage, but the true par is at a premium above an assumed fictitious par. So that an advance in quotation from 109 to 110 is not really 1%, that is, one on a hundred, but less, it being only 1 on 1091.

With other countries the current exchange is generally expressed by equivalents, thus $1=5 francs 15 centimes, 1 marc banco=35 cts. If the depreciation of Chicago currency be 1%, and the real exchange on New York % premium, the current rate will be the sum of the nominal and real, viz. :

11% premium. If, however, the real exchange be 1% in favor of Chicago, the current rate will be equal to the difference, or 3% premium.

The equilibrium in the course of exchange is only to a small extent restored by the shipment of coin or bullion, for the reason that almost always other articles of merchandise can be shipped with more profit, gold and silver bearing a nearly uniform value among all civilized nations. When, however, new productive mines are opened and worked, the metals depreciate in value in the mining country, in which case they become profitable articles of export to non-producing countries, until the depreciation becomes general. The unequal depreciation occasions a variation in the nominal exchange before the coin or bullion is shipped. The transfer of the metal would affect the real exchange, because it either pays or creates a debt.

"BALANCE OF TRADE."

ART. 123. If a country, in her trade with other nations, buys more than she sells, so as to incur a debt, the payments of which, in bullion or coin, would reduce the amount of metallic currency below her proper proportion, as compared with the supply in other nations, she is said to "over-trade," and the "balance of trade" is against her. If the reverse be true, the balance of trade is in her favor. Some restrict the term "balance of trade" to the exchange of commodities other than gold or silver. But why should not gold be considered a staple article of export from California and Australia, as iron is from Sweden or lumber from Maine? It is not proposed here to discuss this subject in its bearing upon the prosperity of a country, but merely to offer a few suggestions to the student, in its relation to the subject of exchange. It is rather the balance of payments between separate countries, and the mode of estimating the amount, the direction, and means of liquidating it, that he should consider here. 1st. Although

the direct commerce between two separate nations may be very unequal, yet the total amount of importations to any country are for the most part paid for by its exportations, through the agency of bills of exchange, drawn against the latter, and transmitted to other countries in payment of the former. Sometimes it is effected by a succession of bills drawn by bankers through intermediate points, or a more circuitous route, which gives rise to Circular Exchange and an Arbitration of Exchange. For example, a merchant in New York may remit to Hamburg by buying first a bill on Paris, and then by his agent another on London, and there a bill on Hamburg. Remittances to remote points are more frequently made by bankers' bills drawn on some commercial center, where other bankers are accustomed to keep an account, so that they may be easily negotiated, making the place thereby a kind of clearing-house. Thus, London has been styled "the clearinghouse of the world." Nearly all our foreign trade is settled through England and France. In like manner, remittances between inland towns in the United States are made in drafts on New York. The course of exchange between London and New York does not arise alone from the commerce between the two cities, but from all that commerce that is settled for through those places. Thus, if we pay for our importations of tea with bills on London, our balance of payments with London is affected the same as if the tea came directly from London.

2d. So far as the commerce of any country is carried on by its own capital and labor, a large share of the excess of imports over the exports arises from the profit of the trade, which does not increase the balance of payments. If, for example, an American vessel leaves New York for Liverpool, with a cargo of wheat, valued at $10,000, which is sold there for $12,000, and that amount invested in manufactured goods, and taken to China and sold for $15,000, and that amount, with $5,000 cash invested in tea, which is brought home to New York, it is evident that, from that transaction, the importations exceed the exportations $10,000, one half of which represents the

gross profit for the round trip, not including the enhanced value of the tea by being transported from China to New York.

3d. So far as foreign vessels, sustained by foreign capital and labor, transport our exports and imports, the difference between the two, as valued at our own ports, will show the balance of payments.

4th. Goods lost at sea have been entered at the Custom House whence they cleared as exports. But if the loss is sustained by the exporting country, they pay for nothing abroad, and foreign exchange is affected no more than if destroyed before shipment. If the loss be sustained by the country whither they were bound, exchange is affected the same as if they had reached their destination.

5th. When capitalists emigrate from one country to another, so far as they carry their capital, either in coin or goods, with them, the real exchange is not materially affected; but if they remove their capital through the agency of certificates of deposit, letters of credit, or their own bills of exchange, it becomes a debt of one country to the other, which, in the end, is generally paid in merchandise rather then money. This fact often affects sensibly the course of exchange between the east and west of the United States.

6th. The negotiation of bonds, stocks, and other loans in a foreign country creates a debt against that country, which, though nominally for money, is generally paid in merchandise. After this debt is paid, though the bonds are truly the evidence of debt against the country that issued them, yet, with the exception of the payment of the interest, the balance of payments and course of exchange are not affected till the maturity of the bonds.

7th. An excess of imports over exports, as shown by the Custom House returns, by no means prove that a country is in debt. Indeed, it is clear from what has been stated, that with every nation engaged in the carrying trade the imports will generally exceed the exports, and, so far as the latter pay for the former, the greater the excess the more profitable the

commerce.

The fluctuations in the rate of exchange depend upon a variety of conditions, a few only of which have here been noticed. They cannot, to any great extent, be controlled by an arbitrary decree of bankers or merchants. Excepting when disturbed by a panic, or an unusual distrust in the credit of those who draw or accept bills of exchange, which gives it a fictitious value, the current rate represents the actual resultant of all the movements in trade and currency, whether traceable or not, and is, therefore, if properly analyzed, a better test of the condition of accounts between different countries and cities than any estimate that can be made, independent of it, based upon exports and imports and other Custom House data.

To understand the current rate, however, requires, as stated before, a thorough knowledge both of the par of exchange and the nominal rate, for frequently the fluctuations in the current rate are wholly due to the fluctuations in the nominal rate, which latter depends entirely upon the relative condition of the currency.

STATISTICS.

ART. 124. To exhibit the truth of the foregoing principles, a few statistics have been compiled from reliable authorities.

Total imports to the United States, includ

ing bullion and specie, from 1790 to
1857, inclusive,

Total exports for the same time,

Excess of imports for 68 yrs. ending 1857,

$7,658,722,496 6,860,004,549

798,717,947

The valuation of imports, as obtained from Custom House returns, owing to the ad valorem system of tariff, is, below their cost, generally estimated to average even 10%. It will be observed that allowing an undervalution of 1% will increase the excess of imports about 10%.