that the farmer sends his wheat by road from Cromer to Norwich, and that his wagon and horses are to bring back the furniture. In this case we will imagine that the carriage of the wheat and the furniture costs the farmer £2. He therefore says to the broker, “I am not going to be put to this expense and trouble without getting anything in exchange." Perhaps the broker then offers to give him I worth more furniture. "It will be all right then," he says; "you will get £21 worth of furniture, and you will give me £20 worth of wheat and pay the cost of carriage. That way we shall each pay half the cost of the carriage." But the farmer may say, "No; by the time my wheat reaches you it has cost me £21; you ought therefore to give me £21 worth of furniture and deliver it to me at your own expense." If the farmer is a hard bargainer he will succeed in making good this demand; and he will obtain £22 worth of furniture in exchange for his £20 worth of wheat. That is to say, his imports will exceed his exports by 10 per cent. In the same way a country which performs the carrying trade of exports and imports, will be indemnified for this service by receiving imports of a greater value than the exports which she gives in exchange. The imports of England have for several years exceeded her exports by more than £150,000,000. The average excess of the value of our imports over our exports for the ten years ending with 1886 was over £1704,000,000, or an average of more than £170,000,000 a This excess must be regarded partly as the liquidation of cost of carriage, and partly as the interest due to the English holders of foreign securities. It may also in part be due to the withdrawal of English capital from foreign investments. The point, therefore, at which the foreign trade of a country reaches equilibrium, is not that at which the exports and imports are equal, but that at which the exports, whatever these consist of, suffice to discharge all its liabilities. The presence of counteracting circumstances does not, however, falsify the proposition originally laid down, that the exports and imports of a country tend to an equality. The following example will shew the manner in which this tendency is exerted. Let year. it be supposed that the whole foreign trade of England is carried on with France, and that in a given year the exports of England to France are considerably exceeded by the imports to England from France. In such a case as this England will be, as it were, in debt to France, and this debt will have to be defrayed by an export of money from England to France; the supply of money will in this way be increased in France and decreased in England. Now it was shewn in Chapter IV., Section II., that the value of money is regulated in the same way as the value of other commodities; viz. by an equalisation of the demand with the supply. In France, therefore, owing to the importation of specie, the value of money will decline and prices will rise; whilst in England, owing to the exportation of specie, the value of money will increase and prices will decline. We will now trace the effect of the alteration in the value of money upon the two countries. The high prices realised in France will attract an increased exportation of commodities to that country from England. English merchants will prefer selling their commodities in France to selling them in England, because they will obtain a higher price in the former country than in the latter. For the same reasons, French merchants will prefer selling their goods in their own country to exporting them to England. In this way the exports of England to France will be increased, whilst her imports from France are diminished, and the position of equality between her exports and imports is restored. The meaning explained of such expressions as "balance of trade," ” “unfavourable exchange." In the days of the mercantile system it was thought a serious calamity to a country if a part of its exports consisted of coin or bullion. A country was in fact considered to have suffered loss, from foreign trade, exactly equivalent to the value of the coin or bullion she exported. When a part of a nation's imports had to be paid for in gold or silver "the balance of trade" was said to be against that nation, and the exchange which she had effected was termed "unfavourable." The experience of the present century has exposed the fallacy and confusion of thought of such reasoning. Gold is now exported from the countries which produce it as an ordinary article of commerce; and the rapidity of the growth and the prosperity of Australia and California are notorious, and have been proportionate to the degree in which they have parted with their gold in exchange for the commodities produced by other countries. To consider that a country loses an amount exactly equivalent to the quantity of gold and silver she exports, is the same as thinking that every one who buys a penny roll loses a pennyworth by the transaction. The following chapter on Credit will explain the manner in which foreign exchanges are conducted, without involving a constant export and import of the precious metals. QUESTIONS ON CHAPTER I. On Foreign Commerce. I. What is the great advantage derived from foreign trade? 2. Give examples of this advantage. 3. What is meant by Protection, and how do protectionists justify their interference with foreign commerce? 4. What would follow if protection were withdrawn from those industries which could not survive foreign competition? 5. When a native industry would cease to exist unless it were protected from foreign competition, is loss or gain inflicted on the nation at large by protecting it? 6. What large class does the protectionist quite overlook? 7. Describe the effect produced on wages by the cheapening of any of the necessaries of life. 8. What effect is produced on the accumulation of capital by decreasing cost of production? 9. Apply the arguments of protectionists to the introduction of railway travelling. IO. Give a summary of the arguments contained in the Candlemakers' petition. II. Under what conditions will an exchange of commodities be advantageous to both countries effecting such an exchange? 12. What must be the minimum difference in the relative value of the commodities exchanged? 13. When the difference exceeds this minimum, how are the terms of the exchange determined? 14. How does foreign commerce affect the prices of exports and imports? 15. If foreign commerce were quite unchecked, what circumstances would still cause the prices of some commodities to be different in different countries? 16. To what excess was the protective spirit carried in France before the revolution? 17. Shew the manner in which the demand and supply of a foreign commodity are equalised. 18. What is "reciprocity"? Give an illustration of its impracticability in certain cases. 19. What determines the amount of profit realised by each of two countries effecting an exchange of commodities? 20. Who reaps the principal advantage from foreign trade? 21. What is the strongest case which has ever been put forward by protectionists? 22. What main advantage of free trade does this argument disregard? 23. Is this argument supported by facts? 24. Shew, by an example, the manner in which protective tariffs depress industry. 25. What effect is produced on the whole population of the United States by the increasing cost of living? Quote the authority for these statements. 26. What is probably the reason why England has recognised the advantages of free trade before America? 27. Describe the tendency constantly in operation to produce an equality between the exports and imports of a country; and mention some of the circumstances which counteract this tendency. 28. Compare the effect of an export of coin with that of an export of bullion. 29. What is meant by "balance of trade" and "unfavourable exchange"? 30. Illustrate the absurdity of supposing that a country loses an amount exactly equal to the quantity of gold and silver she exports. I. In England there are taxes on tea, tobacco, spirits, and other imports; are these in any sense protective? 2. If there were in a village a one-armed cobbler, who made boots rather worse and much dearer than they could be made elsewhere, and if the authorities of the village, in order to encourage native industry, levied a tax on all boots not made by him, would not this be in accordance with protectionist principles? Explain the consequences to the general well-being of the village. 3. Where in America should you say the free-trade party was the strongest, in the corn-growing states of the West, or in the manufacturing districts? And give your reasons. 4. Why is agriculture more profitable than manufactures in such a country as Australia? 5. Trace out the results that would ensue if a country possessing rich gold-fields were entirely debarred from purchasing the products of other countries. CHAPTER II. Credit and its Influence on Prices. Definition of Credit. Credit is a power to borrow. If the credit of an individual is good, it is because there is general confidence in his ability to pay, and therefore he can borrow at a low rate of interest. If the credit of an individual is bad, he is not able to borrow except at a high rate of interest, because his ability to pay is doubted. The credit of different people in the same age and country can be |