though its imports are by far the most important part of a country's liabilities, yet it may besides have liabilities on account of dividends on foreign capital invested in it, &c. If there were no regular interchange of commodities. between, for instance, France and England, the fact that French loans to the amount of many millions have been subscribed for, and are held in England, would necessitate an export either of ordinary merchandise or the precious metals from France to England. Hence, over and above the exports which France sends to England, equalling in value the English imports into France, France must send an equivalent for her debts to us. There is another respect in which one country may be indebted to another; when two countries exchange their respective productions, it is evident that the country which undertakes the carriage of the commodities backwards and forwards must receive an equivalent for this service. Speaking roughly, England does the carrying trade of the world; and therefore all nations with whom England trades are indebted to her for the carriage both of their exports and imports. Hence England's imports always exceed her exports, and would continue to do so, even if no foreign loans were held in England. In order to make this quite clear, we will imagine that a farmer living at Cromer wishes to exchange £20 worth of wheat for £20 worth of furniture belonging to a furniture broker at Norwich. It is arranged that the farmer sends his wheat by road from Cromer to Norwich, and that his wagons 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 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 in some years exceeded her exports by £100,000,000. The average excess of the value of our imports over our exports for the six years ending with 1874 was over £56,000,000. 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. 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 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. It may perhaps be objected to this statement that the exports of England to China are always greatly exceeded by our imports from China. The Chinese impede the importation of our merchandise, and demand silver in exchange for their exports. But it may be pointed out that we do not export gold and silver coin to China, but bullion, which is exported as an ordinary article of commerce; our large annual export of silver to China does not therefore directly affect the prices of commodities in this country, because it does not reduce the currency. The outpouring of bullion to the East has probably been very influential in checking the decline in the value of gold which it was predicted the vast discoveries in Australia and California would produce.

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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 a 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?

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.

10. 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.