culation be £30,000,000, the ordinary amount of specie £10,000,000, the rest being held say as £10,000,000 of public and £10,000,000 of private securities; and £4,000,000 of gold be abstracted from the reserve, the bank must, to keep itself safe, reduce its public or private securities, or both, by £8,000,000, as well as curtail its notes by £4,000,000. That is, in the event of such an operation, its circulation would fall from £30,000,000 to £18,000,000. In its own interest, however, it would rather lower the amount of its private securities, than resort to a sudden or large sale of its government stock. In practice, too, the inconvenience which would ensue from curtailing the accommodation of the bank, will induce the public to be content with an over-issue of notes, provided always that this over-issue be based upon a security which is readily convertible into specie. The customers of the bank will agree, either formally as they did in 1797, or informally as on many other occasions, to accept and circulate notes, even though the metallic basis be fallen to a very low amount. Experience teaches them that when trade is profitable and credit good, the most rapid and alarming efflux of bullion from any country will be speedily followed by a reflux. The same reasoning which induces persons to economise their stock of the precious metals, instructs them also in the fact that large accumulations of specie are mere hoards from which no economical profit is derivable.

We shall however see that during the course of this operation, by which the metallic reserves of a country are diminished, great injury to traders is certain to temporarily ensue, and that the phenomena of straitened supply and urgent demand are as fully manifested as they are

when society is straitened by a dearth in the necessaries of life.

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An efflux of specie may arise from many causes. purchases of a country may be speculative; or the public may be constrained to buy large supplies of food, in consequence of deficient harvests; or capitalists may have invested largely in foreign loans; or sometimes the credit of a country has been temporarily suspected, and it is therefore necessary to make larger specie payments than heretofore; or a country may be forced to make large purchases of raw material or finished goods in other countries, which do not deal conversely with it. these causes may produce such a result.

All

The illustration of these phenomena would however be too lengthy for an elementary work. They have all been exhibited in a marked form within the present century, and have all, as occasion has arisen, created serious embarrassments. It is with the last named case that we are principally concerned.

The object of a merchant is to use his capital as completely as possible. He imports goods, and gives bills to such countries as receive and negotiate bills; he exports goods and draws bills on his customers. The same facts apply, though in a minor degree, to the home trade. Sellers take bills from buyers, unless from the terms of the market the latter can gain a greater advantage from the discount allowed for ready money. But with foreign trade it is necessary that bills of exchange should be drawn, for otherwise the purchase of merchandise would involve the export of specie, the sale of merchandise its import. It is plain however that such a continual export and import of the precious metals would involve risk, and certainly loss;

for there is more or less peril in the transit, and there is certain loss involved in locking up part of the machinery of trade.

When therefore trade exists between two countries, the buyers of each country draw bills, which are negotiated generally by means of certain persons who make it their business to effect the exchange and liquidation of these instruments, in consideration of a small premium on the transaction. These bills are set off against one another, and may exactly balance between country and country. In such a case, the trade between two countries is said to be in equilibrio, and the exchange at par-i. e. it is no advantage to export the precious metals.

It does not however follow that when Paris holds more bills on London than London does on Paris, that it will be expedient to transmit specie from London to Paris. There may be a third place, for example Hamburg, which owes more to London than it has to receive, and receives more from Paris than it has to pay. This third city then may intervene, and the difference between Paris and London may be settled by this indirect or, as it is called, arbitrated exchange. A fourth or fifth city may be added; and so on through the whole range of the mercantile world, the exports of every country taken together paying for its imports taken together. In a country like our own, which carries on trade with the whole world, exchanges are arbitrated between such commercial centres as can hold convenient intercourse together. If however the imports regularly exceed the exports in one of these regions, and the exports as regularly exceed the imports in another, it is necessary that specie should be shipped. The latter has been the rule between the United States and Great

Britain since the Californian discoveries, as it is steadily between Australia and Great Britain. The former has generally ruled between Great Britain on the one hand and France and Hamburg on the other. In this way Great Britain has distributed the mineral treasures of the New World and the Australian continent, each transaction involving a profit or advantage to the community.

A country, however, may regularly import more in value than it exports. Such, it is said, is the case with Russia. In this case, it must either pay the balance in specie, or create some new kind of export with which to meet the cost involved in the excess of imports. Commonly it exports securities, i. e. it turns its private debts into a public debt, on which it pays or agrees to pay interest. It does not follow that a public debt, created by one country and taken by another, represents a sum of money exported to the former; it may be, and commonly is, goods, munitions of war, machinery, railroad plant, or any other valuable commodity. And the exports of securities may be new debts created, or debts hitherto due to the inhabitants of an importing country transferred to some foreigner. We might, for example, supposing we imported more in value than we exported, pay the balance in consols, should foreigners be willing to accept this kind of security in liquidation of their claims.

If, on the other hand, the excess of imports is temporary, it may be, and generally is, liquidated by an efflux of specie; nor will this efflux be arrested until the excess is made to cease, and the irregularity is rectified. The way in which an attempt is made to check an excess of imports, is by raising the rate of discount. Under these circumstances it is supposed, and generally with

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reason, either that profits must fall, and so business must be straitened, or that consumption must be lessened, and so importation be diminished. But the power of controlling importation depends upon the object imported. It will have but scanty influence on the demand for the necessaries of life. A drain of specie consequent upon large imports of foreign corn will not be checked by a rise in the rate of discount. Such a drain, so far as it operates upon the reserve of gold held by the Bank of England, will continue either until the exporting country is willing to take goods, or until the demand for this produce be satisfied. The importer will readily bear the loss involved in a high rate of discount, because he feels sure that he will be reimbursed by the rising market for food.

But notwithstanding the fact that a drain of specie, in order to purchase food, is not compensated or arrested by a rise in the rate of discount, this rise is necessary and inevitable. As there is less gold, so there are less notes. The paper currency diminishes as specie diminishes; should in this country, for reasons alleged before, diminish more rapidly. For a share of this remaining gold all importers are competing, in order to complete their bargains, to carry out their purchases. Now as competition for a limited quantity always raises its price, much more does competition raise the price if the limited quantity cannot be readily increased, and its supply is of primary necessity to the person demanding it. Thus it is that discounts, the shape in which money is borrowed among persons engaged in commerce, rise under the effects of a drain and the exigencies of foreign trade, as rapidly and to as great a height as that of food does on the occurrence of a dearth. The borrower of capital