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19. What determines the amount of profit realised by each of two countries effecting an exchange of commodities?

Who reaps the principal advantage from foreign trade?

What is the strongest case which has ever been put forward by protectionists?

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 circunstances 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.

1. In England there are taxes on tea, tobacco, 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. Deinition 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 accurately measured by the rate of interest which they pay for borrowing. When it is said in the City article of the Times that the rate of interest is “24 for the best three months' bills," it means that 24 per cent. per annum is paid for a loan by those in whose ability to pay there is perfect confidence; a higher rate of interest is paid at the same time by those whose ability to pay is less undoubted. This remark does not apply unreservedly to the credit of nations. “Ability to pay” of course produces its effect upon the credit of nations as well as upon that of individuals. The credit of Turkey and Spain is exceedingly bad. Turkish bonds for many years paid


nearly 12 per cent. ; in the autumn of 1875 the government of Turkey announced its bankruptcy by telling its creditors that only half the interest due to them would be paid in gold, and even this half has not been forthcoming ; some descriptions of Turkish stock are now at a price, which, if they pay at all, will pay 30 per cent., and Spanish bonds pay about 16 per cent., whilst English funds pay only 34 per cent. But there is frequently a great difference between the rate of interest prevailing in two countries which does not indicate a corresponding difference in their ability to pay. It has previously been explained that the rate of interest is not only affected by the security of property and the amount of risk incurred by the lender, but also by the position of the margin of cultivation. Hence it is not fair to infer that the credit of England is twice as good as that of America because an English government stock pays 3 per cent. whilst American government stock is issued at 6 per cent. A great part of this difference is accounted for by the different position of the margin of cultivation in the two countries. In England money can be borrowed on a mortgage, that is where land is given as a security, at 43 per cent., whilst in America money cannot be raised on a mortgage for less than 7 per cent. The credit of a nation cannot therefore be accurately measured by the rate of interest which it pays for loans. Although confidence in a country's “ Ability to pay” always produces its effect on the rate of interest, yet different rates of interest prevail in different countries whose financial prospects are equally sound, owing to the different position, in the scale of productiveness, of the margin of cultivation.

The expression “Credit is Capital” is meaningless. It is sometimes asserted that “credit is capital.” A little consideration of the meaning of words shews that this expression is nonsensical. Credit has already been defined as “the power to borrow," and it has frequently been explained that capital is that part of wealth which is set aside to assist future production; it supports the labourers and furnishes the tools, materials, and shelter that their work requires. Now it is evident that a power to borrow can do none of these things. Credit will not feed and clothe labourers, nor can it furnish the implements of their industry. The power to borrow, if exerted, will procure capital, just as muscular strength will, if exerted, enable a man to carry a sack of wheat; but it is as foolish to say that credit is capital as it would be to say that a man's strength is a sack of wheat.

Banks. The real service which credit performs is that it enables an increased quantity of the wealth of a country to be used productively as capital. It encourages the productive employment of wealth.

Scarcely any one, for instance, retains a considerable sum of money in his own keeping ; people keep just sufficient money to pay their daily personal expenses ; all their money above this amount is generally deposited in a bank, and is there used for productive purposes. Suppose, for instance, that Mr A. has an income of £1000. He deposits the whole of his yearly income in a bank, drawing it out in small sums as occasion requires. In the meantime the banker is employing a considerable part of this deposit as capital, experience having shewn that a bank need never keep in the form of money more than one-third of the sums deposited with it. Mr A. himself would never have been able to employ any part of his income as capital, but the banker, by accumulating a large quantity of these small capitals, is able, with advantage to all concerned, to employ two-thirds of the total amount deposited with him to assist the future production of wealth. Depositors in a bank in reality lend their money

to the banker, on the condition that they shall be able to withdraw the whole or any part of their deposits at any time. In some banks depositors receive interest on their deposits, if they have been left in the bank more than a certain time. In most cases, however, the banker is considered to make a sufficient return to the depositors by taking charge of their money, and by allowing them to withdraw any part, or the whole of it, at a moment's notice. It is evident that a bank could not exist unless the credit of the banker was good. People would not place their wealth at the disposal of a man unless they had confidence in his honesty and in his ability to pay.

Joint-stock Companies. Another way in which credit enables an increased amount of the wealth that is saved to be employed productively, is by means of joint-stock companies. Such an undertaking as a railroad requires for its construction an amount of capital such as scarcely any private individual could supply. The necessary capital is therefore subscribed by thousands of individuals. The required amount is determined by the promoters of the company; it may be assumed that this amount is £1,000,000; it is accordingly arranged to raise this sum in 20,000 shares of £50 each. Any individual, therefore, who has saved £50, and who buys one of these shares, becomes what is called a shareholder in the railway ; he is in fact a partner in a great commercial enterprise ; this small capital of £50 is employed in assisting the future production of wealth, whereas if there had been no such things as joint-stock companies, it would probably have been consumed unproductively. It is evident that the success of a joint-stock company depends upon the credit of its promoters and directors. They have frequently not deserved the confidence reposed in their honesty, but this has nothing to do with the present sub

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