Inthecasejustnowsupposed，ofacompetitionbetweenEnglandandFrance，thestateofinternationalvaluesaffectedbothcompetitorsalike，sincetheyweresupposedtotradewiththesamecountry，andtoexportandimportthesamecommodities。
Thedifference，therefore，inwhattheirimportscostthem，dependedsolelyontheothercause，theunequalefficiencyoftheirlabour。Theygavethesamequantities;thedifferencecouldonlybeinthecostofproduction。ButifEnglandtradedtoGermanywithcloth，andFrancewithiron，thecomparativedemandinGermanyforthosetwocommoditieswouldbearashareindeterminingthecomparativecost，inlabourandcapital，withwhichEnglandandFrancewouldobtainGermanproducts。IfironweremoreindemandinGermanythancloth，Francewouldrecover，throughthatchannel，partofherdisadvantage;ifless，herdisadvantagewouldbeincreased。Theefficiency，therefore，ofacountry’slabour，isnottheonlythingwhichdetermineseventhecostatwhichthatcountryobtainsimportedcommodities——whileithasnosharewhateverindeterminingeithertheirexchangevalue，or，asweshallpresentlysee，theirprice。
NOTES:
1。Supra，bookiii，chap。ii。section4。
2。Itmaybeasked，whywehavesupposedthenumberntohaveasitsextremelimits，mand2m（orp/qm）？whymaynotnbelessthanm，orgreaterthan2m;andifso，whatwillbetheresult？
Thisweshallnowexamine，andwhenwedosoitwillappearthatnisalways，practicallyspeaking，codedwithintheselimits。
Suppose，forexample，thatnislessthanm;or，revertingtoourformerfigures，thatthemillionyardsofcloth，whichEnglandcanmake，willnotsatisfythewholeofGermany’spre—existingdemand;thatdemandbeing（letussuppose）for1，200，000yards。Itwouldthen，atfirstsight，appearthatEnglandwouldsupplyGermanywithclothuptotheextentofamillion;thatGermanywouldcontinuetosupplyherselfwiththeremaining200，000byhomeproduction:thatthisportionofthesupplywouldregulatethepriceofthewhole;thatEnglandthereforewouldbeablepermanentlytosellhermillionofclothattheGermancostofproduction（viz。fortwomillionsoflinen）
andwouldgainthewholeadvantageofthetrade，Germanybeingnobetteroffthanbefore。
Thatsuch，however，wouldnotbethepracticalresult，willsoonbeevident。TheresiduarydemandofGermanyfor200，000
yardsofclothfurnishesaresourcetoEnglandforpurposesofforeigntradeofwhichitisstillherinteresttoavailherself;
andthoughshehasnomorelabourandcapitalwhichshecanwithdrawfromlinenfortheproductionofthisextraquantityofcloth，theremustbesomeothercommoditiesinwhichGermanyhasarelativeadvantageoverher（thoughperhapsnotsogreatasinlinen）:theseshewillnowimport，insteadofproducing，andthelabourandcapitalformerlyemployedinproducingthemwillbetransferredtocloth，untiltherequiredamountismadeup。Ifthistransferjustmakesupthe200，000andnomore，thisaugmentednwillnowbeequaltom;Englandwillsellthewhole1，200，000attheGermanvalues;andwillstillgainthewholeadvantageofthetrade。Butifthetransfermakesupmorethanthe200，000，Englandwillhavemorecloththan1，200，000yardstooffer;nwillbecomegreaterthanm，andEnglandmustpartwithenoughoftheadvantagetoinduceGermanytotakethesurplus。
Thusthecasewhichseemedatfirstsighttobebeyondthelimits，istransformedpracticallyintoacaseeithercoincidingwithoneofthelimitsorbetweenthem。Andsowitheveryothercasewhichcanbesupposed。
3。Theincreaseofdemandfrom800，000to900，000，andthatfromamillionto1，440，000，areneitherequalinthemselves，norbearanequalproportiontotheincreaseofcheapness。Germany’sdemandforclothhasincreasedone—eighth，whilethecheapnessisincreasedone—fourth。England’sdemandforlineniscreased44
percent，whilethecheapnessisincreased60percent。
4。ThreeLecturesontheCostofObtainingMoney。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book3:Distribution
Chapter19
OfMoney，ConsideredasanImportedCommodity
1。Thedegreeofprogresswhichwehavenowmadeinthe
theoryofForeignTrade，putsitinourpowertosupplywhatwas
previouslydeficientinourviewofthetheoryofMoney;and
this，whencompleted，willinitsturnenableustoconcludethe
subjectofForeignTrade。
Money，orthematerialofwhichitiscomposed，is，inGreat
Britain，andinmostothercountries，aforeigncommodity。Its
valueanddistributionmustthereforeberegulated，notbythe
lawofvaluewhichobtainsinadjacentplaces，butbythatwhich
isapplicabletoimportedcommodities——thelawofInternational
Values。
Inthediscussionintowhichwearenowabouttoenter，I
shallusethetermsMoneyandthePreciousMetals
indiscriminately。Thismaybedonewithoutleadingtoanyerror;
ithavingbeenshownthatthevalueofmoney，whenitconsistsof
thepreciousmetals，orofapapercurrencyconvertibleintothem
ondemand，isentirelygovernedbythevalueofthemetals
themselves:fromwhichitneverpermanentlydiffers，exceptby
theexpenseofcoinagewhenthisispaidbytheindividualand
notbythestate。
Moneyisbroughtintoacountryintwodifferentways。Itis
imported（chieflyintheformofbullion）likeanyother
merchandize，asbeinganadvantageousarticleofcommerce。Itis
alsoimportedinitsothercharacterofamediumofexchange，to
paysomedebtduetothecountry，eitherforgoodsexportedoron
anyotheraccount。Thereareotherwaysinwhichitmaybe
introducedcasually;thesearethetwoinwhichitisreceivedin
theordinarycourseofbusiness，andwhichdetermineitsvalue。
Theexistenceofthesetwodistinctmodesinwhichmoneyflows
intoacountry，whileothercommoditiesarehabituallyintroduced
onlyinthefirstofthesemodes，occasionssomewhatmoreof
complexityandobscuritythanexistsinthecaseofother
commodities，andforthisreasononlyisanyspecialandminute
expositionnecessary。
2。Insofarasthepreciousmetalsareimportedinthe
ordinarywayofcommerce，theirvaluemustdependonthesame
causes，andconformtothesamelaws，asthevalueofanyother
foreignproduction。Itisinthismodechieflythatgoldand
silverdiffusethemselvesfromtheminingcountriesintoall
otherpartsofthecommercialworld。Theyarethestaple
commoditiesofthosecountries，oratleastareamongtheirgreat
articlesofregularexport;andareshippedonspeculation，in
thesamemannerasotherexportablecommodities。Thequantity，
therefore，whichacountry（sayEngland）willgiveofitsown
produce，foracertainquantityofbullion，willdepend，ifwe
supposeonlytwocountriesandtwocommodities，uponthedemand
inEnglandforbullion，comparedwiththedemandinthemining
country（whichwewillcallBrazil）forwhatEnglandhastogive。
Theymustexchangeinsuchproportionsaswillleaveno
unsatisfieddemandoneitherside，toaltervaluesbyits
competition。ThebullionrequiredbyEnglandmustexactlypayfor
thecottonsorotherEnglishcommoditiesrequiredbyBrazil。If，
however，wesubstituteforthissimplicitythedegreeof
complicationwhichreallyexists，theequationofinternational
demandmustbeestablishednotbetweenthebullionwantedin
EnglandandthecottonsorbroadclothwantedinBrazil，but
betweenthewholeoftheimportsofEnglandandthewholeofher
exports。ThedemandinforeigncountriesforEnglishproducts，
mustbebroughtintoequilibriumwiththedemandinEnglandfor
theproductsofforeigncountries;andallforeigncommodities，
billionamongtherest，mustbeexchangedagainstEnglish
productsinsuchproportions，aswill，bytheeffecttheyproduce
onthedemand，establishthisequilibrium。
Thereisnothinginthepeculiarnatureorusesofthe
preciousmetals，whichshouldmakethemanexceptiontothe
generalprinciplesofdemand。Sofarastheyarewantedfor
purposesofluxuryorthearts，thedemandincreaseswiththe
cheapness，inthesameirregularwayasthedemandforanyother
commodity。Sofarastheyarerequiredformoney，thedemand
increaseswiththecheapnessinaperfectlyregularway，the
quantityneededbeingalwaysininverseproportiontothevalue。
Thisistheonlyrealdifference，inrespecttodemand，between
moneyandotherthings;andforthepresentpurposeitisa
differencealtogetherimmaterial。
Money，then，ifimportedsolelyasamerchandize，will，like
otherimportedcommodities，beoflowestvalueinthecountries
forwhoseexportsthereisthegreatestforeigndemand，andwhich
havethemselvestheleastdemandforforeigncommodities。To
thesetwocircumstancesitishowevernecessarytoaddtwo
others，whichproducetheireffectthroughcostofcarriage。The
costofobtainingbullioniscompoundedoftwoelements;the
goodsgiventopurchaseit，andtheexpenseoftransport:of
whichlast，thebullioncountrieswillbearapart，（thoughan
uncertainpart，）intheadjustmentofinternationalvalues。The
expenseoftransportispartlythatofcarryingthegoodstothe
bullioncountries，andpartlythatofbringingbackthebullion;
boththeseitemsareinfluencedbythedistancefromthemines;
andtheformerisalsomuchaffectedbythebulkinessofthe
goods。Countrieswhoseexportableproduceconsistsofthefiner
manufactures，obtainbullion，aswellasallotherforeign
articles，caeterisparibus，atlessexpensethancountrieswhich
exportnothingbutbulkyrawproduce。
Tobequiteaccurate，therefore，wemustsay——Thecountries
whoseexportableproductionsaremostindemandabroad，and
containgreatestvalueinsmallestbulk，whicharenearesttothe
mines，andwhichhaveleastdemandforforeignproductions，are
thoseinwhichmoneywillbeoflowestvalue，orinotherwords，
inwhichpriceswillhabituallyrangethehighest。Ifweare
speakingnotofthevalueofmoney，butofitscost，（thatis，
thequantityofthecountry’slabourwhichmustbeexpendedto
obtainit，）wemustaddtothesefourconditionsofcheapnessa
fifthcondition，namely，"whoseproductiveindustryisthemost
efficient。"Thislast，however，doesnotatallaffectthevalue
ofmoney，estimatedincommodities:itaffectsthegeneral
abundanceandfacilitywithwhichallthings，moneyand
commoditiestogether，canbeobtained。
Although，therefore，MrSeniorisrightinpointingoutthe
greatefficiencyofEnglishlabourasthechiefcausewhythe
preciousmetalsareobtainedatlesscostbyEnglandthanbymost
othercountries，Icannotadmitthatitatallaccountsfortheir
beingoflessvalue;fortheirgoinglessfarinthepurchaseof
commodities。This，insofarasitisafact，andnotan
illusion，mustbeoccasionedbythegreatdemandinforeign
countriesforthestaplecommoditiesofEngland，andthe
generallyunbulkycharacterofthosecommodities，comparedwith
thecorn，wine，timber，sugar，wool，hides，tallow，hemp，flax，
tobacco，rawcotton，&c。，whichformtheexportsofother
commercialcountries。Thesetwocauseswillaccountfora
somewhathigherrangeofgeneralpricesinEnglandthan
elsewhere，notwithstandingthecounteractinginfluenceofherown
greatdemandforforeigncommodities。Iam，however，stronglyof
opinionthatthehighpricesofcommodities，andlowpurchasing
powerofmoneyinEngland，aremoreapparentthanreal。Food，
indeed，issomewhatdearer;andfoodcomposessolargeaportion
oftheexpenditurewhentheincomeissmallandthefamilylarge，
thattosuchfamiliesEnglandisadearcountry。Services，also，
ofmostdescriptions，aredearerthanintheothercountriesof
Europe，fromthelesscostlymodeoflivingofthepoorerclasses
ontheContinent。Butmanufacturedcommodities（exceptmostof
thoseinwhichgoodtasteisrequired）aredecidedlycheaper;or
wouldbeso，ifbuyerswouldbecontentwiththesamequalityof
materialandofworkmanship。Whatiscalledthedearnessof
livinginEngland，ismainlyanaffairnotofnecessitybutof
foolishcustom;itbeingthoughtimperativebyallclassesin
Englandabovetheconditionofaday—labourer，thatthethings
theyconsumeshouldeitherbeofthesamequalitywiththoseused
bymuchricherpeople，oratleastshouldbeasnearlyas
possibleundistinguishablefromtheminoutwardappearance。
3。Fromtheprecedingconsiderations，itappearsthatthose
aregreatlyinerrorwhocontendthatthevalueofmoney，in
countrieswhereitisanimportedcommodity，mustbeentirely
regulatedbyitsvalueinthecountrieswhichproduceit;and
cannotberaisedorloweredinanypermanentmannerunlesssome
changehastakenplaceinthecostofproductionatthemines。On
thecontrary，anycircumstancewhichdisturbstheequationof
internationaldemandwithrespecttoaparticularcountry，not
onlymay，butmust，affectthevalueofmoneyinthatcountry——
itsvalueattheminesremainingthesame。Theopeningofanew
branchofexporttradefromEngland;anincreaseintheforeign
demandforEnglishproducts，eitherbythenaturalcourseof
events，orbytheabrogationofduties;achecktothedemandin
Englandforforeigncommodities，bythelayingonofimport
dutiesinEnglandorofexportdutieselsewhere;theseandall
othereventsofsimilartendency，wouldmaketheimportsof
England（bullionandotherthingstakentogether）nolongeran
equivalentfortheexports;andthecountrieswhichtakeher
exportswouldbeobligedtooffertheircommodities，andbullion
amongtherest，oncheaperterms，inordertore—establishthe
equationofdemand:andthusEnglandwouldobtainmoneycheaper，
andwouldacquireagenerallyhigherrangeofprices。Incidents
thereverseofthesewouldproduceeffectsthereverse——would
reduceprices;or，inotherwords，raisethevalueofthe
preciousmetals。Itmustbeobserved，however，thatmoneywould
bethusraisedinvalueonlywithrespecttohomecommodities:in
relationtoallimportedarticlesitwouldremainasbefore，
sincetheirvalueswouldbeaffectedinthesamewayandinthe
samedegreewithitsown。Acountrywhich，fromanyofthecauses
mentioned，getsmoneycheaper，obtainsallitsotherimports
cheaperlikewise。
Itisbynomeansnecessarythattheincreaseddemandfor
Englishcommodities:whichenablesEnglandtosupplyherselfwith
bullionatacheaperrate，shouldbeademandinthemining
countries。Englandmightexportnothingwhatevertothose
countries，andyetmightbethecountrywhichobtainedbullion
fromthemonthelowestterms，providedtherewereasufficient
intensityofdemandinotherforeigncountriesforEnglishgoods，
whichwouldbepaidforcircuitously，withgoldandsilverfrom
theminingcountries。Thewholeofitsexportsarewhatacountry
exchangesagainstthewholeofitsimports，andnotitsexports
andimportstoandfromanyonecountry;andthegeneralforeign
demandforitsproductionswilldeterminewhatequivalentitmust
giveforimportedgoods，inordertoestablishanequilibrium
betweenitssalesandpurchasesgenerally;withoutregardtothe
maintenanceofasimilarequilibriumbetweenitandanycountry
singly。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book3:Distribution
Chapter20
OftheForeignExchanges
1。Wehavethusfarconsideredthepreciousmetalsasa
commodity，importedlikeothercommoditiesinthecommoncourse
oftrade，andhaveexaminedwhatarethecircumstanceswhich
wouldinthatcasedeterminetheirvalue。Butthosemetalsare
alsoimportedinanothercharacter，thatwhichbelongstothemas
amediumofexchange;notasanarticleofcommerce，tohesold
formoney，butasthemselvesmoney，topayadebt，oreffecta
transferofproperty。Itremainstoconsiderwhetherthe
liabilityofgoldandsilvertobetransportedfromcountryto
countryforsuchpurposes，inanywaymodifiestheconclusionswe
havealreadyarrivedat，orplacesthosemetalsunderadifferent
lawofvaluefromthattowhich，incommonwithallother
importedcommodities，theywouldbesubjectifinternational
tradewereanaffairofdirectbarter。
Moneyissentfromonecountrytoanotherforvarious
purposes:suchasthepaymentoftributesorsubsidies;
remittancesofrevenuetoorfromdependencies，orofrentsor
otherincomestotheirabsentowners;emigrationofcapital，or
transmissionofitforforeigninvestment。Themostusual
purpose，however，isthatofpaymentforgoods。Toshowinwhat
circumstancesmoneyactuallypassesfromcountrytocountryfor
thisoranyoftheotherpurposesmentioned，itisnecessary
brieflytostatethenatureofthemechanismbywhich
internationaltradeiscarriedon，whenittakesplacenotby
barterbutthroughthemediumofmoney。
2。Inpractice，theexportsandimportsofacountrynotonly
arenotexchangeddirectlyagainsteachother，butoftendonot
evenpassthroughthesamehands。Eachisseparatelyboughtand
paidforwithmoney。Wehaveseen，however，that，eveninthe
samecountry，moneydoesnotactuallypassfromhandtohandeach
timethatpurchasesaremadewithit，andstilllessdoesthis
happenbetweendifferentcountries。Thehabitualmodeofpaying
andreceivingpaymentforcommodities，betweencountryand
country，isbybillsofexchange。
AmerchantinEngland，A，hasexportedEnglishcommodities，
consigningthemtohiscorrespondentBinFrance。Another
merchantinFrance，C，hasexportedFrenchcommodities，suppose
ofequivalentvalue，toamerchantDinEngland。Itisevidently
unnecessarythatBinFranceshouldsendmoneytoAinEngland，
andthatDinEnglandshouldsendanequalsumofmoneytoCin
France。Theonedebtmaybeappliedtothepaymentoftheother，
andthedoublecostandriskofcarriagebethussaved。Adrawsa
billonBfortheamountwhichBowestohim:D，havinganequal
amounttopayinFrance，buysthisbillfromA，andsendsitto
C，who，attheexpirationofthenumberofdayswhichthebill
hastorun，presentsittoBforpayment。Thusthedebtduefrom
FrancetoEngland，andthedebtduefromEnglandtoFrance，are
bothpaidwithoutsendinganounceofgoldorsilverfromone
countrytotheother。
Inthisstatement，however，itissupposed，thatthesumof
thedebtsduefromFrancetoEngland，andthesumofthosedue
fromEnglandtoFrance，areequal;thateachcountryhasexactly
thesamenumberofouncesofgoldorsilvertopayandto
receive。Thisimplies（ifweexcludeforthepresentanyother
internationalpaymentsthanthoseoccurringinthecourseof
commerce），thattheexportsandimportsexactlypayforone
another，orinotherwords，thattheequationofinternational
demandisestablished。Whensuchisthefact，theinternational
transactionsareliquidatedwithoutthepassageofanymoneyfrom
onecountrytotheother。Butifthereisagreatersumduefrom
EnglandtoFrance，thanisduefromFrancetoEngland，orvice
versa，thedebtscannotbesimplywrittenoffagainstone
another。Aftertheonehasbeenapplied，asfarasitwillgo，
towardscoveringtheother，thebalancemustbetransmittedin
thepreciousmetals。Inpointoffact，themerchantwhohasthe
amounttopay，willeventhenpayforitbyabill。Whenaperson
hasaremittancetomaketoaforeigncountry，hedoesnot
himselfsearchforsomeonewhohasmoneytoreceivefromthat
country，andaskhimforabillofexchange。Inthisasinother
branchesofbusiness，thereisaclassofmiddlemenorbrokers，
whobringbuyersandsellerstogether，orstandbetweenthem，
buyingbillsfromthosewhohavemoneytoreceive，andselling
billstothosewhohavemoneytopay。Whenacustomercomestoa
brokerforabillonParisorAmsterdam，thebrokersellstohim，
perhapsthebillhemayhimselfhaveboughtthatmorningfroma
merchant，perhapsabillonhisowncorrespondentintheforeign
city:andtoenablehiscorrespondenttopay，whendue，allthe
billshehasgranted，heremitstohimallthosewhichhehaS
boughtandhasnotresold。Inthismannerthesebrokerstakeupon
themselvesthewholesettlementofthepecuniarytransactions
betweendistantplaces，beingremuneratedbyasmallcommission
orpercentageontheamountofeachbillwhichtheyeithersell
orbuy。Now，ifthebrokersfindthattheyareaskedforbillson
theonepart，toagreateramountthanbillsareofferedtothem
ontheother，theydonotonthisaccountrefusetogivethem;
butsince，inthatcase，theyhavenomeansofenablingthe
correspondentsonwhomtheirbillsaredrawn，topaythemwhen
due，exceptbytransmittingpartoftheamountingoldorsilver，
theyrequirefromthosetowhomtheysellbillsanadditional
price，sufficienttocoverthefreightandinsuranceofthegold
andsilver，withaprofitsufficienttocompensatethemfortheir
troubleandforthetemporaryoccupationofaportionoftheir
capital。Thispremium（asitiscalled）thebuyersarewillingto
pay，becausetheymustotherwisegototheexpenseofremitting
thepreciousmetalsthemselves，anditisdonecheaperbythose
whomakedoingitapartoftheirespecialbusiness。Butthough
onlysomeofthosewhohaveadebttopaywouldhaveactuallyto
remitmoney，allwillbeobliged，byeachother’scompetition，to
paythepremium;andthebrokersareforthesamereasonobliged
topayittothosewhosebillstheybuy。Thereverseofallthis
happens，ifonthecomparisonofexportsandimports，the
country，insteadofhavingabalancetopay，hasabalanceto
receive。Thebrokersfindmorebillsofferedtothem，thanare
sufficienttocoverthosewhichtheyarerequiredtogrant。Bills
onforeigncountriesconsequentlyfalltoadiscount;andthe
competitionamongthebrokers，whichisexceedinglyactive，
preventsthemfromretainingthisdiscountasaprofitfor
themselves，andobligesthemtogivethebenefitofittothose
whobuythebillsforpurposesofremittance。
Letussupposethatallcountrieshadthesamecurrency，as
intheprogressofpoliticalimprovementtheyonedaywillhave:
and，asthemostfamiliartothereader，thoughnotthebest，let
ussupposethiscurrencytobetheEnglish。WhenEnglandhadthe
samenumberofpoundssterlingtopaytoFrance，whichFrancehad
topaytoher，onesetofmerchantsinEnglandwouldwantbills，
andanothersetwouldhavebillstodisposeof，fortheverysame
numberofpoundssterling;andconsequentlyabillonFrancefor
100l。wouldsellforexactly100l。，or，inthephraseologyof
merchants，theexchangewouldbeatpar。AsFrancealso，onthis
supposition，wouldhaveanequalnumberofpoundssterlingtopay
andtoreceive，billsonEnglandwouldbeatparinFrance，
wheneverbillsonFrancewereatparinEngland。
If，however，EnglandhadalargersumtopaytoFrancethan
toreceivefromher，therewouldbepersonsrequiringbillson
Franceforagreaternumberofpoundssterlingthantherewere
billsdrawnbypersonstowhommoneywasdue。AbillonFrance
for100l。wouldthensellformorethan100l。，andbiLlswouldbe
saidtobeatapremium。Thepremium，however，couldnotexceed
thecostandriskofmakingtheremittanceingold，togetherwith
atriflingprofit;becauseifitdid，thedebtorwouLdsendthe
golditself，inpreferencetobuyingthebill。
If，onthecontrary，Englandhadmoremoneytoreceivefrom
Francethantopay，therewouldbebillsofferedforagreater
numberofpoundsthanwerewantedforremittance，andtheprice
ofbillswouldfallbelowpar:abillfor100l。mightbebought
forsomewhatlessthan100l。，andbillswouldbesaidtobeata
discount。
WhenEnglandhasmoretopaythantoreceive，Francehasmore
toreceivethantopay，andviceversa。When，therefore，in
England，billsonFrancebearapremium，then，inFrance，bills
onEnglandareatadiscount:andwhenbillsonFranceareata
discountinEngland，billsonEnglandareatapremiuminFrance。
Iftheyareatparineithercountry，theyareso，aswehave
alreadyseen，inboth。
Thusdomattersstandbetweencountries，orplaces，which
havethesamecurrency。Somuchofbarbarism，however，still
remainsinthetransactionsofthemostcivilizednations，that
almostallindependentcountrieschoosetoasserttheir
nationalitybyhaving，totheirowninconvenienceandthatof
theirneighbours，apeculiarcurrencyoftheirown。Toour
presentpurposethismakesnootherdifference，thanthatinstead
ofspeakingofequalsumsofmoney，wehavetospeakof
equivalentsums。Byequivalentsums，whenbothcurrenciesare
composedofthesamemetal，aremeantsumswhichcontainexactly
thesamequantityofthemetal，inweightandfineness;butwhen，
asinthecaseofFranceandEngland，themetalsaredifferent，
whatismeantisthatthequantityofgoldintheonesum，and
thequantityofsilverintheother，areofthesamevalueinthe
generalmarketoftheworld:therebeingnomaterialdifference
betweenoneplaceandanotherintherelativevalueofthese
metals。Suppose25francstobe（aswithinatriflingfractionit
is）theequivalentofapoundsterling。Thedebtsandcreditsof
thetwocountrieswouldbeequal，whentheoneowedasmanytimes
25francs，astheotherowedpounds。Whenthiswasthecase，a
billonFrancefor2500francswouldbeworthinEngland100l。，
andabillonEnglandfor100l。wouldbeworthinFrance2500
francs。Theexchangeisthensaidtobeatpar:and25francs（in
reality25francsandatriflemore）（1*）iscalledtheparof
exchangewithFrance。WhenEnglandowedtoFrancemorethanthe
equivalentofwhatFranceowedtoher，abillfor2500francs
wouldbeatapremium，thatis，wouldbeworthmorethan100l。
WhenFranceowedtoEnglandmorethantheequivalentofwhat
EnglandowedtoFrance，abillfor2500francswouldbeworth
lessthan100l。，orwouldbeatadiscount。
Whenbillsonforeigncountriesareatapremium，itis
customarytosaythattheexchangesareagainstthecountry，or
unfavourabletoit。Inordertounderstandthesephrases，wemust
takenoticeofwhat"theexchange，"inthelanguageofmerchants，
reallymeans。Itmeansthepowerwhichthemoneyofthecountry
hasofpurchasingthemoneyofothercountries。Supposing25
francstobetheexactparofexchange，thenwhenitrequires
morethan100l。tobuyabillfor2500francs，100l。ofEnglish
moneyareworthlessthantheirrealequivalentofFrenchmoney:
andthisiscalledanexchangeunfavourabletoEngland。Theonly
personsinEngland，however，towhomitisreallyunfavourable，
arethosewhohavemoneytopayinFrance;fortheycomeintothe
billmarketasbuyers，andhavetopayapremium:buttothose
whohavemoneytoreceiveinFrance，thesamestateofthingsis
favourable;fortheycomeassellers，andreceivethepremium。
Thepremium，however，indicatesthatabalanceisduebyEngland，
whichmighthavetobeeventuallyliquidatedintheprecious
metals:andsince，accordingtotheoldtheory，thebenefitofa
tradeconsistedinbringingmoneyintothecountry，this
prejudiceintroducedthepracticeofcallingtheexchange
favourablewhenitindicatedabalancetoreceive，and
unfavourablewhenitindicatedonetopay:andthephrasesin
turntendedtomaintaintheprejudice。
3。Itmightbesupposedatfirstsightthatwhentheexchange
isunfavourable，orinotherwords，whenbillsareatapremium，
thepremiummustalWaysamounttoafullequivalentforthecost
oftransmittingmoney:since，asthereisreallyabalanceto
pay，andasthefullcostmustthereforebeincurredbysomeof
thosewhohaveremittancestomake，theircompetitionwillcompel
alltosubmittoanequivalentsacrifice。Andsuchwould
certainlybethecase，ifitwerealwaysnecessarythatwhatever
isdestinedtobepaidshouldbepaidimmediately。The
expectationofgreatandimmediateforeignpaymentssometimes
producesamoststartlingeffectontheexchanges。（2*）Buta
smallexcessofimportsaboveexports，oranyothersmallamount
ofdebttobepaidtoforeigncountries，doesnotusuallyaffect
theexchangestothefullextentofthecostandriskof
transportingbullion。Thelengthofcreditallowed，generally
permits，onthepartofsomeofthedebtors，apostponementof
payment，andinthemeantimethebalancemayturntheotherway，
andrestoretheequalityofdebtsandcreditswithoutanyactual
transmissionofthemetals。Andthisisthemorelikelyto
happen，asthereisaself—adjustingpowerinthevariationsof
theexchangeitself。Billsareatapremiumbecauseagreater
moneyvaluehasbeenimportedthanexported。Butthepremiumis
itselfanextraprofittothosewhoexport。Besidestheprice
theyobtainfortheirgoods，theydrawfortheamountandgain
thepremium。Itis，ontheotherhand，adiminutionofprofitto
thosewhoimport。Besidesthepriceofthegoods，theyhaveto
payapremiumforremittance。Sothatwhatiscalledan
unfavourableexchangeisanencouragementtoexport，anda
discouragementtoimport。Andifthebalancedueisofsmall
amount，andistheconsequenceofsomemerelycasualdisturbance
intheordinarycourseoftrade，itissoonliquidatedin
commodities，andtheaccountadjustedbymeansofbills，without
thetransmissionofanybullion。Notso，however，whentheexcess
ofimportsaboveexports，whichhasmadetheexchange
unfavourable，arisesfromapermanentcause。Inthatcase，what
disturbedtheequilibriummusthavebeenthestateofprices，and
itcanonlyberestoredbyactingonprices。Itisimpossible
thatpricesshouldbesuchastoinvitetoanexcessofimports，
andyetthattheexportsshouldbekeptpermanentlyuptothe
importsbytheextraprofitonexportationderivedfromthe
premiumonbills;foriftheexportswerekeptuptotheimports，
billswouldnotbeatapremium，andtheextraprofitwouldnot
exist。Itisthroughthepricesofcommoditiesthatthe
correctionmustbeadministered。
Disturbances，therefore，oftheequilibriumofimportsand
exports，andconsequentdisturbancesoftheexchange，maybe
consideredasoftwoclasses;theonecasualoraccidental，
which，ifnotontoolargeascale，correctthemselvesthrough
thepremiumonbills，withoutanytransmissionoftheprecious
metals;theotherarisingfromthegeneralstateofprices，which
cannotbecorrectedwithoutthesubtractionofactualmoneyfrom
thecirculationofoneofthecounties，oranannihilationof
creditequivalenttoit;sincethemeretransmissionofbullion
（asdistinguishedfrommoney），nothavinganyeffectonprices，
isofnoavailtoabatethecausefromwhichthedisturbance
proceeded。
Itremainstoobserve，thattheexchangesdonotdependon
thebalanceofdebtsandcreditswitheachcountryseparately，
butwithallcountiestakentogether。Englandmayoweabalance
ofpaymentstoFrance;butitdoesnotfollowthattheexchange
withFrancewillbeagainstEngland，andthatbillsonFrance
willbeatapremium;becauseabalancemaybeduetoEngland
fromHollandorHamburg，andshemaypayherdebtstoFrancewith
billsonthoseplaces;whichistechnicallycalledarbitrationof
exchange。Thereissomelittleadditionalexpense，partly
commissionandpartlylossofinterest，insettlingdebtsinthis
circuitousmanner，andtotheextentofthatsmalldifferencethe
exchangewithonecountrymayvaryapartfromthatwithothers;
butinthemain，theexchangeswithallforeigncountriesvary
together，accordingasthecountryhasabalancetoreceiveorto
payonthegeneralresultofitsforeigntransactions。
NOTES:
1。Writtenbeforethechangeintherelativevalueofthetwo
metalsproducedbythegolddiscoveries。Theparofexchange
betweengoldandsilvercurrenciesisnowvariable，andnoone
canforeseeatwhatpointitwillultimatelyrest。
2。OnthenewsofBonaparte’slandingfromElba，thepriceof
billsadvancedinonedayasmuchastenpercent。Ofcoursethis
premiumwasnotamereequivalentforcostofcarriage，sincethe
freightofsuchanarticleasgold，evenwiththeadditionofwar
insurance，couldneverhaveamountedtosomuch。Thisgreatprice
wasanequivalentnotforthedifficultyofsendinggold，butfor
theanticipateddifficultyofprocuringittosend;the
expectationbeingthattherewouldbesuchimmenseremittancesto
theContinentinsubsidiesandforthesupportofarmies，as
wouldpresshardonthestockofbullioninthecountry（which
wasthenentirelydenudedofspecie），andthis，too，inashorter
timethanwouldallowofitsbeingreplenished。Accordinglythe
priceofbullionroselikewise，withthesamesuddenness。Itis
hardlynecessarytosaythatthistookplaceduringtheBank
restriction。Inaconvertiblestateofthecurrency，nosuch
thingcouldhaveoccurreduntiltheBankstoppedpayment。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book3:Distribution
Chapter21
OftheDistributionofthePreciousMetalsThroughtheCommercial
World
1。Havingnowexaminedthemechanismbywhichthecommercial
transactionsbetweennationsareactuallyconducted，wehavenext
toinquirewhetherthismodeofconductingthemmakesany
differenceintheconclusionsrespectinginternationalvalues，
whichwepreviouslyarrivedatonthehypothesisofbarter。
Thenearestanalogywouldleadustopresumethenegative。We
didnotfindthattheinterventionofmoneyanditssubstitutes
madeanydifferenceinthelawofvalueasappliedtoadjacent
places。Thingswhichwouldhavebeenequalinvalueifthemode
ofexchangehadbeenbybarter，areworthequalsumsofmoney。
Theintroductionofmoneyisamereadditionofonemore
commodity，ofwhichthevalueisregulatedbythesamelawsas
thatofallothercommodities。Weshallnotbesurprised，
therefore，ifwefindthatinternationalvaluesalsoare
determinedbythesamecausesunderamoneyandbillsystem，as
theywouldbeunderasystemofbarter;andthatmoneyhaslittle
todointhematter，excepttofurnishaconvenientmodeof
comparingvalues。
Allinterchangeis，insubstanceandeffect，barter:whoever
sellscommoditiesformoney，andwiththatmoneybuysother
goods，reallybuysthosegoodswithhisowncommodities。Andso
ofnations:theirtradeisamereexchangeofexportsfor
imports:andwhethermoneyisemployedornot，thingsareonlyin
theirpermanentstatewhentheexportsandimportsexactlypay
foreachother。Whenthisisthecase，equalsumsofmoneyare
duefromeachcountrytotheother，thedebtsaresettledby
bills，andthereisnobalancetobepaidinthepreciousmetals。
Thetradeisinastatelikethatwhichiscalledinmechanicsa
conditionofstableequilibrium。
Buttheprocessbywhichthingsarebroughtbacktothis
statewhentheyhappentodeviatefromit，is，atleast
outwardly，notthesameinabartersystemandinamoneysystem。
Underthefirst，thecountrywhichwantsmoreimportsthanits
exportswillpayfor，mustofferitsexportsatacheaperrate，
asthesolemeansofcreatingademandforthemsufficientto
re—establishtheequilibrium。Whenmoneyisused，thecountry
seemstodoathingtotallydifferent。Shetakestheadditional
importsatthesamepriceasbefore，andassheexportsno
equivalent，thebalanceofpaymentsturnsagainsther;the
exchangebecomesunfavourable，andthedifferencehastobepaid
inmoney。Thisisinappearanceaverydistinctoperationfrom
theformer。Letusseeifitdiffersinitsessence，oronlyin
itsmechanism。
LetthecountrywhichhasthebalancetopaybeEngland，and
thecountrywhichreceivesit，France。Bythistransmissionof
thepreciousmetals，thequantityofthecurrencyisdiminished
inEngland，andincreasedinFrance。ThisIamatlibertyto
assume。Asweshallseehereafter，itwouldbeaveryerroneous
assumptionifmadeinregardtoallpaymentsofinternational
balances。Abalancewhichhasonlytobepaidonce，suchasthe
paymentmadeforanextraimportationofcorninaseasonof
dearth，maybepaidfromhoards，orfromthereservesofbankers，
withoutactingonthecirculation。Butwearenowsupposingthat
thereisanexcessofimportsoverexports，arisingfromthefact
thattheequationofinternationaldemandisnotyetestablished:
thatthereisattheordinarypricesapermanentdemandin
EnglandformoreFrenchgoodsthantheEnglishgoodsrequiredin
Franceattheordinarypriceswillpayfor。Whenthisisthe
case，ifachangewerenotmadeintheprices，therewouldbea
perpetuallyrenewedbalancetobepaidinmoney。Theimports
requiretobepermanentlydiminished，ortheexportstobe
increased;whichcanonlybeaccomplishedthroughprices;and
hence，evenifthebalancesareatfirstpaidfromhoards，orby
theexportationofbullion，theywillreachthecirculationat
last，foruntiltheydo，nothingcanstopthedrain。
When，therefore，thestateofpricesissuchthatthe
equationofinternationaldemandcannotestablishitself，the
countryrequiringmoreimportsthancanbepaidforbythe
exports;itisasignthatthecountryhasmoreoftheprecious
metalsortheirsubstitutes，incirculation，thancanpermanently
circulate，andmustnecessarilypartwithsomeofthembeforethe
balancecanberestored。Thecurrencyisaccordinglycontracted:
pricesfall，andamongtherest，thepricesofexportable
articles;forwhich，accordingly，therearises，inforeign
countries，agreaterdemand:whileimportedcommoditieshave
possiblyriseninprice，fromtheinfluxofmoneyintoforeign
countries，andatalleventshavenotparticipatedinthegeneral
fall。ButuntiltheincreasedcheapnessofEnglishgoodsinduces
foreigncountriestotakeagreaterpecuniaryvalue，oruntilthe
increaseddearness（positiveorcomparative）offoreigngoods
makesEnglandtakealesspecuniaryvalue，theexportsofEngland
willbenonearertopayingfortheimportsthanbefore，andthe
streamofthepreciousmetalswhichhadbeguntoflowoutof
England，willstillflowon。Thiseffluxwillcontinue，untilthe
fallofpricesinEnglandbringswithinreachoftheforeign
marketsomecommoditywhichEnglanddidnotpreviouslysend
thither;oruntilthereducedpriceofthethingswhichshedid
send，hasforcedademandabroadforasufficientquantitytopay
fortheimports，aided，perhaps，byareductionoftheEnglish
demandforforeigngoods，throughtheirenhancedprice，either
positiveorcomparative。
Nowthisistheveryprocesswhichtookplaceonouroriginal
suppositionofbarter。Notonly，therefore，doesthetrade
betweennationstendtothesameequilibriumbetweenexportsand
imports，whethermoneyisemployedornot，butthemeansbywhich
thisequilibriumisestablishedareessentiallythesame。The
countrywhoseexportsarenotsufficienttopayforherimports，
offersthemoncheaperterms，untilshesucceedsinforcingthe
necessarydemand:inotherwords，theEquationofInternational
Demand，underamoneysystemaswellasunderabartersystem，is
thelawofinternationaltrade。Everycountryexportsandimports
theverysamethings，andintheverysamequantity，underthe
onesystemasundertheother。Inabartersystem，thetrade
gravitatestothepointatwhichthesumoftheimportsexactly
exchangesforthesumoftheexports:inamoneysystem，it
gravitatestothepointatwhichthesumoftheimportsandthe
sumoftheexportsexchangeforthesamequantityofmoney。And
sincethingswhichareequaltothesamethingareequaltoone
another，theexportsandimportswhichareequalinmoneyprice，
would，ifmoneywerenotused，preciselyexchangeforone
another。（1*）
2。Itthusappearsthatthelawofinternationalvalues，and，
consequently，thedivisionoftheadvantagesoftradeamongthe
nationswhichcarryiton，arethesame，onthesuppositionof
money，astheywouldbeinastateofbarter。Ininternational，
asinordinarydomesticinterchanges，moneyistocommerceonly
whatoilistomachinery，orrailwaystolocomotion—acontrivance
todiminishfriction。Inorderstillfurthertotestthese
conclusions，letusproceedtore—examine，onthesuppositionof
money，aquestionwhichwehavealreadyinvestigatedonthe
hypothesisofbarter，namely，towhatextentthebenefitofan
improvementintheproductionofanexportablearticle，is
participatedinbythecountriesimportingit。
Theimprovementmayeitherconsistinthecheapeningofsome
articlewhichwasalreadyastapleproductionofthecountry，or
intheestablishmentofsomenewbranchofindustry，orofsome
processrenderinganarticleexportablewhichhadnottillthen
beenexportedatall。Itwillbeconvenienttobeginwiththe
caseofanewexport，asbeingsomewhatthesimplerofthetwo。
Thefirsteffectisthatthearticlefallsinprice，anda
demandarisesforitabroad。Thisnewexportationdisturbsthe
balance，turnstheexchanges，moneyflowsintothecountry（which
weshallsupposetobeEngland），andcontinuestoflowuntil
pricesrise。Thishigherrangeofpriceswillsomewhatcheckthe
demandinforeigncountriesforthenewarticleofexport;and
diminishthedemandwhichexistedabroadfortheotherthings
whichEnglandwasinthehabitofexporting。Theexportswill
thusbediminished;whileatthesametimetheEnglishpublic，
havingmoremoney，willhaveagreaterpowerofpurchasing
foreigncommodities。Iftheymakeuseofthisincreasedpowerof
purchase，therewillbeanincreaseofimports:andbythis，and
thechecktoexportation，theequilibriumofimportsandexports
willberestored。Theresulttoforeigncountrieswillbe，that
theyhavetopaydearerthanbeforefortheirotherimports，and
obtainthenewcommoditycheaperthanbefore，butnotsomuch
cheaperasEnglandherselfdoes。Isaythis，beingwellaware
thatthearticlewouldbeactuallyattheverysameprice（cost
ofcarriageexcepted）inEnglandandinothercountries。The
cheapness，however，ofthearticleisnotmeasuredsolelybythe
money—price，butbythatpricecomparedwiththemoneyincomesof
theconsumers。ThepriceisthesametotheEnglishandtothe
foreignconsumers;buttheformerpaythatpricefrommoney
incomeswhichhavebeenincreasedbythenewdistributionofthe
preciousmetals;whilethelatterhavehadtheirmoneyincomes
probablydiminishedbythesamecause。Thetrade，therefore，has
notimpartedtotheforeignconsumerthewhole，butonlya
portion，ofthebenefitwhichtheEnglishconsumerhasderived
fromtheimprovement;whileEnglandhasalsobenefitedinthe
pricesofforeigncommodities。Thus，then，anyindustrial
improvementwhichleadstotheopeningofanewbranchofexport
trade，benefitsacountrynotonlybythecheapnessofthe
articleinwhichtheimprovementhastakenplace，butbya
generalcheapeningofallimportedproducts。
Letusnowchangethehypothesis，andsupposethatthe
improvement，insteadofcreatinganewexportfromEngland，
cheapensanexistingone。Whenweexaminedthiscaseonthe
suppositionofbarter，itappearedtousthattheforeign
consumersmighteitherobtainthesamebenefitfromthe
improvementasEnglandherself，oralessbenefit，orevena
greaterbenefit，accordingtothedegreeinwhichtheconsumption
ofthecheapenedarticleiscalculatedtoextenditselfasthe
articlediminishesinprice。Thesameconclusionswillbefound
trueonthesuppositionofmoney。
Letthecommodityinwhichthereisanimprovement，becloth。
Thefirsteffectoftheimprovementisthatitspricefalls，and
thereisanincreaseddemandforitintheforeignmarket。But
thisdemandisofuncertainamount。Supposetheforeignconsumers
toincreasetheirpurchasesintheexactratioofthecheapness，
orinotherwords，tolayoutincloththesamesumofmoneyas
before，thesameaggregatepaymentasbeforewillbeduefrom
foreigncountriestoEngland;theequilibriumofexportsand
importswillremainundisturbed，andforeignerswillobtainthe
fulladvantageoftheincreasedcheapnessofcloth。Butifthe
foreigndemandforclothisofsuchacharacterastoincreasein
agreaterratiothanthecheapness，alargersumthanformerly
willbeduetoEnglandforcloth，andwhenpaidwillraise
Englishprices，thepriceofclothincluded;thisrise，however，
willaffectonlytheforeignpurchaser，Englishincomesbeing
raisedinacorrespondingproportion;andtheforeignconsumer
willthusderivealessadvantagethanEnglandfromthe
improvement。If，onthecontrary，thecheapeningofclothdoes
notextendtheforeigndemandforitinaproportionaldegree，a
lesssumofdebtsthanbeforewillbeduetoEnglandforcloth，
whiletherewillbetheusualsumofdebtsduefromEnglandto
foreigncountries;thebalanceoftradewillturnagainst
England，moneywillbeexported，prices（thatofclothincluded）
willfall，andclothwilleventuallybecheapenedtotheforeign
purchaserinastillgreaterratio，thantheimprovementhas
cheapenedittoEngland。Thesearetheveryconclusionswhichwe
deducedonthehypothesisofbarter。
Theresultoftheprecedingdiscussioncannotbebetter
summedupthaninthewordsofRicardo。（2*）"Goldandsilver
havingbeenchosenforthegeneralmediumofcirculation，they
are，bythecompetitionofcommerce，distributedinsuch
proportionsamongstthedifferentcountriesoftheworldasto
accommodatethemselvestothenaturaltrafficwhichwouldtake
placeifnosuchmetalsexisted，andthetradebetweencountries
werepurelyatradeofbarter。"Ofthisprinciple，sofertilein
consequences，previoustowhichthetheoryofforeigntradewas
anunintelligiblechaos，Mr。Ricardo，thoughhedidnotpursueit
intoitsramifications，wastherealoriginator。Nowriterwho
precededhimappearstohavehadaglimpseofit:andfeware
thosewhoevensincehistimehavehadanadequateconceptionof
itsscientificvalue。
3。Itisnownecessarytoinquire，inwhatmannerthislawof
thedistributionofthepreciousmetalsbymeansofthe
exchanges，affectstheexchangevalueofmoneyitself;andhowit
tallieswiththelawbywhichwefoundthatthevalueofmoneyis
regulatedwhenimportedasamerearticleofmerchandize。For
thereishereasemblanceofcontradiction，whichhas，Ithink，
contributedmorethananythingelsetomakesomedistinguished
politicaleconomistsresisttheevidenceofthepreceding
doctrines。Money，theyjustlythink，isnoexceptiontothe
generallawsofvalue;itisacommoditylikeanyother，andits
averageornaturalvaluemustdependonthecostofproducing，or
atleastofobtainingit。Thatitsdistributionthroughthe
world，therefore，anditsdifferentvalueindifferentplaces，
shouldbeliabletobealtered，notbycausesaffectingitself，
butbyahundredcausesunconnectedwithit;byeverythingwhich
affectsthetradeinothercommodities，soastoderangethe
equilibriumofexportsandimports;appearstothesethinkersa
doctrinealtogetherinadmissible。