We must certainly reply affirmatively to this question. Yet we must recognize certain counteracting forces which operate very effectively and which tend to obviate this evil.

Persons who have payments to make abroad endeavor to settle them by some other means than the exportation of money, because sending money is inconvenient, and because the money sent is not generally legal tender in the country where the debts must be paid. Therefore debtors try to buy bills of exchange payable in these foreign countries in order to obviate the danger, inconvenience, and expense of transporting gold and silver. Bills of exchange, as we have seen, form the ordinary means of paying international debts. But if a country owes more abroad than foreign nations owe her, it is clear that foreign bills of exchange, i. e., claims on foreign debtors, will be relatively scarce. These bills will therefore be in great demand, and by virtue of the law of demand and supply they will sell at a higher price than their normal value. In other words, they will be at a premium. Now it is plain that this premium, bringing profit to all those dealers who have claims on foreign nations and who therefore have bills of exchange to sell (and this class consists evidently of all exporters), will stimulate the exportation of goods to foreign countries; inversely, the necessity to pay this premium, and the consequently disadvantageous situation of all those who must make payments abroad (that is to say, all importers) will discourage imports. The result will be an increase of exports and a decrease of imports, precisely the remedy best suited to the situation.

Nor is this all. Let us admit the inequality of debits and credits involves a continual drain of money from a country. The flight and consequent scarcity of money causes a fall in prices; and although a fall in prices has some disadvantages, yet in this particular case it has the advantage of stimulating purchases by foreigners, since trade always seeks the market in which one can buy cheapest. At the same time the amount of purchases made abroad by the debtor nation will of course decrease, because commodities can now be bought quite as cheaply at home. It is a well-known fact that goods are not taken

away from dear markets to cheap markets any more than water runs up hill. In short, the situation just described tends to encourage exportation and discourage importation-securing the same beneficent result as that discussed in the preceding paragraph.

If paper money has been issued to take the place of metallic money, the result is the same. Metallic money wil then be at a premium; the greater the amount of paper money, the higher the premium. The producers of a country find it profitable to sell abroad, because then they are paid in metallic money, which brings a premium, and thus involves additional profit. Hence this condition of affairs encourages increased exportation. Importation, on the other hand, is slackened, because foreign producers do not like to sell in a country having a depreciated paper money; or if they do sell, they raise their prices, and this, again, restricts sales.

To sum up, then: There is a sort of automatism in the balance of accounts that tends to restore the equilibrium whenever it is disturbed-in much the same manner that regulators on steam engines tend always to maintain a uniform speed. The current of trade cannot forever continue in one direction any more than the tide of the sea, sooner or later it must change and after metallic money has been taken out of a country there are natural forces which tend to bring it back again.

Statistics, as well as simple observation, show that money plays only a small part-usually less than 10 per cent of the total amount-in international trade. . We must therefore admit that the balance of accounts regulates itself, and that credits and debits tend of their own accord to reach an equilibrium. This, in fact, is what the school of Bastiat would call an "economic harmony.'

Experience, moreover, demonstrates that whenever the ratification of a commercial treaty or any other circumstance gives rise to a great increase of imports, this is invariably accompanied by a corresponding increase of exports. Whenever, on the other hand, a protective tariff causes a decrease in the volume of a nation's imports, it is a natural consequence that its exports will likewise diminish.

READING XV.

ADAM SMITH ON CERTAIN COMMON ERRORS WITH REGARD TO MONEY.

For several centuries European statesmen and thinkers entertained greatly exaggerated notions as to the amount of attention which governments ought to give to the maintenance of a large stock of money as a condition of industrial prosperity. Indeed, to judge from much of the writing of those days, not a few persons looked on money as the only true wealth, and considered the increasing of the stock of money to be the only method by which national wealth could be increased. The whole system of doctrines clustered about this central idea is known as Mercantilism. It is supposed to be dead, and so its discussion needless even for the elementary student. But in fact mercantilism in its essential features is still very much alive,-probably will never die. Men hold its ideas, not as derived from the thinkers of the seventeenth century, but as notions which naturally, almost instinctively, arise in every man's mind because of certain commonplace facts of experience. Money being able to buy for us everything else, and the process of using it to buy these other things being a very easy one while the getting of it in exchange for our own goods is often quite difficult, we not unnaturally come to look on it as the all important thing. In consequence, we build up doctrines with respect to money which are often very absurd and very pernicious. The stock of money present in any community is felt to be a thing of almost immeasurable significance, a thing which should be held sacred. The man who sends

out a single dollar of it is a public enemy; one who brings in a dollar is a universal benefactor. The advantage which some man does to a little village by deciding to buy its goods, is explained as due to the fact that "he puts monev into circulation." If times are hard, men say it is because money is scarce, though the bank vaults are overflowing. An excess of exports is looked on as a favorable condition of trade on the ground that it is likely to bring in money. The prevalence of these and similar ideas make it very desirable that the student should read Adam Smith's very telling critique of Mercantilism.

*That wealth consists in money, or in gold and silver, is a popular notion which naturally arises from the double function of money, as the instrument of commerce, and as the measure of value. In consequence of its being the instrument of commerce, when we have money we can more readily obtain whatever else we have occasion for, than by means of any other commodity. The great affair, we always find, is to get money. When that is obtained, there is no difficulty in making any subsequent purchase. In consequence of its being the measure of value, we estimate that of all other commodities by the quantity of money which they will exchange for. We say of a rich man that he is worth a great deal, and of a poor man that he is worth very little money. To grow rich is to get money; and wealth and money, in short, are in common language, considered as in every respect synonymous.

A rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and silver in any country is supposed to be the readiest way to enrich it. For some time after the discovery of America, the first inquiry of the Spaniards, when they arrived upon any unknown coast, used to be, if there was any gold or silver to be found in the neighborhood? By the information which they received, they judged whether it

* Adam Smith-Wealth of Nations. Book IV, Chapter I.

was worth while to make a settlement there, or if the country was worth the conquering. Plano Carpino, a monk, sent ambassador from the king of France to one of the sons of the famous Gengis Khan, says that the Tartars used frequently to ask him, if there was plenty of sheep and oxen in the kingdom of France. Their inquiry had the same object with that of the Spaniards. They wanted to know if the country was rich enough to be worth the conquering. Among the Tartars, as among all other nations of shepherds, who are generally ignorant of the use of money, cattle are the instruments of commerce and the measures of value. Wealth, therefore, according to them, consisted in cattle, as according to the Spaniards it consisted in gold and silver. Of the two, the Tartar notion, perhaps, was the nearest to the truth.

Mr. Locke remarks a distinction between money and other movable goods. All other movable goods, he says, are of so consumable a nature, that the wealth which consists in them cannot be much depended on, and a nation which abounds in them one year may, without any exportation, but merely by their own waste and extravagance, be in great want of them the next. Money, on the contrary, is a steady friend, which, though it may travel about from hand to hand, yet if it can be kept from going out of the country, is not very liable to be wasted and consumed. Gold and silver, therefore, are, according to him, the most solid and substantial part of the movable wealth of a nation, and to multiply those metals ought, he thinks, upon that account, to be the great object of its political economy.

Others admit, that if a nation could be separated from all the world, it would be of no consequence how much or how little money circulated in it. The consumable goods which were circulated by means of this money, would only be exchanged for a greater or a smaller number of pieces; but the real wealth or poverty of the country, they allow, would depend altogether upon the abundance or scarcity of those consumable goods. But it is otherwise, they think, with countries which have connections with foreign nations, and which are obliged to carry on foreign wars, and to maintain fleets and armies in distant countries. This, they say, can