In taking this view, we break new ground; and that we may see as clearly as may be how we stand upon it, let us ascertain what the foreign exchanges are.

Foreign exchange consists in a merchant or other person "paying money in one country to receive it in another."

"The exchange is high when a man pays for bills of exchange above the par. It is low when he pays less than the par."

"The par is a certain number of pieces of the coin of one country, containing in them an equal quantity of silver to that in another number of pieces of the coin of another country; viz., supposing thirty-six schillings of Holland to have just as much silver in them as twenty English shillings, bills of exchange from England to Holland, at the rate of thirty-six schillings Dutch for each pound sterling, is according to the par. He that pays the money here and receives it there, neither gets nor loses by the exchange; but receives just the same quantity of silver in the one place that he parts with in the other. But if he pays one pound sterling to receive but thirty schillings in Holland, he pays one-sixth more than the par; and so pays one-sixth more silver for the exchange, let the sum be what it will."

Such is Locke's exposition of the theory and effect of the foreign exchanges. As the subject is both intricate and momentous, I may perhaps be allowed to add a word or two for the sake of further explanation.

The exchanges represent the difference between the value of national moneys at the principal emporiums of commerce trading one with another. They show, consequently, between any two places, that to which the balance of payments inclines; inasmuch as, whichever owes the most money, being bound to remit to the other, the exchanges must necessarily turn in favour of such place as the abode of the creditor or payee. If Hamburg owes London more money than London owes Hamburg, London will be the market at which money will be most required, and consequently it will be dearer there as the seat of demand. One London merchant dealing with Hamburg has money due to him in that city; another owes money there. He who has money due draws upon his correspondent and negotiates the bill upon the Royal Exchange. - The number and amount of such drafts measure the extent and value of the commercial relations between the two cities, and fix the exchange for or against Hamburg, according to the drafts transmitted by the latter place on London.

"I purchase," said the late Mr. Rothschild in 1832, - he was the largest dealer in exchanges the commerce of England ever produced, - "I purchase regularly, week by week, from 80,000l. to 100,000l. worth of bills which are drawn for goods shipped from Liverpool, Manchester, Newcastle, and other places, and I send them to the Continent, to my houses. My houses purchase against them bills upon this country which are drawn for wine, wool, and other commodities. But if there be not a sufficient supply of bills abroad on this country, we are obliged to get gold from Paris, Hamburg, and elsewhere." In this way there was at the period referred to, according to Mr. Rothschild, a regular payment of gold to this country from the whole world; he found that the bills drawn abroad were not equal to those at home, and consequently maintained that the bills drawn upon the Royal Exchange must bring gold from all parts of the world. We are therefore justified in regarding gold as a body constantly floating upon the surface of the great tide of trade between the nations of the world. The people of each country drink a smaller portion of the current in proportion to the quantity taken out by that with which they are more immediately in contact.

Such being the exchanges, let us apply to them the principle according to which, in Mr. Jones Loyd's judgment, the circulation should be regulated. It is succinctly expressed in the answer to question 2654 in the Report of the Commons' Committee on Banks of Issue, 1840, - "A metallic currency, I conceive, by virtue of its own intrinsic value, will regulate itself; but a paper currency, having no intrinsic value, requires to be subjected to some artificial regulation respecting its amount. The use of paper money is resorted to on account of its greater economy and convenience, but it is important that that paper currency should be made to conform to what a metallic currency would be, and especially that it be kept of the same value with the metallic currency, and therefore I conceive that that constitutes the only proper rule by which to regulate the fluctuations of a paper currency. Now the influx and efflux of gold is the only sure test of what would have been the variation of a metallic currency, and therefore I conceive that that constitutes the only proper rule by which to regulate the fluctuations of a paper currency." Before we subscribe implicitly to this doctrine, and, above all, to its prescribed connexion with the foreign exchanges, we are bound to consider, with impartiality and deliberation, the difficulties standing in the way of its adoption, and the inconveniences to which, when it is adopted, we are sure to be reduced.

In the first place, it is admitted upon all sides, that certain contingencies will divert and nullify the virtues ascribed to the rule. Of these the principal are, 1st, an imperative demand for gold abroad, as when Russia last invaded Turkey, and required specie to support her army; a million in specie was then taken from the Bank; or as, when in 1836, the United States of America having determined to abolish the circulation of small notes, drew nearly three millions, which were recoined into her current money: 2dly, foreign loans, which are contracted for more or less frequently, according to the exigency of events, over which, whether we are at peace or war with the power that borrows, we have no control: 3dly, political agitation, as that upon the reform question in 1832, when Lord Grey's resignation caused two millions of sovereigns to be taken from the Bank: 4thly, bad harvests, which compel us to pay cash for imported corn, because the laws in force for the protection of agriculture have deprived us of such commercial intercourse with all the great corn-growing countries, as would induce them to take manufactures in exchange for grain.