Gold exercises a most valuable function in liquidating the balances of international trade. All trade, as between individuals so between nations, is an exchange of property, of wealth, of goods. Every nation buys abroad with its own products, its own goods-it has nothing else to obtain its purchases with. When a country has mines of gold, gold passes as a product, just as cotton or wine. If the buying equalled the selling every day-as would happen with direct barter-the accounts would always be balanced of themselves. But as purchases and sales with one single foreign country are not always equal, there remains on a given day a balance to settle, and that is done with an export of gold from the country which bought most to the country which has sold most. At times this difference is large, as when a bad harvest or famine urges on immediate and large purchases of food, and sufficient gold at the moment might be difficult to procure. But the machinery of modern commerce here comes in aid; bills-which are only deferred payments-are brought into play, and often, before they are due, the balance has been corrected with the export of goods. In any case, as Adam Smith has well remarked, England can replenish itself with gold from abroad, if she has the wherewithal to pay for it. Trade never is anything else at last but exchange of goods.

International payments require the currencies of different countries to be compared with one another. Each country sells upon prices estimated in its own money; hence in international exchanging two accounts have to be settled together, each expressed in different monies. How is the position of each towards the other to be calculated? They must be reduced to a common measure-to gold. French Napoleons and francs must be converted into weights of gold; so must the English pounds and shillings. This operation is carried out by expressing the coin of the one country in the coin of the other. The weight of gold in an English sovereign is compared with the weight of the same metal in French francs, calculated on the basis of the weight of gold in the twenty-franc piece, the Napoleon. The discovery is made that twenty-five francs, and some Voths more, express the same weight of gold as the English sovereign, and this equality is called the par of exchange. When the exchange is at par, a man who has an English sovereign can obtain these francs, and vice versa the francs will get a sovereign. A bullion dealer who bought two heaps of sovereigns and Napoleons on this basis, and melted the gold into ingots, would get exactly the same quantity of ingots from each heap.

But exchange seldom stands at par between two countries, for a very sufficient reason: the buying and selling is seldom equal on the same day; the difference, as explained, they agree shall be liquidated in gold. Now to send gold involves a charge for carriage and insurance; and the man who has to send it will avoid this charge if he can. Goods purchased in foreign countries, all except the small balance liquidated in gold, are paid by the exchange of debts, by bills. The English debtor pays his French creditor by sending him a bill due by a French debtor for English goods sent to France. If the purchases in the two countries are equal, so will be the bills created by them. If not, then some debtor will be unable to find a bill, and every debtor in the country which has to pay most to the other will compete with all the others not to be the man who will have to incur the expense of sending gold. He will offer for a bill rather more than its value in metal at the par of exchange. The Frenchman will give at Paris say 25 francs for a pound due in London rather than send gold. If trade had moved in the opposite direction, and England owed more to France than France to England, it will be the English debtor in London who will be eager to buy in London a bill due by a Frenchman in France; he will give a sovereign for francs to be paid in France. In the former case the exchange is said to be in favour of England; the Englishman gets a quarter of a franc more than the gold of his pound at par. In the second case, the exchange is pronounced unfavourable; the Englishman gets less gold in francs than he gave away in his pound. A favourable exchange implies that England has sold more than she has bought; she has a balance to receive in gold. An unfavourable exchange implies the reverse, that is, she is a debtor on that day's settlement. But the exchange will not rise above par beyond the cost of carriage and insurance for the transmission of gold. If it costs half-franc to send a pound's weight of gold to England, the Parisian debtor will accept an exchange which makes him give 25 1/2 francs for a pound to be paid in England, but he will refuse one of it will cost him less to send the gold.

Falser and more misleading expressions cannot be conceived than the terms favourable and unfavourable exchanges. They survive still the memorable refutation of their untruth by Adam Smith; they involve ignorance of the very nature of all trade; they efface the living fact that men buy of foreign countries to procure goods for use and consumption, that all trade is only an exchange of goods. This language is profoundly unconscious that gold is a mere tool. It teaches that gold, or coin, or money, is an end, a good thing for its own sake, an article worth giving one's wealth to obtain. It is saturated with the Mercantile Theory, so utterly in vain has Adam Smith written. These words express satisfaction at the proof that England has sold more than she has bought, spreading the delusion that an excess of exports over imports is an excellent state of trade; that it is a good thing to spend and consume wealth in making iron and yarns, and to get gold in the place of them-for what object they do not say. They perpetuate the merchant's and the shopkeeper's absurdity that to sell is everything, ignorant that to sell without buying is to convert a man into a Midas, and to make him perish amidst piles of gold. The value set on favourable exchanges is the greatest intellectual and literary wonder of our age.