Chapter9
OftheInterestofMoneyanditsCausesJustasthepricesofthingsarefixedinthealtercationsofthemarketbythequantityofthingsofferedforsaleinproportiontothequantityofmoneyofferedforthem，or，whatcomestothesamething，bytheproportionatenumberofsellersandbuyers，sointhesamewaytheinterestofmoneyinastateissettledbytheproportionatenumberoflendersandborrowers。
Thoughmoneypassesforapledgeinexchangeitdoesnotmultiplyitselforbegetaninterestinsimplecirculation。Theneedsofmanseemtohaveintroducedtheusageofinterest。Amanwholendshismoneyongoodsecurityoronmortgagerunsatleasttheriskoftheillwilloftheborrower，orofexpenses，lawsuitsandlosses。Butwhenhelendswithoutsecurityherunstheriskoflosingeverything。Forthisreasonneedymenmustinthebeginninghavetemptedlendersbythebaitofaprofit。Andthisprofitmusthavebeenproportionatetotheneedsoftheborrowersandthefearandavariceofthelenders。Thisseemstometheoriginofinterest。ButitsconstantusageinstatesseemsbasedupontheprofitswhichtheUndertakerscanmakeoutofit。
Thelandnaturallyproduces，aidedbyhumanlabour，4，10，20，50，100，150timestheamountofcornsownuponit，accordingtothefertilityofthesoilandtheindustryoftheinhabitants。
Itmultipliesfruitsandcattle。Thefarmerwhoconductstheworkingofithasgenerallytwothirdsoftheproduce，onethirdpayshisexpensesandupkeep，theotherremainsfortheprofitofhisenterprise。
Ifthefarmerhaveenoughcapitaltocarryonhisenterprise，ifhehavetheneedfultoolshorsesforploughing，cattletomakethelandhewilltakeforhimselfafterpayingallexpenseoftheproduceofhisfarm。Butifacompetentlabourerwholivesfromdaytodayonhiswagesandhasnocapital，canfindsomeonewillingtolendhimlandormoneybuysome，hewillbeabletogivethelenderallthethirdrent，orthirdpartoftheproduceofafarmofwhichhewillbecomethefarmerorUndertaker。Howeverhewillthinkhispositionimprovedsincehewillfindinthesecondrentandwillbecomemasterinsteadman。
Ifbygreateconomyandpinchinghimselfsomewhatofhisnecessitieshecangraduallyaccumulatesomelittlecapital，hewillhaveeveryyearlesstoborrow，andwillatlastarriveatkeepingthewholeofhisthirdrent。
IfthisnewUndertakerfindsmeanstobuycornorcattleoncredit，tobepaidoffatalongdatewhenhecanmakemoneybythesaleofhisfarmproduce，hewillgladlypaymorethanthemarketpriceforreadymoney。Theresultwillbethesameasifheborrowedcashtobuycornforreadymoney，payingasinterestthedifferencebetweenthecashpriceandthepricepayableatafuturedate。Butwhetherheborrowcashorgoodstheremustbeenoughlefttohimforupkeeporhewillbecomebankrupt。Theriskofthisisthereasonwhyhewillberequiredtopay20or30percentprofitorinterestontheamountofmoneyorvalueoftheproduceormerchandiselenttohim。
Again，amasterhatterwhohascapitaltocarryonhismanufactureofhats，eithertorentahouse，buybeaver，wool，dye，etc。ortopayforthesubsistenceofhisworkmeneveryweek，oughtnotonlytofindhisupkeepinthisenterprise，butalsoaprofitlikethatofthefarmerwhohashisthirdpartforhimself。Thisupkeepandtheprofitshouldcomefromthesaleofthehatswhosepriceoughttocovernotonlythematerialsbutalsotheupkeepofthehatterandhisworkmenandalsotheprofitinquestion。
Butacapablejourneymanhatterwithnocapitalmayundertakethesamemanufacturebyborrowingmoneyandmaterialsandabandoningtheprofittoanybodywhoiswillingtolendhimthemoneyorentrusthimwiththebeaver，wool，etc。forwhichhewillpayonlysometimelaterwhenhehassoldhishats。Ifwhenhisbillsareduethelenderrequireshiscapitalback，orifthewoolmerchantandotherlenderswillnotgranthimfurthercredithemustgiveuphisbusiness，inwhichcasehemayprefertogobankrupt。Butifheisprudentandindustrioushemaybeabletoprovetohiscreditorsthathehasincashorinhatsaboutthevalueofwhathehasborrowedandtheywillprobablychoosetocontinuetogivehimcreditandhesatisfiedforthepresentwiththeirinterestorprofit。Inthiswayhewillcarryonandwillperhapsgraduallysavesomecapitalbyretrenchingalittleuponhisnecessities。Withtheaidofthishewillhaveeveryyearlesstoborrow，andwhenhehascollectedacapitalsufficienttoconducthismanufacture，whichwillalwaysbeproportionabletohissales，theprofitwillremaintohimentirelyandhewillgrowrichifhedoesnotincreasehisexpenditure。
Itiswelltoobservethattheupkeepofsuchamanufacturerissmallcomparedwiththesumsheborrowsinhistradeorwiththematerialsentrustedtohim，andthereforethelendersrunnogreatriskoflosingtheircapitalifheisrespectableandhardworking：butasitisquitepossiblethatheisnotsothelendersalwaysrequirefromhimaprofitorinterestof20to30percentofthevalueoftheirloan。Eventhenonlythosewhohaveagoodopinionofhimwilltrusthim。
Thesameinductionsmaybemadewithregardtoallthemasters，artisans，manufacturersandotherUndertakersinthestatewhocarryonenterprisesinwhichthecapitalconsiderablycarryonenterprisesinwhichthecapitalconsiderablyexceedsthevalueoftheirannualupkeep。
Butifawater-carrierinParissetsupastheUndertakerofhisownwork，allthecapitalheneedswillbethepriceoftwobucketswhichhecanbuyforanounceofsilverandthenallhisgainsareprofit。Ifbyhislabourhegains50ouncesofsilverayear，theamountofhiscapitalorborrowingwillbetothatofhisprofitas1to50。Thatishewillgain5000percentwhilethehatterwillgainonly50percentandwillalsohavetopay20or30percenttothelender。
Neverthelessamoneylenderwillprefertolend1000ouncesofsilvertoahatmakerat20percentinterestratherthantolend1000ouncesto1000watercarriersat500percentinterest。
Thewatercarrierswillquicklyspendontheirmaintenancenotonlythemoneytheygainbytheirdailylabourbutallthatwhichislenttothem。Thesecapitalslenttothemaresmallcomparedwithwhattheyneedfortheirmaintenance：whethertheybemuchorlittleemployedtheycaneasilyspendalltheyearn。Thereforeitishardlypossibletoarriveattheprofitsoftheselittleundertakers。Itmightwellbethatawatercarriergains5000percentofthevalueofthebucketswhichserveashiscapital，even10，000percentifbyhardworkhegains100ouncesofsilverayear。Butashemayspendonhisliving100ouncesjustaswellas50，itisonlybyknowingwhathedevotestohisupkeepthatwecanfindhowmuchhehasofclearprofit。
ThesubsistenceandupkeepofUndertakersmustalwaysbedeductedbeforearrivingattheirprofit。Wehavedonethisintheexampleofthefarmerandofthehatmaker，butitcanhardlybedeterminedinthecaseofthepettyUndertakers，whoareforthemostpartinsolventwhentheyareindebt。
ItiscustomaryfortheLondonbrewerstolendafewbarrelsofbeertothekeepersofale-houses，andwhenthesepayforthefirstbarrelstocontinuetolendthemmore。Iftheseale-housesdoabriskbusinessthebrewerssometimesmakeaprofitof500percentperannum；andIhaveheardthatthebigbrewersgrowrichwhennomorethanhalftheale-housesgobankruptupontheminthecourseoftheyear。
Allthemerchantsinastateareinthehabitoflendingmerchandiseorproduceforatimetoretailers，andproportiontherateoftheirprofitorinteresttothatoftheirrisk。Thisriskisalwaysgreatbecauseofthehighproportionoftheborrower’supkeeptotheloan。Foriftheborrowerorretailerhavenotaquickturnoverinsmallbusinesshewillquicklygotoruinandwillspendallhehasborrowedonhisownsubsistenceandwillthereforebeforcedintobankruptcy。
Thefishwives，whobuyfishatBillingsgateinLondontosellagainintheotherquartersoftheCity，generallypayunderacontractmadebyanexpertscrivener，oneshillingperguinea，ortwenty-oneshillings，interestperweek，whichamountsto260
percentperannum。Themarket-womenatParis，whosebusinessissmaller，pay5solsfortheweek’sinterestonanecuof3
livres，whichexceeds430percentperannum。Andyettherearefewlenderswhomakeafortunefromsuchhighinterest。
Thesehighratesofinterestarenotonlypermittedbutareinawayusefulandnecessaryinastate。Thosewhobuyfishinthestreetspaythesehighinterestchargesintheincreasedprice。Itsuitsthemandtheydonotfeelit。Inlikemanneranartisanwhodrinksapotofbeerandpaysforitapricewhichenablesthebrewertogethis500percentprofit，issatisfiedwiththisconvenienceanddoesnotfeelthelossinsosmalladetail。
TheCasuists，whoseemhardlysuitablepeopletojudgethenatureofinterestandofmattersoftrade，haveinventedaterm，damnumemergens，bywhoseaidtheyconsenttotoleratethesehighratesofinterest；andratherthanupsetthecustomandconvenienceofsociety，theyhaveagreedandallowedtothosewholendatgreatrisktoexactinproportionahighrateofinterest：andthiswithoutlimit，fortheywouldbehardputtoittofindanycertainlimitsincethebusinessdependsinrealityonthefearsofthelendersandtheneedsoftheborrowers。
MaritimemerchantsarepraisedwhentheycanmakeaprofitontheirAdventures，eventhoughitbe10，000percent；andwhateverprofitwholesalemerchantsmaymakeorstipulateforinSellingonlongcreditproduceormerchandisetosmallerretailmerchants，IhavenotheardthattheCasuistsmakeitacrime。
Theyareorseemtobealittlemorescrupulousaboutloansinhardcashthoughitisessentiallythesamething。Yettheytolerateeventheseloansbyadistinction，lucrumcessans，whichtheyhaveinvented。Iunderstandthistomeanthatamanwhohasbeeninthehabitofmakinghismoneybringin500percentinhistrademaydemandthisprofitwhenhelendsittoanother。
Nothingismoreamusingthanthemultitudeoflawsandcanonsmadeineveryageonthesubjectoftheinterestofmoney，alwaysbywiseacreswhowerehardlyacquaintedwithtradeandalwayswithouteffect。
Fromtheseexamplesandinductionsitseemsthatthereareinastatemanyclassesandchannelsofinterestorprofit，thatinthelowestclassesinterestisalwayshighestinproportiontothegreaterrisk，andthatitdiminishesfromclasstoclassuptothehighestwhichisthatofmerchantswhoarerichandreputedsolvent。Theinterestdemandedinthisclassiscalledthecurrentrateofinterestinthestateanddifferslittlefrominterestonthemortgageofland。Thebillofasolventandsolidmerchantisasmuchesteemed，atleastforashortdate，asalienuponland，becausethepossibilityofalawsuitoradisputeonthislastmakesupforthepossibilityofthebankruptcyofthemerchant。
IftherewereinastatenoUndertakerswhocouldmakeaprofitonthemoneyorgoodswhichtheyborrow，theuseofinterestwouldprobablybelessfrequentthanitis。Onlyextravagantandprodigalpeoplewouldcontractloans。ButaccustomedaseveryoneistomakeuseofUndertakersthereisaconstantsourceforLoansandthereforeforinterest。TheyaretheUndertakerswhocultivatethelandandsupplybread，meat，clothes，etc。toalltheinhabitantsofacity。ThosewhoworkonwagesfortheseUndertakersseekalsotosetthemselvesupasUndertakers，inemulationofeachother。ThemultitudeofUndertakersismuchgreateramongtheChinese，andastheyallhavelivelyintelligence，ageniusforenterprise，andgreatperseveranceincarryingitout，thereareamongthemmanyUndertakerswhoareamonguspeopleonfixedwages。Theysupplylabourerswithmeals，eveninthefields。ItisperhapsthismultitudeofsmallUndertakersandothers，fromclasstoclass，whofindingthemeanstogainagooddealbyministeringtoconsumptionwithoutitsbeingfeltbytheconsumers，keepuptherateofinterestinthehighestclassat30percentwhileithardlyexceeds5percentinourEurope。AtAthensinthetimeofSoloninterestwasat18percent。IntheRomanRepublicitwasmostcommonly12percent，buthasbeenknowntobe48，20，8，6，andatthelowest4percent。ItwasneversolowinthefreemarketastowardstheendoftheRepublicandunderAugustusaftertheconquestofEgypt。TheEmperorAntoninusandAlexanderSeverusonlyreducedinterestto4percentbylendingpublicmoneyonthemortgageofland。
Chapter10andlastOftheCausesoftheIncreaseandDecreaseoftheInterestofMoneyinaStateItisacommonidea，receivedofallthosewhohavewrittenontrade，thattheincreasedquantityofcurrencyinastatebringsdownthepriceofinterestthere，becausewhenmoneyisplentifulitismoreeasytofindsometoborrow。Thisideaisnotalwaystrueoraccurate。Forproofitneedsonlytoberecalledthatin1720，nearlyallthemoneyinEnglandwasbroughttoLondonandoverandabovethisthenumberofnotesputoutacceleratedthemovementofmoneyextraordinarily。Yetthisabundanceofmoneyandcurrencyinsteadofloweringthecurrentrateofinterestwhichwasbeforeat5percentandunder，servedonlytoincreasetheratewhichwascarriedupto50and60percent。Itiseasytoaccountforthisincreasedrateofinterestbytheprinciplesandthecausesofinterestlaiddowninthepreviouschapter。ThereasonisthateverybodyhadbecomeanundertakerintheSouthSeaschemeandwantedtoborrowmoneytobuyshares，expectingtomakeanimmenseprofitoutwhichitwouldbeeasytopaythishighrateofinterest。
Iftheabundanceofmoneyinthestatecomesfromthehandsofmoneylendersitwilldoubtlessbringdownthecurrentrateofinterestbyincreasingthenumberofmoneylenders：butifitcomesfromtheinterventionofspendersitwillhavejusttheoppositeeffectandwillraisetherateofinterestbyincreasingthenumberofUndertakerswhowillhaveemploymentfromthisincreasedexpense，andwillneedtoborrowtoequiptheirbusinessinallclassesofinterest。
Plentyorscarcityofmoneyinastatealwaysraisesorlowersthepriceofeverythinginbargainingwithoutanynecessaryconnectionwiththerateofinterest，whichmayverywellbehighinstateswherethereisplentyofmoneyandlowinthosewheremoneyisscarcer：highwhereeverythingisdear，andlowwhereeverythingischeap：highinLondon，lowinGenoa。
Therateofinterestrisesandfallseverydayuponmererumourswhichtendtodiminishorincreasethesecurityoflenders，withoutthepricesofthingsinexchangebeingaffectedthereby。
Themostregularcauseofahighrateofinterestinastateisthegreatexpenseofnoblesandlandownersorotherrichpeople。Undertakersandmastercraftsmenareinthecustomofsupplyingthegreathousesinalltheirbranchesofexpenditure。
TheseUndertakershavenearlyalwaysneedtoborrowmoneyinordertosupplythem：andwhenthenobilityconsumetheirrevenuesinadvanceandborrowmoneytheycontributedoublytoraisetherateofinterest。
Onthecontrarywhenthenobilityofthestateliveeconomicallyandbuyatfirsthandsofarastheycan，theygetthroughtheirservantsmanythingswithouttheirpassingthroughthehandsofDealers，theydiminishtheprofitsandnumbersoftheUndertakersinthestateandthereforeofborrowersaswellastherateofinterest，becausethisclassofUndertakersworkingontheirowncapitalborrowtheleasttheycan，andcontentingthemselveswithsmallprofitspreventthosewhohavenocapitalfromembarkingintheseenterprisesonborrowedmoney。
SuchistodaythepositionoftheRepublicsofGenoaandHolland，whereinterestissometimesat2percentorunderinthehighestclass，whilstinGermany，Poland，France，Spain，EnglandandothercountriestheeasinessandexpenseofnoblemenandlandownersalwayskeeptheUndertakersandmastercraftsmenofthecountryaccustomedtolargeprofitsenablingthemtopayahighrateofinterest，whichishigherstillwhentheyimporteverythingfromabroadwithattendantrisk。
WhenthePrinceorthestateincursheavyexpense，suchasmakingwar，therateofinterestisraisedfortwosuchasmakingwar，therateofinterestisraisedfortworeasons：thefirstisthatthismultipliesthenumberofUndertakersbyseveralnewlargeenterprisesforwarsupplies，andsoincreasesborrowing。
Thesecondisbecauseofthegreaterriskwhichwaralwaysinvolves。
Onthecontrarywhenthewarisoverriskdiminishes，thenumberofUndertakersislessenedandwar-contractorsceasingtobesoretrenchtheirexpensesandbecomelendersofthemoneytheyhavegained。IfnowthePrinceorstateoffertorepaypartofthedebtitwillinterest，andthiswillhaveconsiderablyreducetherateofinterest，andthiswillhaveamoreassuredresultifpartofthedebtcanbereallypaidoffwithoutborrowingelsewhere，becausetherepaymentsincreasethenumberoflendersinthehighestclassofinterestwhichwillaffectalltheotherclasses。
WhentheplentifulnessofmoneyinthestateisduetoacontinuousBalanceoftrade，thismoneyfirstpassesthroughthehandsofUndertakers，andalthoughitincreasesconsumptionitdoesnotfailtobringdowntherateofinterest，becausemostoftheUndertakersthenacquireenoughcapitaltocarryontheirbusinesswithoutmoney，andevenbecomelendersofthesumstheyhavegainedbeyondwhattheyneedtocarryontheirtrade。Iftherearenotinthestateagreatnumberofnoblemenandrichpeoplewhospendheavilythentheabundanceofmoneywillcertainlybringdowntherateofinterest，whileincreasingthepriceofgoodsandmerchandiseinexchange。ThisiswhatusuallyhappensinRepublicswhichhaveneithermuchcapitalnorconsiderablelandedpropertyandgrowrichmerelybyforeigntrade。Butinstateswhichhavealargecapitalandgreatlandownersthemoneybroughtinbyforeigntradeincreasestheirrents，andenablesthemtoincurheavyexpenditurewhichmaintainsseveralUndertakersandmechanicsbesidesthosewhotradewiththeforeigner。Thisalwayskeepsinterestatahighrateinspiteoftheabundanceofmoney。
Whenthenobilityandlandownersruinthemselvesbyextravagances，themoneylenderswhohavemortgagesontheirlandsoftenacquiretheabsoluteownershipofthem，anditmaywellarriveinthestatethatthelendersarecreditorsformuchmoremoneythanthereiscirculatingthere，inwhichcaseonemayconsiderthemassubalternownersofthelandandgoodsmortgagedfortheirsecurity。Ifnottheircapitalwillbelostbybankruptcies。
Inthesamewayonemayconsidertheownersofsharesandpublicfundsassubalternownersoftherevenuesofthestatedevotedtopaymentoftheirinterest。ButiftheLegislaturewerecompelledbythenecessitiesofthestatetoemploytheserevenuesforotherpurposes，theshareholdersorownersofpublicfundswouldloseeverythingwithoutthemoneycirculatinginthestatebeingdiminishedonthataccountbyasingleliard。
IfthePrinceoradministratorsofthestatewishtoregulatethecurrentrateofinterestbylaw，theregulationmustbefixedonthebasisofthecurrentmarketrateinthehighestclass，orthereabout。Otherwisethelawwillbefutile，becausethecontractingparties，obedienttotheforceofcompetitionorthecurrentpricesettledbytheproportionoflenderstoborrowers，willmakesecretbargains，andthislegalconstraintwillonlyembarrasstradeandraisetherateofinterestinsteadofsettlingit。TheRomansofoldafterseverallawstorestrictinterestpassedonetoforbidaltogetherthelendingofmoney。
Thislawhadnomoresuccessthanitspredecessors。ThelawofJustiniantorestrainpatriciansfromtakingmorethan4percent，thoseofalowerorder6percent，andtraders8percentwasequallyamusingandunjust，whilstitwasnotforbiddentomake50and100percentprofitinallsortsofbusiness。
Ifitisallowableandrespectableforalandlordtoletafarmtoapoorfarmeratahighrental，riskingthelossoftherentofawholeyear，itseemsthatitshouldbepermissibletoalendertoadvancehismoneytoaneedyborrower，attheriskoflosingnotonlyhisinterestorprofitbutalsohiscapital，andtostipulateforsomuchinterestastheborrowerwillfreelyconsenttopayhim。ItistruethatLoansofthischaractermakemorepeoplewretched。Makingawaywithbothcapitalandinteresttheyaremoreimpotenttorecoverthemselvesthanthefarmerwhodoesnotcarryofftheland。Butthebankruptcylawsbeingfavourableenoughtodebtorstoallowthemtostartagainitseemsthatusurylawsshouldalwaysbeadjustedtomarketrates，asinHolland。
Thecurrentrateofinterestinastateseemstoserveasabasisandmeasureforthepurchasepriceofland。Ifthecurrentinterestis5percentorone-twentiethpartthepriceoflandshouldbethesame。Butastheownershipoflandgivesastandingandacertainjurisdictioninthestateithappensthatwheninterestisone-twentiethpart，thepriceoflandisat1/24or1/25，thoughmortgagesonthesamelandhardlypassthecurrentrateofinterest。
Afterall，thepriceofland，likeallotherprices，naturallysettlesitselfbytheproportionofsellerstobuyers，etc。；andastherewillbemanymorebuyersinLondon，forexample，thanintheProvinces，andasthesebuyerswholiveinthecapitalwillprefertobuylandintheirlocalityratherthanindistantProvinces，theywillratherbuylandinthevicinityat1/30or1/35thanlandatadistance1/25or1/22。Thereareoftenotherreasonsofexpediencyaffectingthepriceofland，unnecessarytomentionhere，sincetheydonotinvalidateourexplanationsofthenatureofinterest。
PartThreeChapterOneOnForeignTradeWhenastateexchangesasmallproductoflandforalargerinforeigntrade，itseemstohavetheadvantage；andifcurrentmoneyismoreabundanttherethanabroaditwillalwaysexchangeasmallerproductoflandforagreater。
Whenthestateexchangesitslabourfortheproduceofforeignlanditseemstohavetheadvantage，sinceitsinhabitantsarefedattheforeigner’sexpense。
Whenastateexchangesitsproduceconjointlywithitslabour，foralargerproduceoftheforeignerconjointlywithequalorgreaterlabour，itseemsagaintohavetheadvantage。
IftheladiesofqualityofParisconsumeyearlyBrusselslacetothevalueof100，000ouncesofsilver，aquarterofanacreoflandinBrabant，whichwillgrow150poundsweightofflax，tobemadeintofinelaceinBrussels，willanswerthisvalue。Thiswillrequiretheyearlylabourofabout2000peopleinBrabantfortheseveralpartsoftheworkfromthesowingoftheflaxtothefinalperfectionofthelace。ThelacemerchantorundertakeratBrusselswilladvancethecapital。Hewilldirectlyorindirectlypayallthespinnersandlace-womenandtheproportionofthelabourofthosewhomaketheirtools。Allthosewhohavetakenpartintheworkwillbuy，directlyorindirectly，theirmaintenancefromthefarmerinBrabantwhopaysinparttherentofhislandlord。Ifinthiseconomytheproduceofthelandattributedtothese2000personsbeputat3arpentsperheadaswellforthemaintenanceofthemselvesasforthatoftheirfamilieswhosubsistinpartuponit，therewillbe6000
arpentsoflandinBrabantemployedforthesupportofthosewhohaveworkedonthelace，attheexpenseoftheladiesofPariswhowillpayforandwearthelace。
TheladiesofPariswillpaythe100，000ouncesofsilver，eachaccordingtotheamountshehasbought。AllthissilvermustbesenttoBrusselsinspecie，lessonlythecostofremittance，andtheentrepreneuratBrusselsmustfindinitnotonlypaymentofallhisadvancesandtheinterestofthemoneywhichhehasperhapsborrowed，butalsoaprofitonhisundertakingforthemaintenanceofhisfamily。Ifthepricewhichtheladiespayforthelacedoesnotcoverallthecostsandprofitstherewillbenoencouragementforthismanufacture，andtheentrepreneurswillceasetocarryitonorbecomebankrupt；butaswehavesupposedthismanufactureiscontinued，itisnecessarythatallcostsbecoveredbythepricespaidbytheladiesofParis，andthe100，000ouncesofsilversenttoBrusselsifthepeopleofBrabanttakenocommodityfromFrancetocompensatethisdebt。
TheladiesofPariswillpay100，000ouncestohimwhosellsanddeliverstothemthelace；hewillpaythemtothebankerwhowillgivehimoneormorebillsofexchangeonhisBrusselscorespondent。ThebankerwillremitthemoneytothewinemerchantsinChampagnewhohave100，000ouncesofsilveratBrusselsandwhowillgivehimtheirbillsofexchangeofthesamevaluedrawnuponhimbyhisBrusselscorrespondent。Thusthe100，000ouncespaidfortheChampagnewineatBrusselswillbalancethe100，000ouncespaidforthelaceatParis，andinthiswaythetroubleofsendingtoBrusselsthemoneyreceivedatBrusselswillbeavoided。Thisbalanceiseffectedbybillsofexchange，thenatureofwhichIwilltrytoexplaininthenextchapter。
Meanwhilethisexampleshowsthatthe100，000ounceswhichtheladiesofParispayforthelace，comeintothehandsofthemerchantswhosendChampagnewinetoBrussels；andthatthe100，000ounceswhichtheconsumersoftheChampagnepayforthiswineatBrusselsfallintothehandsoftheentrepreneursorlacemerchants。Theentrepreneursoneachsidedistributethismoneytothosewhoselabourtheyemploy，eitheronthewinesoronthelace。
ItisclearfromthisthattheladiesofParissupportandmaintainallthosewhoworkonthelaceinBrabantandcausemoneytocirculatethere，andequallythattheconsumersofChampagnewineatBrusselssupportandmaintaininChampagnenotonlythevineyardkeepersandotherswhotakepartintheproductionofthewine，thecartwrights，farriers，carters，etc。
whotakepartinthetransport，andthehorsesengagedinit，butthattheyalsopaythevalueoftheproduceofthelandforthewine，andcauseacirculationofmoneyinChampagne。
NeverthelessthiscirculationortradeinChampagne，whichmakessogreatastir，whichmaintainsthekeeperofthevineyard，thefarmer，thecartwright，thefarrier，thecarter，etc。andwhichpayspreciselyaswelltherentoftheownerofthevineyardasthatoftheownerofthepastureswhichservetofeedthecarthorses，isinthepresentcaseaburdensomeandunprofitabletradetoFrancewhenconsideredbytheeffectsthatitproduces。
IfthemuidofwinesellsatBrusselsfor60ouncesofsilverandifwesupposeonearpentofvinelandproduces4muidstheremustbesenttoBrusselstheproduceof4166？arpentsoflandtocorrespondto100，000ouncesofsilver，andabout2000
arpentsofpastureandarableforthehayandoatsconsumedbythecarthorsesiftheyaresolelyemployedonthisworkalltheyearround。Andsotherewillbeabout6000arpentsoflandabstractedfromthemaintenanceofFrenchmen，andthatofthepeopleofBrabantincreasedbyover4000arpentsofproduce，sincetheChampagnewinewhichtheydrinksavesmorethan4000
arpentswhichtheywouldprobablyusetoproducebeerfortheirdrinkiftheydidnotdrinkwine。HoweverthelacewithwhichallthatispaidforcoststhepeopleofBrabantonlyonequarterofanarpentofflax。Thuswithonearpentofproducealliedtotheirlabour，thepeopleofBrabantpayformorethan16，000
arpentstotheFrench，theirconjoinedlabourbeingless。TheyobtainanincreaseofsubsistenceandgiveonlyanarticleofluxurywhichbringsnorealadvantagetoFrance，sincethelaceiswornandconsumedthereandcannotthenbeexchangedforanythinguseful。Followingtheruleofintrinsicvalues，thelandusedinChampagnefortheproductionofthewine，themaintenanceofthevineyardkeepers，thecoopers，thecartwrights，farriers，carters，carthorses，etc。，oughttobeequaltothelandusedinBrabantfortheproductionoftheflax，thesupportofthespinnersandlacemakers，andallthosewhohavetakenpartinthemanufactureofthislace。
ButifmoneyismoreabundantincirculationinBrabantthaninChampagnelandandlabourwillbedearerthereandconsequently，valuinginsilverbothsides，theFrenchwilllosestillmoreconsiderably。
Thisisanexampleofabranchoftradewhichstrengthenstheforeigner，lessenthenumberofinhabitantsofthestate，andwithoutcausinganycirculatingmoneytoleaveitweakensthesamestate。Ihavechosenittoshowmorestrikinglyhowonestatemaybethedupeofanotherintrade，andthemethodofjudgingtheadvantagesanddisadvantagesofforeigntrade。
Itisbyexaminingtheresultsofeachbranchofcommercesinglythatforeigntradecanbeusefullyregulated。Itcannotbedistinctlyapprehendedbyabstractreasons。Itwillalwaysbefoundbyexaminingparticularcasesthattheexportationofallmanufacturedarticlesisadvantageoustothestate，becauseinthiscasetheforeigneralwayspaysandsupportsworkmenusefultothestate：thatthebestreturnsorpaymentsimportedarespecie，andindefaultofspecietheproduceofforeignlandintowhichthereenterstheleastlabour。Bythesemethodsoftradingstateswhichhaveverylittlerawproduceareoftenseentosupportinhabitantsingreatnumbersattheexpenseofforeigners，andlargestatesmaintaintheirinhabitantsingreatereaseandabundance。
Butasgreatstateshavenoneedtoincreasethenumberoftheirinhabitantsitisenoughtomakethosewhoareinitlivethereontherawproduceofthestatewithmorecomfortandeaseandtoincreasethestrengthofthestateforitsdefenceandsecurity。Todosobyforeigntradeitisneedfultoencourageasmuchaspossibletheexportofgoodsandmanufacturesofthestateinexchangesofarasmaybeforgoldandsilverinkind。
Ifbyabundantharvestithappenedthattherewasinthestatemuchproduceoverandabovetheordinaryannualconsumptionitwouldbeprofitabletoencouragetheexportationofitinreturnforitsvalueingoldandsilver。Thesemetalsdonotcorruptanddisappearliketheproduceoftheland，andwithgoldandsilveronecanalwaysimportintothestatewhatislackingthere。
Itwouldnothoweverbeprofitabletoputthestateintotheannualcustomofsendingabroadlargequantitiesofitsrawproduceinreturnforforeignmanufactures。Itwouldbetoweakenanddiminishtheinhabitantsandthestrengthofthestateatbothends。
ButIhavenointentionofenteringintodetailastothebranchesoftradewhichshouldbeencouragedforthegoodofthestate。Enoughtosaythatitshouldalwaysbeendeavouredtoimportasmuchsilveraspossible。
Theincreaseinthequantityofsilvercirculatinginastategivesitgreatadvantagesinforeigntradesolongasthisabundanceofmoneylasts。Thestatethenexchangesasmallquantityofproduceandlabourforgreater。Itraisesitstaxesmoreeasilyandfindsnodifficultyinobtainingmoneyincaseofpublicneed。
Itistruethatthecontinuedincreaseofmoneywillatlengthbyitabundancecauseadearnessoflandandlabourinthestate。Thegoodsandmanufactureswillinthelongruncostsomuchthattheforeignerwillgraduallyceasetobuythem，andwillaccustomhimselftogetthemcheaperelsewhere，andthiswillbyimperceptibledegreesruintheworkandmanufacturesofthestate。Thesamecausewhichwillraisetherentsoflandlords（whichistheabundanceofmoney）willdrawthemintothehabitofimportingmanyarticlesfromforeigncountrieswheretheycanbehadcheap。Sucharethenaturalconsequences。Thewealthacquiredbyastatethroughtrade，labourandeconomywillplungeitgraduallyintoluxury。Stateswhorisebytradedonotfailtosinkafterwards。Therearestepswhichmightbe，butarenot，takentoarrestthisdecline。Butitisalwaystruethatwhenthestateisinactualpossessionofabalanceoftradeandabundantmoneyitseemspowerful，anditissoinrealitysolongasthisabundancecontinues。
Infiniteinductionsmightbeaddedtojustifytheseideasofforeigntradeandtheadvantagesofabundantmoney。ItisastonishingtoobservethedisproportioninthecirculationofmoneyinEnglandandinChina。ThemanufacturesoftheIndies，likesilksandprintedcalicoes，muslins，etc。inspiteofaseavoyageof18months，areataverylowpriceinEngland，whichwouldpayforthemwiththethirtiethpartofherarticlesandmanufacturesiftheIndianswouldbuythem。Buttheyarenotsofoolishastopayextravagantpricesforourworkwhileworkisdonebetterandinfinitelycheaperintheirowncountry。Sotheysellustheirmanufacturesonlyforreadycash，whichwecarrytothemannuallytoincreasetheirwealthanddiminishourown。TheIndianmanufacturesconsumedinEuropeonlydiminishourmoneyandtheworkofourownmanufactures。
AnAmericanwhosellsbeaverskinstoaEuropeanisrightlyastonishedtolearnthatwoollenhatsareasserviceableasthosemadeofbeaver，andthatallthedifference，whichcausessolongaseajourney，isinthefancyofthosewhothinkbeaverhatslighterandmoreagreeabletotheeyeandthetouch。HoweverasthesebeaverskinsareordinarilypaidfortotheAmericaninarticlesofiron，steel，etc。andnotinsilver，itisatradewhichisnotinjurioustoEurope，especiallysinceitsupportsworkmenandparticularlysailors，whointheneedsofthestateareveryuseful，whilstthetradewiththemanufacturesoftheEastIndiescarriesoffthemoneyanddiminishestheworkmenofEurope。
ItmustbeadmittedthattheEastIndiatradeisprofitabletotheDutchRepublicandthatshemakesthelossofitfallontherestofEuropebysellingthespicesandmanufacturesinGermany，Italy，SpainandtheNewWorld，whichreturntoherallthemoneywhichshesendstotheIndiesandmuchmore。ItisevenusefultoHollandtoclotheherwomenandotherfolkwiththemanufacturesofIndiaratherthanwithEnglishorFrenchfabrics。
ItsuitstheDutchbettertoenrichtheIndiansthantheirneighbourswhomightprofitbyittooppressthem。MoreovertheyselltotheotherpeoplesofEuropetheclothsandsmallmanufacturesoftheirownrawproducemuchdearerthantheyselltheIndianmanufacturesathomewheretheyareconsumed。
EnglandandFrancewouldbemistakentoimitatetheDutchinthisrespect。Thesekingdomshaveathomethemeansofclothingtheirwomenwiththeirownrawmaterial，andthoughtheirfabricsaredearerthanthoseofIndianmanufacturetheyshouldpreventtheirpeoplefromwearingtheforeignmaterial。Theyoughtnottopermitthefallingoffoftheirownarticlesandmanufacturesnorbecomedependentontheforeigner，stilllessallowtheirmoneytobetakenawayforthatpurpose。
ButastheDutchfindmeanstosellIndianmerchandiseintheotherstatesofEurope，theEnglishandFrenchshoulddothesame，whethertodiminishthenavalpowerofHollandortoincreasetheirown，andabovealltodowithouttheaidofHollandinthebranchesofconsumptionwhichabadhabithasrenderednecessaryinthesekingdoms。ItisanevidentdisadvantagetoallowthewearingofIndianfabricsinthekingdomsofEuropewhichhavewherewithtoclothetheirpeoplewiththeirownproducts。
Justasitisdisadvantageoustoastatetoencourageforeignmanufacturessoitistoencourageforeignnavigation。
Whenastatesendsabroaditsarticlesandmanufacturesitderivesthefulladvantageifitsendstheminitsownships。Itthenmaintainsagoodnumberofsailorswhoareasusefultothestateasworkmen。Butifitleavesthecarriageofthemtoforeignvesselsitstrengthenstheforeignshippingandweakensitsown。
Navigationisanessentialpointinforeigntrade。InthewholeofEuropetheDutcharethosewhobuildshipsthecheapest。
Timberisfloateddowntothembyriver，andtheproximityofthenorthsuppliesthematlessexpensewithmasts，wood，pitch，rope，etc。Theirwindmillsforsawingwoodfacilitatetheworkingofit。Alsotheynavigatewithsmallercrewsandtheirsailorsliveverycheaply。Oneoftheirwindmillsforsawingwoodsavesthelabourof80menaday。
OwingtotheseadvantagestheywouldbetheonlyseacarriersinEuropeifcheapnessonlywerefollowed。AndiftheyhadenoughoftheirownrawmaterialtoformanextensivecommercetheywoulddoubtlesshavethemostflourishingmaritimeserviceinEurope。Butthegreaternumberoftheirseamendoesnotsufficewithouttheinteriorstrengthofthestate，forthesuperiorityoftheirnavalpower。Theywouldneverarmwarshipsnorsailorsifthestatehadlargerevenuestobuildtheshipsandpaythemen：theywouldprofitineverythingfromextendedmarkets。
England，inordertopreventtheDutchfromincreasingatherexpensetheiradvantageontheseabythischeapness，hasforbiddenanynationfrombringingintoEnglandothermerchandisethanthatoftheirowngrowth。Inthisway，theDutchbeingunabletoserveascarriersforEngland，theEnglishhavestrengthenedtheirownshipping。AndthoughtheysailatgreatercoststhantheDutchthewealthoftheiroverseascargoesrendersthesecostslessconsiderable。
FranceandSpainaremaritimestateswhichhaverichproducesenttothenorth，whencegoodsandmerchandisearebroughttothem。Itisnotsurprisingthattheirshippingisinconsiderableinproportiontotheirproduceandtheextentoftheirseaboard，sincetheyleaveittoforeignvesselstobringthemalltheyreceivefromthenorthandtotakeawayfromthemthegoodswhichthestatesofthenorthreceivefromthem。
Thesestates，FranceandSpain，donottakeintoaccountintheirpolicytheconsiderationoftradeinthewayinwhichitwouldbeadvantageous。MostmerchantsinFranceandSpainwhohavetodowiththeforeignerareratheragentsorclerksofforeignmerchantsthanadventurerscarryingonthetradeontheirownaccount。
Itistruethatthestatesofthenorthare，bytheirsituationandthevicinityofcountrieswhichproduceallthatisneededforbuildingships，inapositiontocarryeverythingcheaperthanFranceandSpaincoulddo。Butifthesetwokingdomstookstepstostrengthentheirshipping，thisobstaclewouldnotpreventthem。Englandhaslongsincepartlyshownthemtheexample。Theyhaveathomeandintheircoloniesallthatisneededfortheconstructionofships，oratleastitwouldnotbedifficulttogetthemproducedthere，andthereisaninfinityofmethodsthatmightbeusedtomakesuchapolicysuccessfulifthelegislatureortheministrywouldconcurinit。Mysubjectdoesnotallowmeinthisessaytoexaminethesemethodsindetail。Iwilllimitmyselftosayingthatincountrieswheretradedoesnotregularlysupportaconsiderablenumberofshipsandsailorsitisalmostimpossiblefortheprincetomaintainaflourishingnavywithoutsuchexpenseaswouldbecapablebyitselfofruiningthetreasureofhisstate。
Iwillconcludethanbyobservingthatthetrademostessentialtoastatefortheincreaseordecreaseofitspowerisforeigntrade，thatthehometradeisnotofequallygreatimportancepolitically，thatforeigntradeisonlyhalfsupportedwhennocareistakentoincreaseandmaintainlargemerchantswhoarenativesofthecountry，ships，sailors，workmenandmanufacturers，andaboveallthatcaremustalwaysbetakentomaintainthebalanceagainsttheforeigner。
ChapterII
OftheExchangesandtheirNatureInsidethecityofParisthecarriageofmoneyfromonehousetoanotherusuallycosts5solsperbagof1000livres。IfitwerenecessarytocarryitfromtheFauxbourgSt。AntoinetotheInvalidesitwouldcostmorethantwiceasmuch，andiftherewerenotgenerallytrustworthyportersofmoneyitwouldcoststillmore。Iftherewereoftenrobbersontheroadthemoneywouldbesentinlargeamounts，withanescort，atgreatercost，andifsomeonechargedhimselfwiththetransportathisowncostandriskshewouldrequirepaymentforitinproportiontothesecostsandrisks。SoitisthattheexpenseoftransportfromRouentoParisandfromParistoRouenamountsgenerallyto50solsperbagof1000livreswhichinthelanguageofthebankersis1/4percent。Thebankersgenerallysendthemoneyinstrongkegswhichrobberscanhardlycarryoffbecauseoftheironandtheweight，andastherearealwaysmailcoachesonthisroutethecostsarenotconsiderableonthelargesumssentbetweenthesetwoplaces。
IfthecityofChalonssurMarneeveryyearpaysthereceiveroftheKing’staxes，10，000ouncesofsilverontheonehand，andontheotherthewinemerchantsofChalonsanditsneighbourhoodselltoParis，throughtheiragents，Champagnewineofthevalueof10，000ouncesofsilver，iftheounceofsilverinFrancepassesintradefor5livres，thetotalofthe10，000
ouncesinquestionwillbe50，000livresbothinParisandinChalons。
TheReceiverofTaxesinthisexamplehas50，000livrestosendtoParis，andtheagentsoftheChalonswinemerchantshave50，000livrestosendtoChalons。Thisdoubletransactionortransportmaybeavoidedbyasetofforastheyarecalledbillsofexchange，ifthepartiesgettogetherandarrangeit。
LettheagentsoftheChalonswine-merchantstake（eachhisownpart）the50，000livrestothecashieroftheTaxOfficeatParis。LethimgivethemoneormorechequesorbillsofexchangeontheReceiverofTaxesatChalons，payabletotheirorder。LetthemendorseortransfertheirordertotheChalonswinemerchantsandthesewillobtainfromtheReceiveratChalonsthe50，000livres。Inthiswaythe50，000livresatPariswillbepaidtotheCashieroftheTaxdepartmentatParisandthe50，000
livresatChalonswillbepaidtothewinemerchantsofthatCity，andbyexchangeorsetofftherewillbesavedthetroubleofsendingthismoneyfromonecitytotheother。OrelseletthewinemerchantsatCahlons，whohave50，000livresatParis，goandoffertheirbillsofexchangetotheReceiverofTaxes，whowillendorsethemtothecashierofthetaxofficeatPariswhowillcollecttheamountthere，andlettheReceiveratChalonspaythemerchantsfortheirbillsofexchangethe50，000livreswhichhehasatChalons。Whicheverwaythissetoffiseffected，whetherthebillsofexchangebedrawnfromParis，asinthisexampleounceforounceispaid，and50，000livresfor50，000livres，theexchangeissaidtobeatpar。
ThesamemethodmightbeadoptedbetweenthesewinemerchantsatChalonsandtheagentsofthenobilityinPariswhohavelandintheChalonsdistrict，andthewinemerchantsorothermerchantsatChalonswhohavesentgoodsormerchandisetoParisandhavemoneythereandothermerchantswhohavedrawnmerchandisefromParisandsolditatChalons。IfthereisalargetradebetweenthesetwocitiesbankerswillsetupatParisandChalonswhowillenterintorelationswiththeinterestedpartiesonbothsidesandwillbetheagentsorintermediariesforthepaymentswhichwouldhavetobesentfromoneofthesecitiestotheother。NowifallthewineandothergoodsandmerchandisewhichhavebeensentfromChalonstoParisandhaveactuallybeensoldthereforreadymoneyexceedinvaluethetotalreceiptsofthetaxesatChalons，andtherentswhichthenobilityofParishaveintheChalonsdistrictaswellasthevalueofthegoodsandmerchandisesentfromParistoChalonsandsoldthereforreadymoney，by5000ouncesofsilveror25，000
livresitwillbenecessaryforthebankerinParistosendthereforreadymoney，by5000ouncesofsilveror25，000livresitwillbenecessaryforthebankerinParistosendthisamounttoChalonsinmoney。Thiswillbetheexcessorbalanceoftradebetweenthesetwocities。Itwill，Isay，beofnecessitysenttoChalonsinspecie，andthisoperationwillbecarriedoutinthefollowingwayorinsomesimilarfashion。
TheagentsorcorrespondentsofthewinemerchantsofChalonsandofotherswhohavesentgoodsormerchandisefromChalonstoParishavethemoneyforthesesalesinhandatParis。
TheyareorderedtoremitittoChalons。Theyarenotaccustomedtoriskitbycarriage，theywillapplytothecashiertotheTaxOfficewhowillgivethemchequesorbillsofexchangeontheReceiverofTaxesatChalonsuptotheamountwhichhehasatChalons，andgenerallyatpar。ButastheyneedtosendfurthersumstoChalonstheywillapplytothebankerwhowillhaveathisdisposaltherentsoftheParisnobilitywhohavelandsinthatdistrict。Thisbankerwillfurnishthem，liketheCashieroftheTaxOffice，withbillsofexchangeonhiscorrespondentatChalonsuptotheamountofthefundswhichhehasathisdisposalatChalonsandhadbeenorderedtobringtoParis。Thissetoffwillalsobemadeatpar，unlessthebankertriestomakesomelittleprofitoutofitforhistrouble，aswellfromtheagentswhoapplytohimtosendtheirmoneytoChalonsasfromthenobilitywhohavechargedhimwiththetransmissionoftheirmoneyfromChalonstoParis。IfthebankerhasalsoathisdisposalatChalonsthevalueofthemerchandisesentthitherfromParisandsoldthereforreadymoneyhewillalsofurnishlettersofexchangeforthisvalue。
ButinourcasesupposedtheagentsoftheChalonsmerchantshavestillinhandatParis25，000livreswhichtheyareorderedtoremittoChalonsaboveallthesumsmentionedabove。IftheyofferthismoneytotheCashieroftheTaxOfficehewillreplythathehasnomorefundsatChalons，andcannotsupplythemwithbillsofexchangeorchequesonthatcity。IftheyofferthemoneytothebankerhewilltellthemthathehasnomorefundsatChalonsandhasnoneedtodraw，butiftheywillpayhim3
percentforexchangehewillprovidecheques。Theywillofferoneortwopercentandatlast2？notbeingabletodobetter。
AtthispricetheBankerwilldecidetogivethembillsofexchange，thatisiftheypaytohimatParis2livres10solshewillsupplyabillofexchangefor100livresonhisChalonscorrespondent，payableat10or15days，soastoputhiscorrespondentinapositiontomakethepaymentofthe25，000
livresforwhichhedrawsuponhim。Atthisrateofexchangehewillsendhimthemoneybymailorcarriageinspecie，goldor，indefaultofgold，silver。Hewillpay10livresforeachbagof1000livres，orinbankparlance1percent。HewillpayhisChalonscorrespondentascommission5livresperbagof1000
livresor？percent，andwillkeeponepercentforhisownprofit。OnthisfootingtheexchangeatParisforChalonsisat2？percentabovepar，becauseonepays2livres10solsforeach100livresasthecommissiononexchange。
Itissomewhatinthiswaythatthebalanceoftradeistransportedfromonecitytotheotherthroughbankers，andgenerallyonalargescale。Allthosewhobearthenameofbankersarenotaccustomedtothesetransactionsandmanyofthemdealonlyincommissionsandbankspeculations。Iwillincludeamongbankersonlythosewhoremitmoney。Itistheywhoalwaysfixtheexchange，thechargeforwhichfollowsthecostandrisksofthecarriageofspecieinthedifferentcases。
ThechargeofexchangebetweenParisandChalonsisrarelyfixedatmorethan2？or3percentoverorunderpar。ButfromParistoAmsterdamthechargewillamountto5or6percentwhenspeciehastobesent。Thejourneyislonger，theriskisgreater，morecorrespondentsandcommissionagentsareinvolved。
FromIndiatoEnglandthechargeforcarriagewillbe10to12
percent。FromLondontoAmsterdamitwillhardlyexceed2percentinpeacetime。
InourpresentexampleitwillbesaidthattheexchangeatParisforChalonswillbe2？percentabovepar，andatChalonsitwillbesaidthattheexchangeforParisis2？percentbelowpar，becauseinthesecircumstanceshewhowillgivemoneyatChalonsforaletterofexchangeforPariswillgiveonly97
livres10solstoreceive100livresatParis。AnditisevidentthattheCityorPlacewhereexchangeisaboveparisindebttothatwhereitisbelowparsolongastheexchangecontinuesonthisbasis。ExchangeatParisis2？percentaboveparforChalonsonlybecauseParisisindebtedtoChalonsandthatthemoneyforthisdebtmustbecarriedfromParistoChalons。Thisiswhywhenexchangeiscommonlyseentobebelowparinonecityascomparedwithanotheritmaybeconcludedthatthisfirstcityowesabalanceoftradetotheother，andthatwhentheexchangeatMadridorLisbonisaboveparforallothercountriesitshowsthatthesetwocapitalsmustsendspecietoothercountries。
InallplacesandcitieswhichusethesamemoneyandthesamegoldandsilverspecielikeParisandChalonssurMarne，LondonandBristol，thechargeforexchangeisknownandexpressedbygivingandtakingsomuchpercentaboveorbelowpar。When98livresarepaidinoneplacetoreceive100livresinanotheritissaidthatexchangeisabout2percentbelowparwhen102livres，arepaidinoneplacetoreceiveonly100livresinanotheritissaidthattheexchangeisexactly2percentabovepar，when100livresaregiveninoneplacefor100livresinanotheritissaidthattheexchangeisatpar。Thereisnodifficultyormysteryinallthis。
Butwhenexchangeisregulatedbetweentwocitiesorplaceswherethemoneyisquitedifferent，wherethecoinsareofdifferentsize，fineness，make，andnames，thenatureofexchangeseemsatfirstmoredifficulttoexplain，thoughatbottomthisexchangediffersfromthatbetweenParisandChalonsonlyinthejargonofbankers。AtParisonespeaksoftheDutchexchangebyreckoningtheecuofthreelivresagainstsomanydeniersdegrosofHolland，buttheparityofexchangebetweenParisandAmsterdamisalways100ouncesofgoldorsilveragainst100
ouncesofgoldorsilverofthesameweightandfineness。102
ouncespaidatParistoreceive100ouncesatAmsterdamalwayscomesto2percentabovepar。Thebankerwhoeffectstheremittanceofthebalanceoftrademustalwaysknowhowtocalculateparity。ButinthelanguageofforeignexchangethepriceofexchangeatLondonwithAmsterdamismadebygivingapoundsterlinginLondontoreceive35Dutchescalinsatthebank：withParisingivingatLondon30deniersorpencesterlingtoreceiveatParisoneecuorthreelivrestournois。Thesemethodsofspeechdonotsaywhetherexchangeisaboveorbelowpar，butthebankerwhoremitsthebalanceoftradereckonsitupwellandknowshowmuchforeignmoneyhewillreceiveforthemoneyofhisowncountrywhichhedespatches。
WhetherwefixtheexchangeatLondonforEnglishsilverinMuscovyroubles，inMarkLubsofHamburg，inRixdollarsofGermany，inLivresofFlanders，inDucatsofVenice，inPiastresofGenoaorLeghorn，inMillreisorCrusadoesofPortugal，inPiecesofEightofSpain，orPistoles，etc。theparityofexchangeforallthesecountrieswillbealways100ouncesofgoldorsilveragainst100ounces；andifinthelanguageofexchangeithappensthatonegivesmoreorlessthanthisparity，itcomestothesameineffectasifexchangeissaidtobesomuchaboveorbelowpar，andweshallalwaysknowwhetherornotEnglandowesabalancetotheplacewithwhichtheexchangeissettledjustasinourexampleofParisandChalons。
Chapter3
FurtherexplanationsofthenatureoftheExchangesWehaveseenthattheexchangesareregulatedbytheintrinsicvalueofspecie，thatisatpar，andtheirvariationarisesfromthecostsandrisksoftransportfromoneplacetoanotherwhenthevalanceoftradehastobesentinspecie。
Argumentisunnecessaryinamatterwhichweseeinfactandpractice。Bankerssometimesintroducerefinementsintothispractice。
IfEnglandowesFrance100，000ouncesofsilverforthebalanceoftrade，ifFranceowes100，000ouncestoHolland，andHolland100，000toEngland，allthesethreeamountsmaybesetoffbybillsofexchangebetweentherespectivebankersofthesethreestateswithoutanyneedofsendingsilveroneitherside。
IfHollandsendstoEnglandinJanuarymerchandiseofthevalueof100，000ouncesofsilverandEnglandonlysendstoHollandinthesamemonthmerchandisetothevalueof50，000
ounces（IsupposethesaleandpaymentmadeinJanuaryonbothsides）therewillbeduetoHollandinthismonthabalanceoftradeof50，000ounces，andtheexchangeonAmsterdamwillbeinLondoninJanuary2or3percentabovepar，orinthelanguageofexchange，theexchangeonHollandwhichwasinDecemberatparorat35escalinstothepoundsterlinginLondonwillrisethereinJanuarytoabout36escalins。ButwhentheBankershavesentthisbalanceof50，000ouncestoHollandtheexchangeonAmsterdamwillnaturallyfallbacktoparor35escalinsinLondon。
ButifanEnglishbankerforeseesinJanuary，owingtothesendingintoHollandofanunusualquantityofmerchandise，thatatthetimeofpaymentsandsalesinMarchHollandwillbeindebtedconsiderablytoEngland，hemayinsteadofsendingthe50，000ecusorouncesdueinJanuarytoHolland，furnishinthatmonthbillsofexchangeonhisAmsterdamcorrespondentpayableatdoubleusanceortwomonths，theamountofthevaluetobepaidonmaturity，andbythismethodprofitontheexchangewhichinJanuarywasaboveparandinMarchwillbebelowpar，andsogaindoublywithoutsendingasoltoHolland。