Part 2

If money in Scotland were equal to the demands at 6 per cent, the Dutch could not trade so cheap in herring; the hinderances of that trade being the consequences of the scarcity of money. the materials for carrying on the fishing are cheaper in Holland, but the cheapness of victualling alone would ballance that. and the dearth of these materials, as of other foreign goods, coming from the scarcity of money; that being remeded, these materials, and other foreign goods that are not the product of Holland, would be sold as cheap in Scotland.

Exchange, is when a merchant exports to a greater value than he imports, and has money due abroad; another importing to a greater value than he exported, has occasion for money abroad: this last by paying in money to the other, of the weight and fineness with that is due him, or to that value, saves the trouble, hazard, and expence, to himself of sending money out, to the other of bringing money home, and to both the expence of re-coyning.

So long as foreign trade, and expence kept equal, exchange was at the par: but when a people imported for a greater value, or had other occasions abroad, more than their export, and the expence of foreigners among them would ballance; there was a necessity of sending out the ballance in money or bullion, and the merchant or gentleman who owed, or had occasion for money abroad, to save the trouble, expence and hazard of sending it out, gave so much per cent to another, as the trouble, expence and hazard was valued at. thus exchange rose above the par, and became a trade.

Mr. Mun on trade, page 100, says, the exchange being against a nation, is of advantage to that nation. and supposes, if a 100 lib. at London is worth no more than 90 lib. of the same money at Amsterdam, the Dutch to send 500000 lib. of goods to England, and the English 400000 lib. of goods to Holland; it follows, that the money due the English at Amsterdam, will ballance 440000 lib. due to the Dutch at London: so 60000 lib. pays the ballance. Mr. Mun does not consider, that the Dutch goods worth 500000 lib. when exchange was at the par, are worth at London 555555 l. when 90 lib. at Amsterdam is worth a 100 lib. at London. and the 400000 lib. of English goods in Holland, are only worth 360000 lib. that sum being equal by exchange to 400000 lib. in England. so in place of England’s having an advantage of 40000 lib. as he alledges by the exchange being against her: she pays 95555 lib. more, than if exchange had been at the par.

When exchange is above the par, it is not only payed for the sums due of ballance, but affects the whole exchange to the place where the ballance is due. if the ballance is 20000 lib. and the sums exchanged by merchants who have money abroad, with others who are owing, or have occasion for money there, be 60000 lib. the bills for the 60000 lib. are sold at or near the same price, with the 20000 lib. of ballance.

It likewise affects the exchange to countries where no ballance is due. if the exchange betwixt Scotland and Holland is 3 per cent. above the par against Scotland, betwixt England and Holland at the par, tho’ no ballance is due by Scotland to England, yet the exchange with England will rise; for, a 100 lib. in England remitted to Scotland by Holland, will yield 103 lib. so betwixt Scotland and England it may be supposed to be had at 2 per cent, being less trouble than to remit by Holland.

Goods are sold to foreigners, according to the first cost. if goods worth a 100 lib. in Scotland, are worth 130 lib. in England, these goods will be exported, 30 per cent being supposed enough for the charges and profit. if the price of these goods lower in Scotland from a 100 lib. to 80, the price in England will not continue at a 130; it will lower proportionably, for either Scots merchants will undersell one another, or English merchants will export these goods themselves. so if they rise in Scotland from a 100 lib. to 120; they will rise proportionably in England, unless the English can be served with these goods cheaper from other places, or can supply the use of them with goods of another kind. this being supposed, it follows that,

By so much as exchange is above the par, so much all goods exported are sold cheaper, and all goods imported are sold dearer than before. if a merchant send goods yearly to England first cost, charges and profit 6000 lib. money in England of the same standard with money in Scotland, and no ballance due; but a ballance due to Holland, raising the exchange 3 per cent above the par to Holland, and affecting the exchange to England 2 per cent, 5882 lib. 7 sh. in England pays the goods, that sum by exchange being equal to 6000 lib. in Scotland. so that a ballance due to Holland, by raising the exchange to other countries, occasions a loss to Scotland of 117 lib. 13 sh. on the value of 6000 lib. of goods sent to England.

English goods are sold so much dearer. if an English merchant sends goods yearly to Scotland, first cost, charges and profit 6000 lib. 6120 lib. must be payed for these goods in Scotland, being only equal to 6000 lib. in England. if the exchange had been at the par, the Scots goods sent to England would have sold 117 lib. 14 sh. more, and the English goods sent to Scotland 120 lib. less.

Thus to all places with whom exchange is above the par, goods sent out are sold so much less, and goods brought from thence are sold so much dearer, as the exchange is above the par; whether sent out, or brought in, by Scots or foreign merchants.

The merchant who deals in English goods gains no more than when exchange was at the par, tho’ he sells dearer; nor the merchant who deals in Scots goods less, tho’ he sells cheaper; they have both the same profit as when exchange was at the par. Scotland pays 2 per cent more for English goods, and England 2 per cent less for Scots goods: all, or a great part of the loss falls at last on the landed man in Scotland, and it is the landed man in England has all, or a great part of the benefit.

Nations finding the export of money or bullion to pay the ballance due by trade, a loss of so much riches, and very hurtful to trade, might have discharged the import of such goods as the people could best want; or laid a duty on them, such as might have lessen’d their consumption: they might have given encouragement to industry, whereby the product would have been encreas’d and improv’d, or discouraged extravagant consumption, whereby the overplus to export would have been greater; any one of these methods would have brought trade and exchange equal, and have made a ballance due them: but in place of these measures, they prohibit bullion and money to be exported, which could not well have any other effect, than to raise the exchange equal to the hazard, such laws added to the export of money or bullion, which may be supposed 3 per cent more: and as these laws by such effect were hurtful, making all goods exported sell yet 3 per cent cheaper, and all goods imported 3 per cent dearer; the stricter they were execute, the higher the exchange rose, and the more they did hurt. the ballance was still sent out in money or bullion, by the merchant who owed it, by the banker who gave the bills, or by the foreigner to whom it was due.

Suppose the money of Scotland, England, and Holland of the same weight and fineness. Scotland to trade with no other places. the exchange at the par. the yearly export from Scotland, first cost 300000 lib. charges and profit 30 per cent. goods imported 280000 lib. charges and profit 30 per cent. one half of the trade to be carried on by Scots merchants, the other half by English and Dutch.

Due to Scotland for one half } of the export carried out by } 195000 their own merchants ---- }

Due for the other half carried } } out by English and Dutch. } 150000 } 345000

Due by Scotland to England } and Holland for goods imported } 182000 by English and Dutch.-- }

Due for goods imported by } } Scots merchants ---- ---- } 140000 } 322000

The expense of Scots-men abroad, more than of foreigners in Scotland, 40000 lib. if this is supposed the yearly state of the trade and expense of Scotland, there will be a ballance due of 17000 lib. and unless the Scots retrench the consumption of foreign goods, so as to import less; or retrench the consumption of their own goods, so as to export more; or increase, or improve their product, so as the export be greater or more valuable; or retrench in their expence abroad. since that ballance must be paid it will go out in money or bullion: and occasions the exchange to rise 3 per cent, the prohibition on the export of money 3 more, if Scots-men export it, the Nation saves the 1020 l. exchange on the 170000 of ballance due, which is lost if English merchants export it; but the loss such a rise in exchange occasions on the goods, is more considerable. the 195000 lib. due abroad for goods sent out of Scotland by Scots merchants, will be payed with 183962 lib. English or Dutch money, that sum being equal by exchange at 6 per cent to 195000 lib. in Scotland. the 150000 lib. due for first cost of goods carried out by English or Dutch merchants, will be payed with 141510 lib. English or Dutch money, that sum being equal to 150000 lib. in Scotland. the 182000 lib. due by Scotland for goods imported by English and Dutch merchants, will come to 192920 lib. in Scotland. and the 140000 lib. first cost of goods brought home by Scots merchants, will come to 148400 lib. in Scotland. so the accompt will run thus.

Due to Scotland for goods exported 183962 Brought from abroad first cost 140000 Ballance of expence abroad 40000 ------ Due to Scotland abroad 3962 ------

Due by Scotland for goods imported } by English and Dutch } 192920

English and Dutch take back in goods 150000 ------ Due to English and Dutch in Scotland 42920 ------ 3962 lib. due abroad to Scotland in } Scots money } 4199

Remains due by Scotland. 38721

So the rise in the exchange of 3 per cent by the ballance due of 17000 lib. and 3 more by the prohibition on the export of money, occasions a loss to Scotland of 21721 l. and makes the next year’s ballance 38721 lib. tho’ the trade be the same as before. of which 21721 lib. lost by exchange, one half would be saved if money were allowed to be exported.

Since the exchange being 6 per cent above the par, occasions the loss of 21721 lib. then raising the money 8 and a one third per cent, having raised the exchange with England to 14 per cent, and with Holland to 30, makes the loss proportionably greater: Scots goods being supposed to continue at the same prices they were sold for, before the money was raised, or not to rise in the same proportion with the money. for when exchange was at the par, a 100 lib. of Scots goods were sold abroad for a 130 lib. English money; but 114 lib. English money, being now equal by exchange to a 130 lib. in Scotland, the Scots merchant can afford to sell the same quantity of goods for a 114 lib. that he sold before at a 130, and have the same profit. so foreign goods worth abroad a 100 lib. and sold in Scotland for a 130 lib. when exchange was at the par; cannot be sold now for less than a 150 lib. in Scotland, that sum being only equal to a 130 lib. English money; and the merchant’s profit is no greater, than when he sold the same quantity of goods for a 130 lib.

It may not be improper to consider what consequences would attend the lowering the money to the English standard, and allowing it to be exported.

The former state of trade I have supposed to be carried on, one half by Scots merchants, the other half by English and Dutch; but as most of the trade is carried on by Scots merchants, I shall suppose this state of trade accordingly. the one or the other will clear the matter in question.

The state of trade now, and exchange supposed at 15 per cent to England, and 30 to Holland. the whole export of Scotland to be 300000 lib. of which 250000 lib. carried out by Scots merchants, sold at 30 per cent profit and charges 325000 lib.

In English money 282608

Exported by foreigners for 50000l. } in English money } 43478 ------ The whole export 326086

Goods imported 306086 Spent abroad. 40000 ------ Due of ballance by Scotland. 20000

Money being lowered to the English standard, and allow’d by law to be exported; will bring the exchange with England to 2 or 3 per cent, and with Holland to 17 or 18, notwithstanding of the ballance due. for, as a 100 lib. in Edinburgh, would then be equal to 100 lib. at London, and being allowed to be exported; none would give above 102, or 3 here for a 100 lib. at London: because the trouble and charge of sending it to London, would be valued no higher. the export, import, and expence abroad supposed to continue the same; a ballance would then be due to Scotland.

The state of trade, exchange at 3 percent to England, and proportionably to other places.

Due in English money, for 325000l. } first cost, charges and profit of goods sent } 315534 out by Scots merchants. }

Due in English money, for 50000l. } of goods exported by foreigners. } 48544 ------ The whole export 364078 ------

Of this deduce the value of goods imported. } 306086 And the expence abroad. } 40000 ------ There will be a ballance due to Scotland, } of } 17992

As this ballance due to Scotland, would bring exchange to the par, and 3 per cent on the Scots side; 3 more, because money in England is prohibited to be exported; 100 lib. in Scotland, would be worth 106 lib. in England, and proportionably in other places. so the state of trade would then be thus.

Due in English money for 325000l. } first cost, charges and profit of Scots } 397500 goods sent out by Scots merchants, and } 50000l. exported by foreigners. }

Of this spent abroad. } 40000 Imported from abroad. } 306086 ------ Ballance then due to Scotland. 51414

If the yearly export be as great as I suppose it, and the ballance only 20000 pounds; then lowering the money to the English standard, will make a ballance due of 51414 lib. tho’ the money is not allowed to be exported.

It may be objected, that such an alteration in the exchange, lowering the value of foreign money; might hinder the sale of our goods abroad. for, linen-cloth bought in Scotland for a 100 lib. and sold at London for a 115 lib. yields by exchange 31 per cent profit. but if exchange were 6 per cent on the Scots side, the profit is only 9 per cent.

It is answered. if an English merchant takes bills on Scotland for a 1000 lib. to lay out on linen-cloth, the exchange then at the par: the linen-cloth is sold in England according to the first cost, charges and usual profit. next year the exchange is on the English side, the linen is sold in England cheaper than before. the third year exchange returns to the par, the linen is then sold in England as the first year. if the first cost of linen is dearer, the consumer pays the more for it, the merchant’s profit is the same.

All nations endeavour to get the exchange as much as they can on their side. the exchange from Holland to England is 12 or 15 per cent, to Scotland 30 per cent, to France 40 or 50, sometimes more; yet Dutch goods sell in these countries, the merchant has his profit the same as when exchange was lower, the consumer pays more for them. English cloth is sold at Paris from 18 to 20 livres the French ell. when the lued’ore is at 12 livres, from 20 to 23, when the lued’ore is at 14 livres: because the exchange to England is dearer, in proportion as the French money is rais’d.

Most goods sent from Scotland are such as foreigners won’t want, tho’ they payed 10 or 20 per cent more for them. we have an example of this in the wooll. during the prohibition, wooll sold in Holland and France for double the first cost, now it has fallen to 30 or 40 per cent profit. prices are given for goods, according to their first cost, charges, and usual profit; where prohibitions are, the hazard of exporting contrair to law is valued. wooll is of less value now in Holland than in time of peace, because the vent of their woollen manufacture is less; but tho’ wooll were as valuable in Holland as before, and tho’ a Dutch manufacturer would give 200 lib. for wooll that cost only a 100 lib. in Scotland, rather than want it: yet as he knows the prohibition is taken off, and that the Scots merchants can afford to sell cheaper; he won’t buy unless he can have it at a reasonable profit. so either the Scots merchants bring down the price, by under-selling one another; or the Dutch merchant commissions it himself. if a duty were put on such goods whose value abroad would bear it, the merchant would gain the same, ’tis the foreigner pays the duty.

Besides, lowering the money may not lower the prices abroad. for, as when money was raised, goods may have rose in proportion, or have been made worse; so as a 100 lib. after the money is lower’d will have 33 crowns and 1/8 more silver in it, than a 100 lib. had before; so a greater quantity of goods may be bought with a 100 lib. than before, or the goods may be made better: especially the linen-cloth, since the material would be imported for less. but, allowing that upon the lowering the money, goods sold in Scotland as before, and were made no better; and allowing that one third or more of the goods exported, could not be raised in their prices abroad; because foreigners might be served cheaper with the same kind of goods from other places, or might supply the use of them with goods of another kind; or might consume less of them; yet, that ought not to hinder such a regulation of the money and exchange; for a draw-back might be given upon the export of such goods, whose prices abroad were not great enough to yield a reasonable profit.

But lest such an alteration in the exchange, or undervaluing foreign money, should lessen the export of goods: it may not be adviseable, unless a fund were given, out of which draw-backs might be payed to encourage export, and an addition be made to the money, whereby the people may be set to work. for without some addition to the money, ’tis not to be supposed next year’s export can be equal to the last: it will lessen as money has lessened; a part of the people then imployed being now idle; not for want of inclination to work, or for want of imployers, but for want of money to imploy them with.

CHAP. III.

_Of the different measures which have been used to preserve and increase money. and of banks._

The measures have been used to preserve and increase money, have in some countries been opposite to what has been used in others: and opposite measures have been used in the same countries, without any differing circumstances to occasion them.

Some countries have raised money in the denomination, when others have lowered it; some have allay’d it, when others who had allay’d it have rectified it; some have prohibited the export of money under severest penalties, when others have by law allowed it to be exported; some thinking to add to the money, have obliged traders to bring home bullion, in proportion to the goods they imported. most countries have tryed some or all of these measures, and others of the same nature, and have tryed contrary measures at one time, from what they used immediately before, from the opinion, that since the method used had not the effect designed, a contrary would: yet it has not been found, that any of them have preserved or increased money; but on the contrair.

The use of banks has been the best method yet practised for the increase of money. banks have been long used in Italy, but as I am informed, the invention of them was owing to Sweedland. their money was copper, which was inconvenient, by reason of its weight and bulk; to remedy this inconveniency, a bank was set up where the money might be pledged, and credit given to the value, which past in payments, and facilitate trade.

The Dutch for the same reason set up the bank of Amsterdam. their money was silver, but their trade was so great as to find payments even in silver inconvenient. this bank like that of Sweedland, is a secure place, where merchants may give in money, and have credit to trade with. besides the convenience of easier and quicker payments, these banks save the expence of casheers, the expence of bags and carriage, losses by bad money, and the money is safer than in the merchants houses, for ’tis less lyable to fire or robbery, the necessary measures being taken to prevent them.

Merchants who have money in the bank of Amsterdam, and people of other countries who deal with them, are not lyable to the changes in the money, by its being allay’d or altered in the denomination: for, the bank receives no money but what’s of value, and is therefore called bank-money; and tho’ raised in current payments, it goes for the value it was pledged for in bank-payments. the AG O of the bank changes a quarter or a half p. cent, as current money is more or less scarce.

Banks where the money is pledg’d equal to the credit given, are sure; for, tho’ demands are made of the whole, the bank does not fail in payment.

By the constitution of this bank, the whole sum for which credit is given, ought to remain there, to be ready at demand; yet a sum is lent by the managers for a stock to the lumbar, and ’tis thought they lend great sums on other occasions. so far as they lend they add to the money, which brings a profit to the country, by imploying more people, and extending trade; they add to the money to be lent, whereby it is easier borrowed, and at less use; and the bank has a benefit: but the bank is less sure, and tho’ none suffer by it, or are apprehensive of danger, its credit being good; yet if the whole demands were made, or demands greater than the remaining money, they could not all be satisfied, till the bank had called in what sums were lent.

The certain good it does, will more than ballance the hazard, tho’ once in two or three years it failed in payment; providing the sums lent be well secured: merchants who had money there, might be disappointed of it at demand, but the security being good, and interest allowed; money would be had on a small discount, perhaps at the par.

Last war, England set up a bank to have the conveniencies of that at Amsterdam, and by their constitution to increase money. this bank was made up of subscribers, who lent the King 1200000 lib. at 8 and a third per cent, for 11 years, on a parliamentary fund; and were priviledged bankers for that time. the sum due by the government was a security to the people, to make good any losses the bank might suffer.

This bank was safer than the gold-smiths notes in use before. it made a great addition to the money, having a much greater sum of notes out, than money in bank. and the sum lent the King, which was the fund belonged to the subscribers, was negotiated at profit, and had the same effect in trade as money. I don’t know how their notes came to be at discount, whether from the circumstances of the nation, or from ill management.