(3.xv.5) Supposing, as we have done, that in Poland, if she produced corn and cloth forherself, four quarters of corn would have the same value as 10 yards of cloth, it follows, that if she hadthe use of money, the price of four quarters of corn, and of 10 yards of cloth, would be the same.
In England, according to the supposition, the price of four quarters of corn and that of 20 yardsof cloth would be the same.
(3.xv.6) There are two supposeable cases. The price of one of the two commodities, corn forexample, is either - 1. equal in the two countries, or - 2. it is not equal. The illustration of anyone of these cases will suffice for both.
(3.xv.7) Let us suppose that, in the two countries, the price of corn is equal. If it is, the priceof a yard of cloth must in Poland be twice as great as it is in England. In these circumstances, whatwill happen is obvious: the cloth, which is cheap in England, will go to Poland, where it is dear;and there it will be sold for gold, because there can be no counter importation of corn, which, bysupposition, is already as cheap in England as in Poland.
(3.xv.8) By the importation, in this manner, of English cloth into Poland, gold goes out ofPoland, and comes into England. The consequence is, that gold becomes more plentiful inEngland, less plentiful in Poland. From this first consequence, a second ensues; that pricesgradually rise in England, fall in Poland: the price of corn, for example, and, along with it, theprice of cloth, rise in England, fall in Poland. If when we suppose the traffic to begin, the priceof corn in each country is 1 l. per quarter, the price of cloth being, by consequence, in Poland 8s., in England 4 s. per yard; the supposed exchange of cloth for gold will gradually, in England,raise the price of corn above, in Poland sink it below, 1 l. per quarter; raise the price of cloth inEngland above 4 s. per yard, sink it below 8 s. per yard in Poland. In this manner, the price ofcorn in the two countries gradually recedes from equality, the price of cloth graduallyapproaches it. At a certain point in this progress, corn becomes so dear in England, and cheap inPoland, that the difference of price will pay for the cost of carriage. At that moment a motivearises for the importation of corn into England; and prices regulate themselves in such amanner, that in England corn is dearer than in Poland, by the expense of carrying corn; cloth isdearer in Poland than in England, by the expense of carrying cloth, from the one country to theother. At this point, the value of the cloth imported into the one country, and that of the cornimported into the other, balance one another. The exchange is then at par, and gold ceases topass.
(3.xv.9) From the consideration of the same circumstances, it will farther be seen, that noalteration can take place in the interchange of commodities between the two countries, without anew distribution of the precious metal; that is, a change in the relative quantities which theypreviously possessed.
(3.xv.10) Let us suppose that, in England, some new commodity is produced, which Polanddesires to obtain. A quantity of this commodity is imported into Poland; and it can be paid foronly in gold, because we have supposed that at this time, the corn and cloth, respectivelyimported, pay for one another. In this case, as in that which I have previously explained, theprice of commodities soon begins to rise in England, fall in Poland. In proportion as prices risein England, and fall in Poland, a motive is produced to import a greater quantity of Polish goodsinto England, a less quantity of English goods into Poland. And again the balance is restored.
Section XVI. Money Transactions between Nations - Bills ofExchange (3.xvi.1) The moneys of different countries are different; that is to say, they consist ofdifferent portions of the precious metals, and go by different names. The pound sterling, for example, isthe money of England, the dollar is the money of certain other countries; the pound sterlingcontains one quantity of the precious metal, the dollar contains a less quantity; and so of othervarieties.
(3.xvi.2) The purchases which are made by one country in another country, are, like otherpurchases, made by money. If the Dutch merchant, for example, purchase goods in England, bebuys them at so many pounds sterling. If the English merchant buys goods in Holland, he buysthem at so many guilders. To pay the pound sterling, the Dutch merchant must either send theEnglish money, or an equivalent. The direct equivalent is a quantity of the precious metal equalto what is contained in the pounds sterling due. If the Dutch merchant has no other medium butguilders, he must send as many guilders as contain an equal quantity of the precious metals.
(3.xvi.3) When the language now used by the merchants of Europe was established, acomputation was made of the quantity of one currency which contained the same quantity of theprecious metal, as a certain given quantity of another. This was called the par of exchange. Theguilder contained not quite so much of the metal as two shillings English; but to simplify ourlanguage, let us suppose that it contained just as much. The par of exchange was then, 10guilders to 1 l.; or, in the abridged language of the merchants, 10.
(3.xvi.4) The business of exchange, however, between country and country, is carried on, notby transmitting currency, or the metals, but, in a much greater degree, by the instrumentality ofbills. The language, which the merchants have adopted for carrying on the traffic of bills, is veryelliptical and abridged; and being, in several respects, not well chosen, is a source of obscurityand misapprehension.
