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 Latest Date stamped below. 
 
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^earning anb |Tabor. 
 
 LIBRARY 
 
 VOLUME. 
 
 University of Illinois. 
 
 CLASS. BOOK. 
 
 Accession No. 
 
THE 
 
 SCIENCE OF EXCHANGES. 
 
 BY 
 
 N. A. NICHOLSON, M. A, 
 
 TRINITY COLLEGE, OXFORD. 
 
 LONDON: 
 
 EFFINGHAM WILSON, ROYAL EXCHANGE. 
 1861. 
 

 r 
 
 5 
 
 ) 
 
 r 
 
 PREFACE. 
 
 There is no new theory in this book. The 
 author has endeavoured to put forward rudimentary 
 
 *2 truths in the clearest wav that he could. 
 
 <tz 
 
 1st Sept., 1861 . 
 
 ^1 0433 
 
CONTENTS 
 
 CHAPTER PAGE 
 
 I. — Value ...... 5 
 
 II. — Labour ... ... 14 
 
 III. -— Buying and Selling . . . .18 
 
 IV. — Currency . . . . . .20 
 
 V.— Gold 44 
 
 VI. — The Foreign Exchanges . . . .65 
 
 VII. — Taxation . . . . . *75 
 
 # » 
 
THE SCIENCE OF EXCHANGES. 
 
 CHAPTER I. 
 
 VALUE. 
 
 1 . What is value ? 
 
 Value is the real or fancied advantage which men 
 derive from the use of anything. 
 
 2. What is exchange ? 
 
 Exchange is the giving something which has a 
 value in order to get something in return which has 
 also a value. 
 
 3. What is a commodity? 
 
 A commodity is anything which has a value and 
 can be exchanged. 
 
 4. What is production ? 
 
 It is turning the gifts of the earth into commo- 
 dities. 
 
 5. What is consumption ? 
 
 It is the using of commodities. 
 
 6. What is consumption for the mere sake of con- 
 sumption ? 
 
 It is the using of commodities for the purpose of 
 enjoyment. 
 
 7. What is consumption for the sake of production ? 
 
 It is the using of commodities which is unavoidably 
 
 caused by that production • it is the cost of produc- 
 tion itself. 
 
6 
 
 THE SCIENCE OF EXCHANGES. 
 
 8. What is profit ? 
 
 Any gain or advantage, from whatsoever source it is 
 derived. 
 
 9. What is profit on a commodity ? 
 
 It is the clear gain which any one makes by the 
 exchange of that commodity. 
 
 10. What is the minimum of profit ? 
 
 It is the lowest rate of profit which will satisfy the 
 producers of any commodity, for without this mini- 
 mum they would not continue to supply the commo- 
 
 <%• 
 
 1 1 . What brings the profit made by the producers 
 of any commodity to its minimum ? 
 
 Competition amongst each other for other commo- 
 dities, for one undersells the other till the minimum of 
 profit is reached. 
 
 12. What is want? 
 
 Want is the feeling that it would be to our advan- 
 tage to have some commodity which we have not. 
 
 13. What is demand? 
 
 Demand is the offering a commodity which we have 
 in exchange for one which we want. 
 
 14. What is supply? 
 
 Supply is the commodity itself which we offer in 
 exchange. 
 
 15. What is effective demand? 
 
 It is offering a sufficient quantity of the commodity 
 which we have to enable us to get the commodity 
 which we want. 
 
 16. Can demand, as we define it, exist without 
 supply, or supply without demand ? 
 
 Certainly not, for we must furnish a supply of some 
 
THE SCIENCE OF EXCHANGES. 
 
 7 
 
 sort or other, in order to offer it for the commodity 
 which we want. 
 
 17. Does the furnishing a supply of any commodity 
 create a demand for that commodity ? 
 
 No, it does not ; it only creates a demand for those 
 commodities which the furnishers of that supply may 
 want. Unless people offer commodities in exchange for 
 the commodity supplied, there is no demand for it, 
 and the supply remains on hand. 
 
 18. What does create a demand for a commodity? 
 
 The offering other commodities in exchange for that 
 
 commodity. 
 
 19. What is competition? 
 
 It is offering more of any commodity, or a better 
 quality of commodity, than others offer, in order to 
 induce the suppliers of the commodity which you want 
 to deal with you instead of with the other offerers. 
 
 20. What is value in exchange? 
 
 It is the quantity of any other commodity which we 
 can get in exchange for a particular quantity of the 
 commodity which we give. “ The value of a thing is 
 just as much as it will bring/’ 
 
 21. What effect has competition upon the value in 
 exchange of any commodity competed for ? 
 
 It always increases the value in exchange of that 
 commodity, for the competitors, in bidding against each 
 offer, offer more of the commodities which they have 
 in exchange for the particular quantity of the commo- 
 dity which they want, and thus increase its value in 
 exchange. 
 
 22. What causes a diminution in the value in 
 exchange of any commodity ? 
 
8 
 
 THE SCIENCE OE EXCHANGES. 
 
 Competition for other commodities amongst those 
 who supply that commodity, for they must offer more 
 of it in exchange for particular quantities of those 
 commodities which they are competing for. 
 
 28. What is the meaning of proportion between 
 demand and supply ? 
 
 The relative difference between the quantity of a 
 commodity which is actually supplied in a particular 
 market and the quantity which people want and offer 
 for in that market. 
 
 24. When is a supply said to be too large? 
 
 When the quantity of a commodity actually supplied 
 
 is larger than the quantity offered for by those who 
 want the commodity. 
 
 25. When is a supply said to be too small? 
 
 When the quantity of a commodity actually supplied 
 
 is smaller than the quantity offered for. 
 
 26. When is a supply said to be sufficient ? 
 
 When the quantity of a commodity which is 
 
 actually supplied is about equal to the quantity which 
 is offered for. 
 
 27. What is the effect in each case on the value in 
 exchange of the commodity supplied ? 
 
 (1) When the supply is too large, those who supply 
 the commodity must compete against each other for 
 any commodities which they want, and thus diminish 
 the value in exchange of their supply. 
 
 (2) When the supply is too small, those who want 
 the commodity supplied must compete against each 
 other to obtain it, and thus the value in exchange of 
 that supply is increased. 
 
 (3) When the supply is sufficient, those who sup- 
 
THE SCIENCE OF EXCHANGES. 
 
 9 
 
 ply the commodity compete against each other for the 
 commodities which they want, till they bring the value 
 in exchange of their supply down to the cost of its 
 production and the minimum rate of profit to be made 
 on its exchange. 
 
 28. What is average value ? 
 
 The average value of any commodity to those who 
 produce it consists of the average cost of its produc- 
 tion and the average rate of profit to be made on its 
 exchange ; to the world at large it consists only of the 
 cost of production, for this includes the average rate 
 of profit which must be made by the producers. 
 
 29. What are fluctuations in value? 
 
 They are alterations in the proportion which the sup- 
 ply of any commodity in some particular market bears to 
 the demand for it there. 
 
 30. What may be called the equilibrium of any 
 commodity’s value ? 
 
 The average value of that commodity, for the com- 
 modity will rise above its average value or fall below 
 it, according to the proportion which the supply of it in 
 any particular market bears to the demand for it there. 
 
 31. What is intensity of demand? 
 
 The demand for any commodity is said to be in- 
 tense when it much exceeds the supply of that com- 
 modity, and increases in intensity as long as people 
 continue to offer more of the commodities which they 
 have in exchange for the particular quantity of the 
 commodity which they want. 
 
 32. Does the demand for any commodity necessarily 
 produce in process of time a supply proportionate to 
 that demand? 
 
10 
 
 THE SCIENCE OF EXCHANGES. 
 
 It does not necessarily do so, for demand is merely 
 offering a commodity which we have in exchange for 
 one which we want ; intense demand for any com- 
 modity will certainly set many people at work to 
 endeavour to supply it, for the profit to be made on 
 its exchange will tempt them, but they may find 
 great difficulty in procuring it themselves, from a 
 variety of causes, and the supply may still be small 
 and limited. In this case the only effect of intense 
 demand will be to increase the value in exchange of 
 the commodity ; but in the general run of instances 
 intense demand does lead to a proportionate supply, 
 for all who can supply the commodity are tempted by 
 the high rate of profit to do so. 
 
 33. What is abundance? 
 
 It is great plenty of any commodity. 
 
 34. What is wealth? 
 
 Wealth is the power of obtaining commodities 
 which the possession of one or many commodities 
 gives. 
 
 35. What is trade? 
 
 Trade is the steady and continued exchange of com- 
 modities, which arises from a simple exchange having 
 been found advantageous to both exchangers. 
 
 36. What is free trade? 
 
 Free trade is trade open to all who desire to engage 
 in it without any regulations to restrict competition 
 amongst them, whatever be their race or country, in 
 their dealings with each other. 
 
 37. What do you mean by regulations to restrict 
 competition ? 
 
 Any regulations in any particular country which 
 
THE SCIENCE OF EXCHANGES. 
 
 11 
 
 either shut out certain competitors altogether who 
 would willingly offer their commodities in the markets 
 of that country, or which press unfairly on them in 
 the shape of duties on their commodities, to the ad- 
 vantage of other competitors who supply the same 
 kind of commodities, but have no such duties to 
 pay. 
 
 38. What is protection ? 
 
 It is restricting competition in trade for the special 
 advantage of particular classes of exchangers in any one 
 country. 
 
 39. What is a monopoly? 
 
 A monopoly is permitting only a favoured few to 
 supply any particular commodity, so as to prevent any 
 competition amongst those who supply that commodity. 
 It differs from protection, for this last admits of a 
 restricted competition — the protected producers com- 
 peting against each other. 
 
 40. What is glut ? 
 
 Glut is when any commodity falls below the cost 
 of its production, from the superabundant supply of it 
 in any particular market. 
 
 4 1 . What is price ? 
 
 It is the quantity of money which a man can get in 
 exchange for a commodity. 
 
 42. What is average price ? 
 
 It is the average price of a commodity during a 
 given time. 
 
 43. What is interest ? 
 
 It is the price paid for the use of money. 
 
 44. What is rent ? 
 
 It is the price paid for the use of land, houses, &c. 
 
12 
 
 THE SCIENCE OF EXCHANGES. 
 
 45. Is the use of any commodity during a given 
 time to be considered itself a commodity ? 
 
 It must be considered just as much a commodity as 
 the commodity itself which is used, for it has a value 
 and can be exchanged. 
 
 46. What is the source of wealth P 
 
 The source of wealth is trade. 
 
 47. What two things are most conducive to the 
 development of a nation’s wealth ? 
 
 Cheap power of production and free trade ; that is, 
 the being able to produce commodities cheaply, and 
 the being allowed to compete without restrictions in 
 any markets whatever, either as buyers or sellers. 
 
 48. What is property? 
 
 Anything which legally belongs to any one. 
 
 49. What is capital P 
 
 Any commodity, or combination of commodities, 
 which is being employed with a view to profit. 
 
 50. What is the best indication of the average value 
 of capital in any country ? 
 
 The average market rate of interest in that county, 
 for capital in the shape of money can be easily applied 
 to any purpose of production. 
 
 51. What ought the rate of interest to depend upon 
 in any country where there are no usury laws ? 
 
 It ought to depend upon the proportion between 
 the quantity of money in that country and the demand 
 for its employment. 
 
 52. What is hoarding ? 
 
 Hoarding is the accumulation of unemployed com- 
 modities. 
 
 53. What is saving ? 
 
THE SCIENCE OE EXCHANGES. 
 
 13 
 
 Saving is the accumulating of commodities with 
 the purpose of converting that accumulation into 
 capital. 
 
 54. What is retrenchment ? 
 
 It is saving by diminishing consumption for the 
 sake of enjoyment, and is only useful to a nation in so 
 far as it secures a better distribution of capital ; but as 
 it diminishes consumption for the sake of enjoyment, 
 it injures trade. 
 
 55. What is the best kind of saving for a nation? 
 
 Saving without retrenchment; for then consump- 
 tion for the sake of enjoyment is not interfered with, 
 and the nation produces each year more than it can 
 consume, and so adds to its wealth. 
 
CHAPTER II. 
 
 LABOUR. 
 
 56. What is labour? 
 
 Any work, toil, or exertion. 
 
 57. What is labour when considered as a com- 
 modity ? 
 
 Labour is any work which a man performs in order 
 to get other commodities in exchange for that work. 
 
 58. What are wages ? 
 
 Any commodity given to the labourer in exchange 
 for the work which he does. Wages may be either 
 in money or in kind. 
 
 59. Does labour, in the long run, make a solid 
 return to the labourer ? 
 
 It does, for a labourer could not continue to work 
 if he did not get other commodities in exchange for 
 the work which he does. 
 
 60. Can a labourer be his own employer? 
 
 Certainly ; any one who employs his labour in pro- 
 ducing commodities which he exchanges for others 
 that he wants, unites the characters of employer and 
 labourer in his own person. 
 
 61. What is productive labour? 
 
 It is labour which makes a solid return to both 
 employer and labourer, whether the labourer is his 
 own employer or whether he has an employer dis- 
 tinct from himself. 
 
 62. What is unproductive labour ? 
 
THE SCIENCE OF EXCHANGES. 
 
 15 
 
 It is labour which makes a solid return to the 
 labourer only. Any labour for a continuance, 
 whether we call it productive or unproductive, must 
 make a solid return to the labourer, or he could not 
 continue to work ; but it need not necessarily make a 
 solid return to the employer. It is then called un- 
 productive, because it is so as far as the employer is 
 concerned. 
 
 63. How, then, can we distinguish the productive 
 labourer from the unproductive one ? 
 
 The productive labourer may be his own employer ; 
 the unproductive labourer must have a distinct em- 
 ployer, for he must find some one who is willing to 
 give commodities in exchange for labour which makes 
 him no solid return. 
 
 64. Are unproductive labourers of advantage to 
 the prosperity of a nation P 
 
 They are ; for if there were only productive 
 labourers to be found in a great industrious nation, 
 capital would be created much faster than it could be 
 consumed, and the motive to further production 
 would be taken away. In Great Britain, as it is, what 
 we want is an extension of our markets ; if we can 
 only get customers for our goods, we will produce the 
 goods fast enough. A nation in a really healthy 
 state ought always to produce more than she can 
 consume, and thus, by saving, add to her wealth ; but 
 this balance of production over consumption is never 
 very large, for the individuals of which the nation is 
 composed live better as they get richer, and so con- 
 sume more than they did ; they also increase in num- 
 bers. 
 
16 
 
 THE SCIENCE OF EXCHANGES. 
 
 65. What does the value ,of labour depend upon ? 
 
 It depends upon the proportion wnich the quantity 
 
 of labour in the market bears to the demand for its 
 employment. If labour is plentiful, it will be cheap ; 
 if scarce, it will be dear. 
 
 66. What is every bargain between an employer 
 and a labourer ? 
 
 It is a simple bargain between a buyer and a 
 seller; the employer tries to buy the commodity, 
 labour, as cheap as he can ; the labourer tries to sell 
 his labour to the best advantage, by giving as little 
 of it as he can in exchange for the employer’s money. 
 
 67. What is a strike ? 
 
 It is a contention between employers and labourers 
 about the price of labour. The labourers refuse to 
 work unless they get increased wages, and the em- 
 ployers refuse to give the extra sum. Each side 
 stands out, and those who can stand out longest are 
 the winners. 
 
 68. Are strikes unjust in principle ? 
 
 No, there is no harm in men trying to get the best 
 price for the commodity in which they deal, whether 
 it be labour or money. 
 
 69. Are strikes injurious to the general interests of 
 society P 
 
 Certainly ; every one suffers by business being 
 brought to a stand-still ; the public cannot get what 
 they want, the employers are greatly injured by their 
 capital lying idle, and the labourers have to suffer 
 great privations before they can induce the employers 
 to yield ; indeed, they have sometimes to return to 
 their work on the old terms. 
 
APPENDIX 
 
 ON THE 
 
 VALUATION OF POST OBITS 
 
 OR 
 
 CONTINGENT REVERSIONS, 
 
 With some simple new Formulae and Tables. 
 
 By Life Annuities. 
 
 Art. 1 . — Frequent complaints are made of the excessive amounts 
 that are charged by way of Post Obits on property, in consideration 
 of the payment of a sum in present money or of Life Annuities 
 granted to the lives entitled to the property in Reversion. These 
 complaints are particularly frequent (and generally with justice) 
 when the parties concerned are private individuals, not conversant 
 with the principles of calculation involved. We have consequently 
 thought that the annexed Tables might be useful in enabling Soli- 
 citors and others to ascertain the fair amount for a Post Obit, or 
 charge to be made on Contingent Reversionary Legacies or property, 
 in the most general case of two lives, where a present annuity is 
 'proposed to be granted to one life , in consideration of a Post Obit t 
 contingent on its surviving another, and provision is made for the 
 annual cost of an Assurance in case of previous death. Where more 
 than two lives are involved, the Tables would be too extensive for 
 convenient publication. * 
 
 2. — The subject has become more especially interesting of late, 
 
 * 
 
2 
 
 APPENDIX ON POST OBITS 
 
 through the recent actions of T. v. the H. and P. of W. Assurance 
 Societies in the Court of Queen’s Bench, where the Plaintiff claimed 
 on an Assurance connected with a Post Obit Bond ; and the follow- 
 ing explanation of the cases may be serviceable. 
 
 3. — The Post Obit Bond in question was given for £ 14,000, to 
 be paid by a life aged 35, in the event of his surviving another aged 
 74, in consideration of receiving, during the joint existence of the 
 two lives, an annuity of 36330 a year. The Plaintiff, having sub- 
 mitted a case to an Actuary, effected, it is said, assurances for 3614,000 
 on the younger life, at an annual premium of from 364. 15s. to 365 
 per cent., costing him therefore, in the aggregate, nearly 36700 a 
 year. 
 
 4. — Various pleas were raised by the Companies resisting pay- 
 ment, one of which was, that the sum assured exceeded greatly the 
 legal assurable interest which the Plaintiff had in the life. This one 
 plea is supported by an examination of the case, submitted to the 
 Actuary referred to, which was as follows : — 
 
 “ What amount should a Post Obit be for , to be paid by a gen- 
 tleman aged 35, if he outlives his father , aged 7 4 ? 
 
 (C The consideration to be an annual payment of £ 330, together 
 with the necessary insurance on the younger life, which can 
 be done at 5 per cent., he not being a very good one; the old 
 life to be calculated to live ten years.” 
 
 5. — The Actuary’s opinion was as follows : — 
 
 “ Assuming that the older life will live ten years , and that the 
 younger will survive the elder, I am of opinion that the amount 
 of the Post Obit, to cover the necessary insurance , should not 
 be less than 3612,832.” 
 
 6. — The above answer being assumed as correct, the Plaintiff 
 would not have been far out in effecting his Assurances for 3614,000, 
 and in requiring a Post Obit for that amount. 
 
 But, in the preceding case, two arbitrary suppositions were laid 
 down as conditions of the question : — 
 
 1st. That the older life would live ten years certain. 
 
 2nd. That the younger life woidd certainly survive him ; 
 
AND CONTINGENT REVERSIONS. 
 
 3 
 
 and such assumptions are constantly being made, to the injury of 
 property mortgaged for Post Obits. 
 
 7. — On these assumptions the calculations would stand thus (treat- 
 ing the Annuities, for simplicity, as Annuities due , and interest at 
 five per cent.) : — 
 
 Let A = Accumulation of an Annuity of £1, paid at the begin- 
 ning of the year , for ten years certain , at 5 per 
 cent, interest ; 
 
 a — Annuity paid = £3 30 ; 
 
 0 = Post Obit : 
 
 then Of. 05) = Annual premium paid by Assurer : 
 
 .-. { 330 + O- (.05) } . A = 0 
 
 A x 330 /, v * 
 
 0 = 
 
 1 - Af- 05) 
 
 0 ) : 
 
 _ 13*207x330 
 
 1 — (13-207 x -05) 
 
 = j 812,832 nearly. 
 
 The preceding assumptions, however, are erroneous, as, by the 
 Carlisle Law of Mortality, the joint existence of two lives, aged 35 
 and 74, is only worth, at five per cent., 5-881, or less than six 
 years’ purchase. 
 
 8. — The case would have been correctly stated thus : — 
 
 “ What amount should a Post Obit be for, to be paid by a gen- 
 tleman, aged 35, if he survive his father , aged 74? 
 i( The consideration to be an annual payment of £3 30, together 
 with the necessary Insurance on the younger life, the pre- 
 mium for which may be taken at £5 per cent, per annum.” 
 
 9. — The correct amount would then be obtainable thus by the or- 
 dinary mode of calculation : — 
 
 Let a = Annuity due, or payable in advance each year to x , 
 during the joint existence of two lives, aged x, y, 
 for a Post Obit O, to be received if x survive y ; 
 
 A = Accumulated amount, with interest (by the end of the 
 year when one has died), of £\ a year , payable in 
 advance during the joint existence of x, y, 
 
 * [See Table 9, page 305, Treatise on Industrial Investment and Emigration , 
 (taking amount for eleven years, minus £1).] 
 
4 
 
 APPENDIX ON POST OBITS 
 
 and p x . y — Office Annual Premium to assure £1 in case of x dying 
 ll) before y : 
 
 then O = (a+ O .p x . ) A. 
 
 x (i) 7 
 
 A . a 
 
 l — A .P x .y 
 
 ( 1 ) 
 
 ( 2 ) 
 
 10. — In the Plaintiff’s case, p x . , the premium, was taken at as 
 
 a) 
 
 high as £5 per cent., and it would have been but fair to have taken 
 a corresponding reduced expectation for the joint duration of the two 
 lives, and a lesser Post-Obit Bond. But, even assuming their joint 
 duration to be not less than that shown by the Carlisle Tables, and 
 allowing the Plaintiff £ 6 per cent, compound interest for his money, 
 or £1 per cent, per annum more than he professed to charge, by 
 formula (2), O would only equal £4708 (nearly). 
 
 11. — To justify a Post Obit of ^614,000, an Annuity of £1020 
 should have been paid to the younger life ; and the fact that, while 
 the Annuity paid was only .£330, the premiums were £7 00 a year, 
 should have suggested to the Judge and the Jury that the life was a 
 bad life, and that the assumptions made in the case submitted to the 
 Actuary, viz. — that the older life would live ten years certain , and 
 that the younger life would survive him , were erroneous. 
 
 12. — The result in Art. 9 might be proved elegantly thus, in a 
 form, it is believed, not to be found in works on Life Contingencies : 
 
 Since the amount of the Post Obit is receivable at the death of 
 either life, 
 
 v 7r x . y = Annual sinking fund, or Net premium ( calculated at the 
 rate of interest the purchaser is to receive ), to pro- 
 duce £\ at the death of the first of the two lives , 
 
 and p x . y — Annual Office premium to Assure £1 in case of x dying 
 before y ; 
 
 then n x . v —p x . y 
 (i) 
 
 is the Annuity which should be paid to life x for a Post Obit of £1. 
 
AND CONTINGENT REVERSIONS. 
 
 5 
 
 Hence if £ a be the actual Annuity desired to be bought : 
 the Post Obit, O = ..... 
 
 Kx-v—Px-y 
 
 0 ) 
 
 which is identical with (2), since 
 
 Then 
 
 (3) 
 
 13. — Whence this Rule : — 
 
 To Calculate the Amount of a Post Obit Bond. 
 
 “ From the net annual 'premium , — or sinking fund, at five per 
 cent. Carlisle (or such other rate of interest as may be 
 allowed, and Law of Mortality selected) , for the Assurance 
 of £\, payable at the death of the first of two lives, — Sub- 
 tract the Ofiice annual premium for £\ Assurance against 
 the younger life dying before the older, — And divide the 
 proposed Annuity to the younger, by the difference (See 
 the Tables at page 7.) 
 
 14. — The rate of interest that should be involved in ir x . y varies in 
 practice from 5 to 7 per cent., and ^.^is easily calculated, with 
 the aid of Joint Life Annuity Tables, from the formula given in our 
 Treatise on Copyhold Enfranchisement and Freehold Land Societies 
 (3rd ed., page 4, App.), viz. — 
 
 - 1 1 (A\ 
 
 Kx-y — ( 4 ) 
 
 a x‘y a cc 
 
 where a x . y is the present value of an Annuity due on two lives, 
 and the present value of a perpetuity due = y 
 
 15. — The preceding assumes that the Annuity is payable at the 
 beginning* of the year, for which, if desired, the equivalent value of 
 the Annuity, payable half-yearly or quarterly, can be substituted ; 
 but this should not be done, unless interest on the Post Obit is 
 
 * [It is worthy of attention that, if formulae relating to Life Contingencies 
 are made to depend, when practicable, on but one unknown quantity, and to 
 involve symbols for annuities due or payable at the beginning , instead of at 
 the end of each year, their forms are not only more .elegant, but more simple 
 for practical use and remembrance. Such forms are also preferable, as they are 
 then analogous to formulae for premiums , which are customarily payable at the 
 beginning of the year ; and they can be as easily adapted to cases of half-yearly 
 or quarterly Annuities, as formulae involving Annuities due at the end of the 
 
6 
 
 APPENDIX ON POST OBITS 
 
 receivable in the event of delay occurring in the settlement by the end 
 of the year that one life dies ; and although such delay would not in 
 general arise if the assured life die first , it might be the case if the 
 older die first, and there be delay in the younger coming into the 
 estate. This suggests the propriety of adding some margin for the 
 expenses that may be incurred by the purchaser in the recovery of 
 the amount of his Post Obit 
 
 16. — If, after n years have elasped, the holder of a Post Obit, O, 
 desire to sell it, the value would be 
 
 O ( 7 Tx+ n> y + n ^x. y) • a x+n, y + n 
 
 30*’+*) . 
 
 a„ „ / 
 
 ( 5 ) 
 
 It may be remarked incidentally, that the coefficient of 0 is a neat 
 formula for the value of a Policy. 
 
 year. It is an objection to existing works on Life Contingencies, that this ana- 
 logy is disregarded. By way of illustration (see our Treatise on Copyholds) : — 
 If (Lx == Value of Annuity due on life x; using the Greek letter Alpha. 
 
 = Value of a perpetuity due, or an Annuity for ever ; 
 and S r — Net single premium for Assurance, or present value of £1 receivable at 
 death, of life x : — 
 
 _=J_ 
 
 \ + i 
 (1-&) 
 
 1 
 
 
 d + 7Tr 
 
 Ar = amount of annual premium of £ 
 
 by end of year 
 
 . . ( 1 ) 
 
 . . ( 2 ) 
 
 . . (3) 
 
 after death of x. 
 
 1 
 
 TTx 
 
 S, v = 1- — 
 
 “oo 
 
 = 1 — d . a, v 
 
 TT* 
 
 ~~ d + 7T r 
 
 d. S x 
 7I>= l -S x 
 
 JL__i 
 
 = Ox <*« 
 
 a x 
 
 ( 4 ) 
 
 ( 5 ) 
 
 ( 6 ) 
 
 ( 7 ) 
 
 ( 8 ) 
 ( 9 ) 
 
 ( 10 ) 
 
 ( 11 ) 
 
 ( 12 )] 
 
AND CONTINGENT REVERSIONS 
 
 7 
 
 Art. 17. 
 
 Table for calculating the Annuity to be granted in purchase of a 
 Post-Obit Bond or Contingent Reversionary Legacy of £100, 
 payable on the contingency of one life ( A ) surviving another (2?). 
 
 (The Annuity is the difference between Columns 1 and 2.) 
 
 Ages. 
 
 Column 1. 
 
 Gross Annual Payment to purchase a Post 
 Obit or Contingent Reversionary Legacy of 
 £100, receivable if A survive B, inclusive 
 of cost of insuring the chance of A dying 
 before B, allowing interest at 
 
 Column 2. 
 
 Deduction to be 
 made for rate of 
 insurance of £100, 
 payable should A 
 die before B. 
 
 A. 
 
 B. 
 
 5 per cent. 
 
 6 per cent. 
 
 7 per cent. 
 
 Office. 
 
 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 20 
 
 20 
 
 2 
 
 0 
 
 8 
 
 1 
 
 18 
 
 3 
 
 1 
 
 16 
 
 3 
 
 1 
 
 8 
 
 7 
 
 
 25 
 
 2 
 
 3 
 
 8 
 
 2 
 
 1 
 
 2 
 
 1 
 
 19 
 
 2 
 
 1 
 
 7 
 
 8 
 
 
 30 
 
 2 
 
 7 
 
 6 
 
 2 
 
 5 
 
 0 
 
 2 
 
 2 
 
 10 
 
 1 
 
 6 
 
 9 
 
 
 35 
 
 2 
 
 11 
 
 10 
 
 2 
 
 9 
 
 0 
 
 2 
 
 6 
 
 7 
 
 1 
 
 5 
 
 10 
 
 
 40 
 
 2 
 
 17 
 
 11 
 
 2 
 
 14 
 
 10 
 
 2 
 
 12 
 
 2 
 
 1 
 
 4 
 
 11 
 
 
 45 
 
 3 
 
 4 
 
 8 
 
 3 
 
 1 
 
 1 
 
 2 
 
 18 
 
 0 
 
 1 
 
 4 
 
 1 
 
 
 50 
 
 3 
 
 15 
 
 5 
 
 3 
 
 11 
 
 5 
 
 3 
 
 7 
 
 10 
 
 1 
 
 3 
 
 2 
 
 
 55 
 
 4 
 
 13 
 
 1 
 
 4 
 
 9 
 
 0 
 
 4 
 
 5 
 
 4 
 
 1 
 
 2 
 
 4 
 
 
 60 
 
 5 
 
 17 
 
 9 
 
 5 
 
 13 
 
 6 
 
 5 
 
 9 
 
 8 
 
 1 
 
 1 
 
 6 
 
 
 65 
 
 7 
 
 4 
 
 0 
 
 6 
 
 19 
 
 5 
 
 6 
 
 15 
 
 2 
 
 1 
 
 0 
 
 8 
 
 
 70 
 
 9 
 
 8 
 
 0 
 
 9 
 
 3 
 
 3 
 
 8 
 
 19 
 
 0 
 
 0 
 
 19 
 
 9 
 
 
 75 
 
 12 
 
 9 
 
 7 
 
 12 
 
 4 
 
 6 
 
 11 
 
 19 
 
 9 
 
 0 
 
 19 
 
 0 
 
 
 80 
 
 15 
 
 13 
 
 9 
 
 15 
 
 8 
 
 5 
 
 15 
 
 3 
 
 5 
 
 0 
 
 18 
 
 3 
 
 
 85 
 
 20 
 
 13 
 
 5 
 
 20 
 
 8 
 
 2 
 
 20 
 
 3 
 
 4 
 
 
 
 
 25 
 
 25 
 
 2 
 
 6 
 
 7 
 
 2 
 
 4 
 
 1 
 
 2 
 
 1 
 
 11 
 
 1 
 
 12 
 
 4 
 
 
 30 
 
 2 
 
 10 
 
 4 
 
 2 
 
 7 
 
 8 
 
 2 
 
 5 
 
 5 
 
 1 
 
 11 
 
 2 
 
 
 35 
 
 2 
 
 14 
 
 5 
 
 2 
 
 11 
 
 7 
 
 2 
 
 9 
 
 1 
 
 1 
 
 10 
 
 0 
 
 
 40 
 
 3 
 
 0 
 
 4 
 
 2 
 
 17 
 
 3 
 
 2 
 
 14 
 
 7 
 
 1 
 
 8 
 
 10 
 
 
 45 
 
 3 
 
 6 
 
 11 
 
 3 
 
 3 
 
 6 
 
 3 
 
 0 
 
 5 
 
 1 
 
 7 
 
 8 
 
 
 50 
 
 3 
 
 17 
 
 6 
 
 3 
 
 13 
 
 7 
 
 3 
 
 10 
 
 1 
 
 1 
 
 6 
 
 8 
 
 
 55 
 
 4 
 
 15 
 
 2 
 
 4 
 
 11 
 
 1 
 
 4 
 
 7 
 
 5 
 
 1 
 
 5 
 
 8 
 
 
 60 
 
 5 
 
 19 
 
 10 
 
 5 
 
 15 
 
 6 
 
 5 
 
 11 
 
 7 
 
 1 
 
 4 
 
 9 
 
 
 65 
 
 7 
 
 5 
 
 10 
 
 7 
 
 1 
 
 3 
 
 6 
 
 17 
 
 1 
 
 1 
 
 3 
 
 10 
 
 
 70 
 
 9 
 
 9 
 
 9 
 
 9 
 
 5 
 
 0 
 
 9 
 
 0 
 
 8 
 
 1 
 
 2 
 
 9 
 
 
 75 
 
 12 
 
 10 
 
 11 
 
 12 
 
 6 
 
 2 
 
 12 
 
 1 
 
 11 
 
 1 
 
 1 
 
 9 
 
 
 80 
 
 15 
 
 15 
 
 1 
 
 15 
 
 9 
 
 11 
 
 15 
 
 5 
 
 1 
 
 1 
 
 0 
 
 10 
 
 | 
 
 85 
 
 20 
 
 14 
 
 10 
 
 20 
 
 9 
 
 6 
 
 20 
 
 1 
 
 4 
 
 8 
 
 
 
 
8 
 
 APPENDIX ON POST OBITS 
 
 Annuity for the Purchase of a Post-Obit Bond — continued. 
 
 Ages. 
 
 Column 1. 
 
 Gross Annual Payment to purchase a Post 
 Obit or Contingent Reversionary Legacy of 
 £100, receivable if A survive B, inclusive 
 of cost of insuring the chance of A dying 
 before B, allowing interest at 
 
 Column 2. 
 
 Deduction to be 
 made for rate of 
 insurance of £100, 
 payable should A 
 die before B. 
 
 A. 
 
 B. 
 
 5 per cent. 
 
 6 per cent. 
 
 7 per cent. 
 
 Office. 
 
 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 30 
 
 30 
 
 2 
 
 13 
 
 10 
 
 2 
 
 11 
 
 1 
 
 2 
 
 8 
 
 10 
 
 1 
 
 16 
 
 9 
 
 
 35 
 
 2 
 
 17 
 
 8 
 
 2 
 
 14 
 
 10 
 
 2 
 
 12 
 
 5 
 
 1 
 
 15 
 
 3 
 
 
 40 
 
 3 
 
 3 
 
 5 
 
 3 
 
 0 
 
 4 
 
 2 
 
 17 
 
 9 
 
 1 
 
 13 
 
 10 
 
 
 45 
 
 3 
 
 9 
 
 9 
 
 3 
 
 6 
 
 4 
 
 3 
 
 3 
 
 3 
 
 1 
 
 12 
 
 4 
 
 
 50 
 
 4 
 
 0 
 
 0 
 
 3 
 
 16 
 
 4 
 
 3 
 
 12 
 
 10 
 
 1 
 
 10 
 
 11 
 
 
 55 
 
 4 
 
 17 
 
 8 
 
 4 
 
 13 
 
 9 
 
 4 
 
 10 
 
 1 
 
 1 
 
 9 
 
 8 
 
 
 60 
 
 6 
 
 2 
 
 3 
 
 5 
 
 18 
 
 1 
 
 5 
 
 14 
 
 5 
 
 1 
 
 8 
 
 7 
 
 
 65 
 
 7 
 
 8 
 
 4 
 
 7 
 
 3 
 
 10 
 
 6 
 
 19 
 
 9 
 
 1 
 
 ii 
 
 / 
 
 7 
 
 
 70 
 
 9 
 
 12 
 
 5 
 
 9 
 
 7 
 
 8 
 
 9 
 
 3 
 
 4 
 
 1 
 
 6 
 
 8 
 
 
 75 
 
 12 
 
 13 
 
 6 
 
 12 
 
 8 
 
 11 
 
 12 
 
 4 
 
 8 
 
 1 
 
 5 
 
 8 
 
 
 80 
 
 15 
 
 17 
 
 9 
 
 15 
 
 12 
 
 7 
 
 15 
 
 7 
 
 11 
 
 1 
 
 4 
 
 9 
 
 
 85 
 
 20 
 
 17 
 
 7 
 
 20 
 
 12 
 
 3 
 
 20 
 
 7 
 
 5 
 
 
 
 
 35 
 
 35 
 
 3 
 
 1 
 
 3 
 
 2 
 
 18 
 
 3 
 
 2 
 
 15 
 
 8 
 
 2 
 
 1 
 
 5 
 
 
 40 
 
 3 
 
 6 
 
 7 
 
 3 
 
 3 
 
 6 
 
 3 
 
 0 
 
 9 
 
 1 
 
 19 
 
 6 
 
 
 45 
 
 3 
 
 12 
 
 8 
 
 3 
 
 9 
 
 2 
 
 3 
 
 6 
 
 0 
 
 l 
 
 17 
 
 7 
 
 
 50 
 
 4 
 
 2 
 
 9 
 
 3 
 
 18 
 
 10 
 
 3 
 
 15 
 
 5 
 
 1 
 
 15 
 
 8 
 
 
 55 
 
 5 
 
 0 
 
 0 
 
 4 
 
 16 
 
 0 
 
 4 
 
 12 
 
 5 
 
 1 
 
 13 
 
 9 
 
 
 60 
 
 6 
 
 4 
 
 5 
 
 6 
 
 0 
 
 4 
 
 5 
 
 16 
 
 7 
 
 1 
 
 12 
 
 3 
 
 
 65 
 
 7 
 
 10 
 
 4 
 
 7 
 
 5 
 
 10 
 
 7 
 
 1 
 
 9 
 
 1 
 
 11 
 
 0 
 
 
 70 
 
 9 
 
 14 
 
 2 
 
 9 
 
 9 
 
 5 
 
 9 
 
 5 
 
 0 
 
 1 
 
 9 
 
 9 
 
 
 75 
 
 12 
 
 15 
 
 3 
 
 12 
 
 10 
 
 7 
 
 12 
 
 6 
 
 3 
 
 1 
 
 8 
 
 7 
 
 
 80 
 
 15 
 
 19 
 
 2 
 
 15 
 
 14 
 
 1 
 
 15 
 
 9 
 
 4 
 
 1 
 
 7 
 
 4 
 
 
 85 
 
 20 
 
 18 
 
 11 
 
 20 
 
 13 
 
 6 
 
 20 
 
 8 
 
 7 
 
 
 
 
 40 
 
 40 
 
 3 
 
 11 
 
 8 
 
 3 
 
 8 
 
 5 
 
 3 
 
 5 
 
 6 
 
 2 
 
 7 
 
 9 
 
 
 45 
 
 3 
 
 17 
 
 3 
 
 3 
 
 13 
 
 8 
 
 3 
 
 10 
 
 6 
 
 2 
 
 5 
 
 4 
 
 
 50 
 
 4 
 
 6 
 
 10 
 
 4 
 
 2 
 
 11 
 
 3 
 
 19 
 
 5 
 
 2 
 
 2 
 
 9 
 
 
 55 
 
 5 
 
 3 
 
 11 
 
 4 
 
 19 
 
 10 
 
 4 
 
 16 
 
 2 
 
 2 
 
 0 
 
 3 
 
 
 60 
 
 6 
 
 7 
 
 11 
 
 6 
 
 3 
 
 11 
 
 6 
 
 0 
 
 3 
 
 1 
 
 18 
 
 0 
 
 
 65 
 
 7 
 
 13 
 
 9 
 
 7 
 
 9 
 
 2 
 
 7 
 
 5 
 
 1 
 
 1 
 
 16 
 
 3 
 
 
 70 
 
 9 
 
 17 
 
 6 
 
 9 
 
 12 
 
 10 
 
 9 
 
 8 
 
 6 
 
 1 
 
 14 
 
 9 
 
 
 75 
 
 12 
 
 18 
 
 9 
 
 12 
 
 14 
 
 0 
 
 12 
 
 9 
 
 9 
 
 1 
 
 13 
 
 6 
 
 
 80 
 
 16 
 
 2 
 
 10 
 
 15 
 
 17 
 
 8 
 
 15 
 
 12 
 
 10 
 
 1 
 
 12 
 
 8 
 
 
 85 
 
 21 
 
 2 
 
 6 
 
 20 
 
 17 
 
 2 
 
 20 
 
 12 
 
 3 
 
 
 
 
AND CONTINGENT REVERSIONS 
 
 9 
 
 Annuity for the Purchase of a Post-Obit Bond — continued. 
 
 Ages. 
 
 Column 1. 
 
 Gross Annual Payment to purchase a Post 
 Obit or Contingent Reversionary Legacy of 
 £ 100 , receivable if A survive B, inclusive 
 of cost of insuring the chance of A dying 
 before B, allowing interest at 
 
 Column 2. 
 
 Deduction to be 
 made for rate of 
 insurance of £ 100 , 
 payable should A 
 die before B. 
 
 A. 
 
 B. 
 
 5 per cent. 
 
 6 per cent. 
 
 7 per cent. 
 
 Office. 
 
 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 45 
 
 45 
 
 4 
 
 2 
 
 1 
 
 3 
 
 18 
 
 4 
 
 3 
 
 14 
 
 11 
 
 2 
 
 14 
 
 4 
 
 
 50 
 
 4 
 
 11 
 
 0 
 
 4 
 
 7 
 
 0 
 
 4 
 
 o 
 
 O 
 
 5 
 
 2 
 
 11 
 
 0 
 
 
 55 
 
 5 
 
 7 
 
 5 
 
 5 
 
 3 
 
 2 
 
 4 
 
 19 
 
 4 
 
 2 
 
 7 
 
 6 
 
 
 60 
 
 6 
 
 10 
 
 10 
 
 6 
 
 6 
 
 8 
 
 6 
 
 2 
 
 10 
 
 2 
 
 4 
 
 1 
 
 
 65 
 
 7 
 
 15 
 
 11 
 
 7 
 
 11 
 
 o 
 
 o 
 
 7 
 
 7 
 
 1 
 
 2 
 
 1 
 
 0 
 
 
 70 
 
 9 
 
 19 
 
 2 
 
 9 
 
 14 
 
 5 
 
 9 
 
 10 
 
 0 
 
 1 
 
 18 
 
 3 
 
 
 75 
 
 13 
 
 0 
 
 0 
 
 12 
 
 15 
 
 4 
 
 12 
 
 11 
 
 0 
 
 1 
 
 16 
 
 0 
 
 
 80 
 
 16 
 
 3 
 
 10 
 
 15 
 
 18 
 
 8 
 
 15 
 
 14 
 
 0 
 
 1 
 
 14 
 
 5 
 
 
 85 
 
 21 
 
 3 
 
 9 
 
 20 
 
 18 
 
 4 
 
 20 
 
 13 
 
 3 
 
 
 
 
 50 
 
 50 
 
 4 
 
 19 
 
 1 
 
 4 
 
 14 
 
 9 
 
 4 
 
 10 
 
 10 
 
 3 
 
 4 
 
 10 
 
 
 55 
 
 5 
 
 14 
 
 8 
 
 5 
 
 10 
 
 3 
 
 5 
 
 6 
 
 2 
 
 3 
 
 0 
 
 5 
 
 
 60 
 
 6 
 
 17 
 
 3 
 
 6 
 
 12 
 
 11 
 
 6 
 
 8 
 
 11 
 
 2 
 
 15 
 
 11 
 
 
 65 
 
 8 
 
 1 
 
 2 
 
 7 
 
 16 
 
 6 
 
 7 
 
 12 
 
 1 
 
 2 
 
 11 
 
 4 
 
 
 70 
 
 10 
 
 3 
 
 6 
 
 9 
 
 18 
 
 7 
 
 9 
 
 14 
 
 0 
 
 2 
 
 6 
 
 9 
 
 
 75 
 
 13 
 
 3 
 
 4 
 
 12 
 
 18 
 
 6 
 
 12 
 
 14 
 
 1 
 
 2 
 
 2 
 
 9 
 
 
 80 
 
 16 
 
 6 
 
 2 
 
 16 
 
 0 
 
 11 
 
 15 
 
 16 
 
 1 
 
 1 
 
 19 
 
 2 
 
 
 85 
 
 21 
 
 5 
 
 4 
 
 20 
 
 19 
 
 10 
 
 20 
 
 14 
 
 9 
 
 
 
 
 55 
 
 55 
 
 6 
 
 9 
 
 6 
 
 6 
 
 5 
 
 0 
 
 6 
 
 0 
 
 11 
 
 4 
 
 3 
 
 2 
 
 
 60 
 
 7 
 
 11 
 
 6 
 
 7 
 
 7 
 
 0 
 
 7 
 
 3 
 
 0 
 
 3 
 
 17 
 
 10 
 
 
 65 
 
 8 
 
 14 
 
 4 
 
 8 
 
 9 
 
 7 
 
 8 
 
 5 
 
 2 
 
 3 
 
 12 
 
 6 
 
 
 70 
 
 10 
 
 15 
 
 9 
 
 10 
 
 10 
 
 9 
 
 10 
 
 6 
 
 1 
 
 3 
 
 6 
 
 7 
 
 
 75 
 
 13 
 
 15 
 
 2 
 
 13 
 
 10 
 
 2 
 
 13 
 
 5 
 
 7 
 
 3 
 
 1 
 
 4 
 
 
 80 
 
 16 
 
 16 
 
 9 
 
 16 
 
 11 
 
 4 
 
 16 
 
 6 
 
 4 
 
 2 
 
 16 
 
 7 
 
 
 85 
 
 21 
 
 15 
 
 0 
 
 21 
 
 9 
 
 5 
 
 21 
 
 4 
 
 3 
 
 
 
 
 60 
 
 60 
 
 8 
 
 13 
 
 0 
 
 8 
 
 8 
 
 7 
 
 8 
 
 4 
 
 7 
 
 5 
 
 9 
 
 2 
 
 
 65 
 
 9 
 
 14 
 
 10 
 
 9 
 
 10 
 
 1 
 
 9 
 
 5 
 
 10 
 
 5 
 
 3 
 
 0 
 
 
 70 
 
 11 
 
 15 
 
 8 
 
 11 
 
 10 
 
 8 
 
 11 
 
 6 
 
 1 
 
 4 
 
 16 
 
 6 
 
 
 75 
 
 14 
 
 15 
 
 0 
 
 14 
 
 10 
 
 1 
 
 14 
 
 5 
 
 7 
 
 4 
 
 10 
 
 7 
 
 
 80 
 
 17 
 
 16 
 
 3 
 
 17 
 
 10 
 
 10 
 
 17 
 
 5 
 
 10 
 
 4 
 
 5 
 
 7 
 
 
 85 
 
 22 
 
 14 
 
 8 
 
 22 
 
 8 
 
 11 
 
 22 
 
 3 
 
 7 
 
 
 
 
10 
 
 APPENDIX ON POST OBITS 
 
 Annuity for the Purchase of a Post-Obit Bond — continued. 
 
 1 
 
 Ages. 
 
 Column 1. 
 
 Gross Annual Payment to purchase a Post 
 Obit or Contingent Reversionary Legacy of 
 £100, receivable if A survive B, inclusive 
 of cost of insuring the chance of A dying 
 before B, allowing interest at 
 
 Column 2. 
 
 Deduction to be 
 made for rate of 
 insurance of £100, 
 payable should A 
 die before B. 
 
 A. 
 
 B. 
 
 5 per cent. 
 
 6 per cent. 
 
 7 per cent. 
 
 Office. 
 
 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. 
 
 d. 
 
 £. 
 
 s. d. 
 
 65 
 
 65 
 
 10 
 
 14 
 
 6 
 
 10 
 
 9 
 
 6 
 
 10 
 
 5 
 
 0 
 
 6 
 
 14 5 
 
 
 70 
 
 12 
 
 13 
 
 4 
 
 12 
 
 8 
 
 2 
 
 12 
 
 3 
 
 5 
 
 6 
 
 5 3 
 
 
 75 
 
 15 
 
 11 
 
 2 
 
 15 
 
 6 
 
 1 
 
 15 
 
 1 
 
 5 
 
 5 
 
 16 8 
 
 
 80 
 
 18 
 
 10 
 
 2 
 
 18 
 
 4 
 
 7 
 
 17 
 
 19 
 
 4 
 
 5 
 
 8 5 
 
 
 85 
 
 23 
 
 7 
 
 4 
 
 23 
 
 1 
 
 6 
 
 22 
 
 16 
 
 1 
 
 
 
 70 
 
 70 
 
 14 
 
 10 
 
 l 
 
 14 
 
 4 
 
 7 
 
 13 
 
 19 
 
 6 
 
 8 
 
 19 11 
 
 
 75 
 
 17 
 
 6 
 
 5 
 
 17 
 
 1 
 
 0 
 
 16 
 
 16 
 
 0 
 
 8 
 
 9 2 
 
 
 80 
 
 20 
 
 2 
 
 3 
 
 19 
 
 16 
 
 4 
 
 19 
 
 10 
 
 10 
 
 7 
 
 18 6 
 
 
 85 
 
 24 
 
 16 
 
 6 
 
 24 
 
 10 
 
 1 
 
 24 
 
 4 
 
 2 
 
 
 
 75 
 
 75 
 
 20 
 
 2 
 
 11 
 
 19 
 
 17 
 
 6 
 
 19 
 
 12 
 
 6 
 
 
 
 
 80 
 
 22 
 
 16 
 
 9 
 
 22 
 
 10 
 
 10 
 
 22 
 
 5 
 
 3 
 
 
 
 
 85 
 
 27 
 
 9 
 
 11 
 
 27 
 
 3 
 
 5 
 
 26 
 
 17 
 
 3 
 
 
 
 80 
 
 80 
 
 25 
 
 6 
 
 5 
 
 25 
 
 0 
 
 3 
 
 24 
 
 14 
 
 7 
 
 
 
 
 85 
 
 29 
 
 15 
 
 7 
 
 29 
 
 8 
 
 7 
 
 29 
 
 1 
 
 11 
 
 
 
 85 
 
 85 
 
 33 
 
 19 
 
 1 
 
 33 
 
 11 
 
 5 
 
 33 
 
 4 
 
 2 
 
 
 
 Example : — A Life 35 should receive an Annuity due of £11. 2s. during his 
 joint existence with another , 75, in consideration of a Post Obit of A’ 100, 
 supposing that the purchaser can Assure the life against '7 § for a premium 
 of £1. 8s. 7 d. per cent, per annum, and is allowed to charge 6 per cent, in- 
 terest. 
 
 Hence for a Post Obit of £14,000 an Annuity of £ 1554 should be given. ( See 
 case as stated in Article 3.) 
 
AND CONTINGENT REVERSIONS. 
 
 11 
 
 As to Purchase by Present Values. 
 
 Art. 1 8. — If, instead of an Annuity , a present cash sum is to be 
 paid to x , for a Post Obit of £1, or in purchase of a Contingent 
 Reversionary Legacy of <£1, dependent on x surviving y , the price 
 should be, — 
 
 The present net value of £1 receivable at the death of the first of 
 the two lives, less the Office single premium for the contin- 
 gent Assurance of x dying before y ; 
 
 = (S x . y ) or net single premium at the rate of interest proposed to 
 be received by the purchaser 
 — at Office rate. 
 
 This result is equivalent to 
 
 7T x . y ’ ( a x . y taken at 5, 6, or 7 per cent, interest) 
 
 —p x . y ' (a-x-y taken at 3 or 4 per cent, interest), 
 
 (i) 
 
 the reason being, that the purchaser is entitled to deduct from the 
 Present Value of the total annual cost of the Post Obit (discounted at 
 the rate of profit he is to make, viz. 5, 6, or 7 per cent.) the Present 
 Value of the Office annual premium for the Contingent Assurance 
 (discounted at the Office rate of interest, which would be 3 or 4 per 
 cent.). 
 
 19. — Some writers recommend the use of the following formula 
 (which gives a lesser present Value), viz. : — 
 
 1 — (d -\-p x . y ) • a x . y 
 
 U) 
 
 in which d = — , or annual interest due of £1, and is usually 
 
 1 + * 
 
 taken at 5 per cent, for the advantage of the purchaser, whilst a x . y 
 is taken at a lower rate, that is, 3 per cent. The first two terms, 
 1 — d. a x . yi would coincide with S x . y or ir x . y 'a x . y in the preceding ar- 
 ticle, if one same rate of interest were involved in both expressions. 
 
 20. — The introduction of two rates of interest in the first two 
 terms of the above, viz.: — 
 
 1 00 s per cent, (px ’ y)'6 per cent. 
 
 as the value of a Reversion of £1, receivable at the death of the first 
 of two lives (without Assurance), is scarcely equitable ; for the Seller 
 is made to allow the Purchaser, instead of the supposed 5 per 
 cent, yearly interest due , its present value discounted at 3 per cent., 
 which is equivalent to allowing a much higher rate. 
 
12 
 
 APPENDIX ON POST OBITS 
 
 21. — A like form, 
 
 1 ($)& per cent. 3 per cent. ♦ • * • • • (1) 
 
 has also been strongly recommended by some Actuaries as a just and 
 proper present value for a Reversion of £ l defending on a single life 
 in place of the usual form 
 
 (Sr) 
 
 5 per cent. 
 
 Or 1 (d)s per cent. ( a r) 
 
 5 per cent. 
 
 ( 2 ) 
 
 which is the expression for the single premium or present value of 
 £1 at death of a life x discounted at 5 per cent. 
 
 The first form (1) differs from (2) by 
 
 00 5 per cent. { ( a r)3 per cent. ( a r)5 per cent.} > 
 
 or the difference between the present values of a Life Annuity ( d) 5 per cent 
 at 3 and 5 per cent., but it cannot be supported by any satisfactory 
 reasoning, and is objectionable from its giving negative results for 
 ages under the zero point, corresponding to 
 
 1 005percent. 3 per cent. — 
 
 1 
 
 (“») 
 
 3 per cent.' 
 
 ( a OO ) 
 
 00 /5 per cent. 
 
 0 ) 5 per cent. 
 
 that is, when the Life Annuity due at 3 per cent, at age x=the value 
 of a perpetuity due at 5 jper cent. = 21. 
 
 22. — Our own preference would, perhaps, be in favour of the for- 
 mula S„ or 
 
 1 —— d . a x 
 
 in which a higher rate of interest, such as 6 or 7 per cent., should 
 be used throughout ; — as we are prepared to recognize that a 5 per 
 cent, discount by the formula S x is not sufficiently advantageous to 
 satisfy purchasers ; considering they run the risk of locking up their 
 money a long time before the Reversion falls in. 
 
 23. — But a much more satisfactory form may be deduced as fol- 
 lows (analogous to that in the preceding Articles on Post Obits), and 
 is worthy of consideration, as it does not yet appear to have been 
 noticed by other writers : — 
 
 Let (7ra.) 5 =net annual premium or sinking fund to realize £1 at 
 death of x at 5 per cent . ; 
 
 then (7r*) 5 is the immediate Annuity due that might be granted to 
 the Reversioner in purchase of a Reversion or Post Obit of 3$1, re- 
 ceivable at death of x, charging the purchaser 5 per cent, for the 
 money he advances each year. 
 
 Now if the Reversion is to be bought by a single present sum, the 
 Present Value of the Annuity (n x )^ should be given, which, by cus- 
 tomary rule for purchasing Life Annuities, 
 
AND CONTINGENT REVERSIONS. 
 
 13 
 
 = 4 ^- ( * * 3 > 
 
 *where p x is Office premium to insure £\ at death of x. 
 
 24. — From the theoretical value of a Reversion, whatever formula 
 be used, a deduction would have to be made, if Legacy or other 
 duty is payable, or if legal or other expenses are anticipated to arise 
 at the time of coming into the Reversion. 
 
 25. — For comparison, we place side by side these three forms 
 and their numerical values at various ages, which we will designate 
 by numbers (1), (2), (3). (See next page.) It will be seen that 
 if a person aged 20 were entitled to a Reversion of 36 100, and the 
 interest of money were 5 per cent., formula (2) would make its 
 value 3619*92, and the newly-suggested formula (3) 3618*24 ; while, 
 by the method now in frequent use, viz. (1), the party would not 
 only have nothing to receive , but would actually be called upon to 
 pay the Purchaser 368*01 ; thus making the possession of such 
 Reversion a positive liability or debt. This absurd result, apart from 
 any abstract argument, is conclusive proof that the formula from 
 which it is obtained must be radically defective, and cannot be 
 founded on any correct or equitable principle. The positive values 
 given by this latter method at older ages also present equally 
 strange results, for at age 40 it makes the value of 36 100 in rever- 
 sion, at 5 per cent., worth only 3613*64; whereas the discounted 
 value of the same is 3631*48, or, even at 7 per cent., 3622*51. 
 
 * [The value of an Annuity due of £1 is a x , which used to be taken formerly 
 at 5 per cent., and is 
 
 =- — - — — (see note p. 6) 
 
 «5 + Ws 
 
 The modern writers substitute, in the denominator, p x , the Office annual pre- 
 mium for (ir x ) 5 , the net premium at 5 per cent. 
 
 It may be mentioned incidentally that the ages at which the present Value 
 
 1 
 
 or ___* — \ of a Reversion of £1 is i, or -, correspond to the ages at 
 \ d+ir s ) f 
 
 which the annual premiums are equal to d, ~, or respectively. 
 
 Thus P. V. of a Reversion of £100 is — or £33. 6s. 8<Z. at age where Net 
 
 3 
 
 annual premium is 'h or £2‘38 per cent. (See note to p. 5.) 
 
 In like manner Practical Estimates can be read off from an Office Table of 
 Annual Life Assurance Premiums.] 
 
14 
 
 APPENDIX ON POST OBITS 
 
 Comparative Table of the Values of £ 1 in Reversion on a Single 
 Life by various formulce ( 1 ), ( 2 ), ( 3 ). 
 
 3 per Cent. By (2) or S 3 or 1 - d 3 ( a ,) 3 or • 
 
 d 3 + (7T,,) 3 
 
 5 per Cent. By (1) or 1 —d 5 (a*) 3 or 
 
 d 3 ( lr ' 1? )3 
 
 „ (2) or ^ or . +* .. 
 
 «5 + Mb 
 
 „ „ ( 3 ) f 7r ‘ g — . New Form recommended. 
 
 flTg+j»X 
 
 6 per Cent. By (2) or Sg or - . 
 
 d 6 + Me 
 
 „ „ ( 3 ) 7 ^ 7r - -— . New Form recommended. 
 
 d 6 +p r 
 
 7 per Cent. By (2) or S 7 or — _ 
 d 7+Ml 
 
 
 3 per cent. 
 
 5 per cent. 
 
 6 per cent. 
 
 7 per cent. 
 
 Age. 
 
 ( 2 ) 
 
 ( 1 ) 
 
 ( 2 ) 
 
 ( 3 ) 
 
 ( 2 ) 
 
 ( 3 ) 
 
 ( 2 ) 
 
 
 or S x 
 
 1 —d b (a x ) 3 
 
 or Sx 
 
 New Form. 
 
 or S x 
 
 New Form. 
 
 or S x 
 
 20 
 
 •3390 
 
 -•0801 
 
 •1992 
 
 •1824 
 
 •1603 
 
 •1465 
 
 •1326 
 
 21 
 
 •3446 
 
 
 •2035 
 
 
 •1640 
 
 
 •1358 
 
 22 
 
 •3504 
 
 
 •2082 
 
 
 •1681 
 
 
 •1393 
 
 23 
 
 •3564 
 
 
 •2131 
 
 
 •1724 
 
 
 •1431 
 
 24 
 
 •3625 
 
 
 •2182 
 
 
 •1769 
 
 
 T 471 
 
 25 
 
 •3681 
 
 
 •2237 
 
 
 •1817 
 
 
 •1514 
 
 26 
 
 •3755 
 
 
 •2292 
 
 
 •1867 
 
 
 •1558 
 
 27 
 
 •3822 
 
 
 •2350 
 
 
 •1920 
 
 
 •1605 
 
 28 
 
 •3889 
 
 
 •2409 
 
 
 T 972 
 
 
 •1653 
 
 29 
 
 •3953 
 
 
 •2463 
 
 
 •2021 
 
 
 •1696 
 
 30 
 
 •4013 
 
 + •0215 
 
 •2513 
 
 •2289 
 
 •2064 
 
 T 863 
 
 •1733 
 
 31 
 
 •4073 
 
 
 •2563 
 
 
 •2108 
 
 
 •1771 
 
 32 
 
 •4136 
 
 
 •2616 
 
 
 •2155 
 
 
 •1812 
 
 33 
 
 •4201 
 
 
 •2673 
 
 
 •2205 
 
 
 •1856 
 
 34 
 
 •4269 
 
 
 •2733 
 
 
 •2259 
 
 
 •1905 
 
 35 
 
 •4340 
 
 
 •2797 
 
 
 •2317 
 
 
 •1956 
 
 36 
 
 •4412 
 
 
 •2863 
 
 
 •2378 
 
 
 •2011 
 
 37 
 
 •4487 
 
 
 •2932 
 
 
 •2441 
 
 
 •2068 
 
 38 
 
 •4562 
 
 
 •3002 
 
 
 •2506 
 
 
 •2128 
 
 39 
 
 •4639 
 
 
 ■3075 
 
 
 •2574 
 
 
 •2189 
 
 40 
 
 •4716 
 
 •1364 
 
 •3148 
 
 •2833 
 
 •2640 
 
 •2352 
 
 •2251 
 
 41 
 
 •4789 
 
 
 •3217 
 
 
 •2704 
 
 
 •2308 
 
 42 
 
 •4862 
 
 
 •3285 
 
 
 •2767 
 
 
 •2365 
 
 43 
 
 •4935 
 
 
 •3354 
 
 
 •2829 
 
 
 •2421 
 
 44 
 
 •5011 
 
 
 •3426 
 
 
 *2896 
 
 
 •2481 
 
AND CONTINGENT REVERSIONS. 
 
 15 
 
 
 3 per cent. 
 
 5 per cent. 
 
 6 per cent. 
 
 7 per cent. 
 
 Age 
 
 (2) 
 
 (1) 
 
 (2) 
 
 (3) 
 
 (2) 
 
 (3) 
 
 (2) 
 
 
 or S x 
 
 i-<yo 3 
 
 or Sjt 
 
 New Form. 
 
 or S, v 
 
 New Form. 
 
 or Si v 
 
 45 
 
 •5089 
 
 
 •3501 
 
 
 •2965 
 
 
 •2544 
 
 46 
 
 *5169 
 
 
 •3581 
 
 
 •3040 
 
 
 •2613 
 
 47 
 
 *5254 
 
 
 •3666 
 
 
 •3120 
 
 
 •2687 
 
 48 
 
 •5344 
 
 
 •3759 
 
 
 •3209 
 
 
 •2770 
 
 49 
 
 •5441 
 
 
 •3861 
 
 
 •3308 
 
 
 •2864 
 
 50 
 
 •5543 
 
 •2716 
 
 •3971 
 
 •3520 
 
 •3416 
 
 •2994 
 
 •2968 
 
 51 
 
 •5651 
 
 
 •4090 
 
 
 •3535 
 
 
 •3083 
 
 52 
 
 •5760 
 
 
 •4212 
 
 
 •3656 
 
 
 •3202 
 
 53 
 
 •5870 
 
 
 •4337 
 
 
 •3780 
 
 
 •3324 
 
 54 
 
 •5981 
 
 
 •4465 
 
 
 •3909 
 
 
 •3451 
 
 55 
 
 •6095 
 
 
 •4597 
 
 
 •4043 
 
 
 •3584 
 
 56 
 
 •6210 
 
 
 •4732 
 
 
 •4181 
 
 
 •3723 
 
 57 
 
 •6326 
 
 
 •4871 
 
 
 •4324 
 
 
 •3867 
 
 58 
 
 •6441 
 
 
 •5010 
 
 
 •4469 
 
 
 •4012 
 
 59 
 
 •6551 
 
 
 •5143 
 
 
 •4606 
 
 
 •4151 
 
 60 
 
 •6653 
 
 •4530 
 
 •5267 
 
 •4601 
 
 •4734 
 
 •4098 
 
 •4280 
 
 61 
 
 •6744 
 
 
 •5375 
 
 
 •4844 
 
 
 •4392 
 
 62 
 
 •6833 
 
 
 *5482 
 
 
 •4955 
 
 
 •4503 
 
 63 
 
 •6922 
 
 
 •5591 
 
 
 •5068 
 
 
 •4617 
 
 64 
 
 •7016 
 
 
 •5707 
 
 
 •5187 
 
 
 •4739 
 
 65 
 
 •7111 
 
 
 •5826 
 
 
 •5313 
 
 
 i *4866 
 
 66 
 
 •7210 
 
 
 •5951 
 
 
 •5444 
 
 
 •5001 
 
 67 
 
 •7312 
 
 
 •6082 
 
 
 •5583 
 
 
 •5145 
 
 68 
 
 •7417 
 
 
 •6219 
 
 
 •5729 
 
 
 •5297 
 
 69 
 
 •7525 
 
 
 •6361 
 
 
 •5881 
 
 
 •5456 
 
 70 
 
 •7634 
 
 •6133 
 
 •6507 
 
 •5603 
 
 •6039 
 
 •5158 
 
 •5623 
 
 71 
 
 •7746 
 
 
 •6659 
 
 
 •6205 
 
 
 •5800 
 
 72 
 
 •7852 
 
 
 •6804 
 
 
 j -6364 
 
 
 •5969 
 
 73 
 
 •7948 
 
 
 *6936 
 
 
 •6507 
 
 
 -6122 
 
 74 
 
 •8033 
 
 
 •7052 
 
 
 •6635 
 
 
 ! -6259 
 
 75 
 
 •8103 
 
 
 •7148 
 
 
 •6740 
 
 
 1 *6370 
 
 76 
 
 •8172 
 
 
 *7242 
 
 
 •6842 
 
 
 | -6479 
 
 77 
 
 •8235 
 
 
 •7329 
 
 
 •6938 
 
 
 ! *6581 
 
 78 
 
 •8300 
 
 
 •7418 
 
 
 •7035 
 
 
 j *6685 
 
 79 
 
 •8371 
 
 
 •7519 
 
 
 •7147 
 
 
 •6805 
 
 80 
 
 •8437 ! 
 
 •7446 
 
 •7612 
 
 •6479 
 
 1 -7250 
 
 •6136 
 
 1 *6917 
 
 Note. — The following are the Constants occurring in the above formulae : — 
 d 3 = *0291. 
 d- 0 = -0476. 
 d r> = -0566. 
 d 7 = *0654. 
 
 The Variables may be found as follows : — 
 
 p x in Table 1, page 51, for Office Annual Premiums. 
 
 (tt t ) in the following Table, Art. 26, page 1C. 
 
16 
 
 APPENDIX ON POST OBITS, ETC. 
 
 Art. 26. 
 
 Table of the Value of Tr lVi the Annual Premium or Sinking Fund 
 (due), to assure .36 100 on the Life of a Person aged x t at 5 per 
 cent , interest , Carlisle Law , Net . 
 
 X 
 
 7 r* 
 
 X 
 
 
 
 £. 
 
 
 d . 
 
 
 
 s . 
 
 d . 
 
 20 
 
 1 
 
 3 
 
 9 
 
 51 
 
 3 
 
 5 
 
 11 
 
 21 
 
 1 
 
 4 
 
 5 
 
 52 
 
 3 
 
 9 
 
 5 
 
 22 
 
 1 
 
 5 
 
 1 
 
 53 
 
 3 
 
 13 
 
 0 
 
 23 
 
 1 
 
 5 
 
 10 
 
 54 
 
 3 
 
 16 
 
 11 
 
 24 
 
 1 
 
 6 
 
 8 
 
 55 
 
 4 
 
 1 
 
 1 
 
 25 
 
 1 
 
 7 
 
 6 
 
 56 
 
 4 
 
 5 
 
 7 
 
 26 
 
 1 
 
 8 
 
 4 
 
 57 
 
 4 
 
 10 
 
 6 
 
 27 
 
 1 
 
 9 
 
 3 
 
 58 
 
 4 
 
 15 
 
 9 
 
 28 
 
 1 
 
 10 
 
 3 
 
 59 
 
 5 
 
 0 
 
 10 
 
 29 
 
 1 
 
 11 
 
 2 
 
 60 
 
 5 
 
 6 
 
 0 
 
 30 
 
 1 
 
 12 
 
 0 
 
 61 
 
 5 
 
 10 
 
 8 
 
 31 
 
 1 
 
 12 
 
 10 
 
 62 
 
 5 
 
 15 
 
 7 
 
 32 
 
 1 
 
 13 
 
 9 
 
 63 
 
 6 
 
 1 
 
 0 
 
 33 
 
 1 
 
 14 
 
 9 
 
 64 
 
 6 
 
 6 
 
 9 
 
 34 
 
 1 
 
 15 
 
 10 
 
 65 
 
 6 
 
 13 
 
 l 
 
 35 
 
 1 
 
 17 
 
 0 
 
 66 
 
 7 
 
 0 
 
 1 
 
 36 
 
 1 
 
 18 
 
 3 
 
 67 
 
 7 
 
 8 
 
 1 
 
 37 
 
 1 
 
 19 
 
 6 
 
 68 
 
 7 
 
 16 
 
 8 
 
 38 
 
 2 
 
 0 
 
 11 
 
 69 
 
 8 
 
 6 
 
 7 
 
 39 
 
 2 
 
 2 
 
 4 
 
 70 
 
 8 
 
 17 
 
 8 
 
 40 
 
 2 
 
 3 
 
 9 
 
 71 
 
 9 
 
 10 
 
 1 
 
 41 
 
 2 
 
 5 
 
 2 
 
 72 
 
 10 
 
 2 
 
 10 
 
 42 
 
 2 
 
 6 
 
 7 
 
 73 
 
 10 
 
 15 
 
 7 
 
 43 
 
 2 
 
 8 
 
 1 
 
 74 
 
 11 
 
 7 
 
 11 
 
 44 
 
 2 
 
 9 
 
 8 
 
 75 
 
 11 
 
 18 
 
 9 
 
 45 
 
 2 
 
 11 
 
 10 
 
 76 
 
 12 
 
 10 
 
 1 
 
 46 
 
 2 
 
 13 
 
 2 
 
 77 
 
 13 
 
 1 
 
 4 
 
 47 
 
 2 
 
 15 
 
 2 
 
 78 
 
 13 
 
 13 
 
 8 
 
 48 
 
 2 
 
 17 
 
 5 
 
 79 
 
 14 
 
 8 
 
 8 
 
 49 
 
 2 
 
 19 
 
 11 
 
 80 
 
 15 
 
 4 
 
 0 
 
 50 
 
 3 
 
 2 
 
 9 
 
 
 
 
 
 Note. — [The Equivalents of ir x are — 
 
 *= J_ _ 1 1 3- S ' =± - d . 
 
 A x a x a x (1 — 3*) Or 
 
 4 (See Appendix, page 4, 1 Treatise on Copyholds.’) 
 Hence «■ at other rates of interest than 5 per cent, can be readily calculated 
 from a Life Annuity, or an Sr Table.] 
 
THE SCIENCE OF EXCHANGES. 
 
 17 
 
 70. Is labour, when considered as a commodity, to 
 be looked upon as capital ? 
 
 Capital has been defined to be “ any commodity, or 
 combination of commodities, which is being employed 
 with a view to profit.” Now, a labourer will always 
 employ his labour with a view to profit, for whether 
 the labour which he sells is profitable or unprofitable 
 to his employer, it must be profitable to himself, or 
 he would not continue to supply the commodity ; 
 labour, therefore, is always capital to the labourer. 
 But labour is not necessarily capital to the employer, 
 for he may pay labourers who are engaged in works 
 conducted without any view to profit, and this sort 
 of labour is not capital to him, although it is capital 
 to the labourers themselves. Productive labour is 
 capital to both the employer and the labourer; un- 
 productive labour is capital to the labourer only, for 
 it is unproductive as far as the employer is concerned. 
 
 2 
 
CHAPTER ITT. 
 
 BUYING AN I) SELLING. 
 
 7 T . What is buying ? 
 
 It is giving money in exchange for any other com- 
 modity. 
 
 72. What is selling? 
 
 It is giving any other commodity in exchange for 
 money. 
 
 73. What is speculation? 
 
 It is buying any commodity which is liable to 
 alteration of price, when the supply of it is large and 
 the price low, with a view to selling it when the sup- 
 ply chances to be small and the price high. 
 
 74. What is speculative demand? 
 
 It is any demand created by speculators, and not 
 caused by the wants of trade. 
 
 75. What is foreign trade ? 
 
 It is the exchanging the surplus produce of our own 
 country for the surplus produce of some other country ; 
 we want to be supplied with commodities which are 
 produced both better and cheaper abroad than we can 
 produce them at home. 
 
 76. When are the foreign exchanges said to be 
 favorable to a nation ? 
 
 They are said to be favorable when that nation 
 sells more to other nations than she buys from them, 
 and the balance which then becomes due to her is 
 called the balance of trade. 
 
THE SCIENCE OF EXCHANGES. 
 
 19 
 
 77. When are the foreign exchanges said to be ad- 
 verse to a nation ? 
 
 They are said to be adverse when that nation buys 
 more from other nations than she sells to them. 
 
 78. When are the foreign exchanges said to be at 
 par? 
 
 They are said to be at par between two nations 
 when the amount of what is bought by the one in their 
 mutual dealings exactly balances what is sold by the 
 other. 
 
 79. What is credit ? 
 
 Credit is the being able to obtain another man’s 
 capital upon trust. 
 
CHAPTER IV. 
 
 CURRENCY. 
 
 80. What is money ? 
 
 It is the common measure by which we value all 
 other commodities. 
 
 81. What is the great advantage which money pos- 
 sesses over all other commodities ? 
 
 That people who have money can always find 
 people who want money and are willing to exchange 
 commodities for it, whereas people who have other 
 commodities very often cannot find customers for 
 them. 
 
 82. Mention any other advantages. 
 
 Money is easily brought from one market to ano- 
 ther, and has been divided at the Mint into those 
 sizes of coin which are most convenient for the pur- 
 poses of exchange. 
 
 83. What is issue? 
 
 It is the power of creating money. 
 
 84. What is banking ? 
 
 It is the duty of using and distributing that money 
 after it is issued in a proper manner in the conduct of 
 business. 
 
 85. What is the currency? 
 
 The currency is the money which is in use in any 
 country, and consists in Great Britain of coin and bank- 
 notes, issued under certain restrictions. 
 
 86. What is managing the currency? 
 
 Managing the currency in Great Britain is regula- 
 
THE SCIENCE OF EXCHANGES. 
 
 21 
 
 ting the fluctuations in the amount of bank-notes 
 which we issue, by the fluctuations in the amount of 
 bullion which comes in and goes out of the country, 
 according to the state of the foreign exchanges. 
 
 87. What is the circulation ? 
 
 The circulation is that amount of currency which is 
 in use in any country. 
 
 88. How ought the circulation to be managed? 
 
 It ought to be left free to manage itself, expanding 
 or contracting according to the wants of trade ? 
 
 89. What is an expansion of the circulation ? 
 
 In Great Britain it is an influx of bullion into the 
 country, from the foreign exchanges being favorable. 
 
 90. What is a contraction of the circulation? 
 
 A contraction of the circulation in Great Britain is 
 an efflux of bullion out of the country, from the foreign 
 exchanges being adverse. 
 
 91. What is the cause of depreciation in the value 
 of the currency ? 
 
 A continued expansion of the circulation. 
 
 92. What is the cause of an increase in the value 
 of the currency ? 
 
 A continued contraction of the circulation. 
 
 93. What is monetary pressure ? 
 
 It is that rise in the rate of interest which ought to 
 accompany any contraction of the circulation. 
 
 94. What is convertibility? 
 
 It is an exact coincidence in value between bank- 
 notes and the bullion they are issued against. 
 
 95. What is a period of full currency? 
 
 It is when the foreign exchanges continue for some 
 time at par, and the amount of the circulation is not 
 affected by the state of the foreign exchanges. 
 
22 
 
 THE SCIENCE OE EXCHANGES. 
 
 96. What is auxiliary currency ? 
 
 Bills of exchange, promissory notes, cheques, and 
 anything which serves to economise the circulation, 
 are called auxiliary currency; as they are not made 
 by law to fluctuate in their amount, as bank-notes 
 are, they cannot maintain a precisely equal value 
 with true currency. 
 
 97. What is meant by the term “in circula- 
 tion ” ? 
 
 Anything which is performing the functions of money 
 is in circulation. Bank-notes, since the Act of 1844, 
 are equally in circulation whether they are in the 
 hands of the public or the bank which issued them ; 
 bills of exchange, promissory notes, cheques, &c., are 
 in circulation whenever they are actually enabling us 
 to do with a less amount of currency than if they 
 were not in existence. 
 
 98. What is meant by the term “in active cir- 
 culation ” ? 
 
 Any kind of currency is in active circulation while 
 one person passes it as money to another in constant 
 succession. 
 
 99. What does the efficiency of the circulation in 
 any country depend on ? 
 
 It depends on the state of credit in that country ; 
 if the state of credit is good, a much less amount of 
 currency will be sufficient for the purposes of trade than 
 if the state of credit is bad. When people lose confi- 
 dence they begin to hoard their money, and thus they 
 diminish the amount of currency in active circulation. 
 Auxiliary currency, too, is based upon credit, so that 
 its power of economising the circulation is weakened 
 or destroyed. 
 
THE SCIENCE OF EXCHANGES. 
 
 23 
 
 100. Is a want of money the same tiling as a want 
 of capital ? 
 
 Certainly not ; a want of money is a want of a par- 
 ticular kind of capital, not a want of capital gene- 
 rally. 
 
 101. What is the principal point of difference be- 
 tween a bill of exchange and a promissory note ? 
 
 A bill of exchange contains an order to pay, whereas 
 a promissory note contains a promise to pay. 
 
 102. Give some account of the parties to a bill of 
 exchange. 
 
 The party who draws the bill is called the drawer ; 
 the party to whom the order to pay is addressed is 
 called the drawee till he gives his assent to the trans- 
 action by writing his name across the bill, when he is 
 called the acceptor; the party to whom the bill is 
 made payable is called the payee ; the drawer and the 
 payee may be the same person. When any holder of 
 a bill writes his name on the back of that bill, in order 
 to make over his interest in it to some other person, 
 he is called an indorser. The drawee, on accepting a 
 bill, either personally or by his recognised agent, 
 becomes primarily liable for that bill ; but if he refuses 
 to accept the bill when presented to him, or cannot 
 pay it when it becomes due, he is said to dishonour 
 it, and the drawer and any indorsers there may be 
 become immediately liable to the holder, on receiving 
 notice from him that the bill which he holds is dis- 
 honoured, accompanied by a request to pay its amount. 
 If the drawer of the bill which has been dishonoured 
 pays its amount, all the indorsers are discharged from 
 their liability to the holder by such payment ; but if the 
 
24 
 
 THE SCIENCE OF EXCHANGES. 
 
 last indorser is compelled to pay the amount of the 
 bill, the drawer and the previous indorsers are not 
 discharged by this payment, for the last indorser can 
 sue them for the amount he has paid to the holder of 
 the bill. A bill may be paid any number of times 
 before it is due, and may be put into circulation again 
 between each payment ; but once it is paid by the 
 acceptor on its becoming due, it cannot be put into 
 circulation again, nor can any action be brought upon 
 it. 
 
 103. What is discounting a bill? 
 
 Any broker or banker who buys a bill, deducting 
 so much from its price as interest till the bill becomes 
 due, is said to discount that bill, and the interest 
 which he deducts is called discount. 
 
 104. What is money at call? 
 
 Money lent by bankers, with the option of having 
 it back at any moment, to bill-brokers, on the secu- 
 rity of bills which they deposit with the banks. 
 
 105. Give an instance to explain the use of bills 
 of exchange. 
 
 Jean, of Marseilles, sends a thousand francs’ worth of 
 silk goods to Diego, of Rio de Janeiro, and draws a 
 bill on Diego for a thousand francs ; this bill is dis- 
 counted for Jean by a banker at Marseilles. Juarez, 
 of Rio de Janeiro, sends a thousand francs’ worth of 
 coffee to Jacques, of Havre, and draws a bill on 
 Jacques for a thousand francs; this bill is discounted 
 for Juarez by a banker at Rio de Janeiro. Diego, 
 who wants a bill on France in order to pay Jean, 
 buys this last bill of the Rio de Janeiro banker, and 
 sends it to Jean ; Jacques, of Havre, on whom it is 
 
THE SCIENCE OE EXCHANGES. 
 
 25 
 
 drawn, must pay his countryman Jean a thousand 
 francs. Jacques, who wants a bill on Rio de Janeiro 
 in order to pay J uarez, buys the first bill mentioned, 
 which Jean drew on Diego, and which the Marseilles 
 banker holds, and sends it to Juarez; Diego, on 
 whom it is drawn, must pay his countryman Juarez 
 a thousand francs. In short, Diego, who has bought 
 silk, pays Juarez, who has sold coffee, while Jacques, 
 who has bought coffee, pays Jean, who has sold 
 silk, and the risk and expense of transmitting money 
 from "France to Rio de Janeiro, or vice versa , is 
 avoided. 
 
 106. What advantage do bills of exchange at short 
 dates possess ? 
 
 Though the drawer, acceptor, and indorsers of such 
 bills may all of them be persons of doubtful credit, 
 yet still the shortness of the date gives some security 
 to the holder of the bill ; though all of them may be 
 likely to become bankrupt, it is a chance if they all 
 become so in so short a time. “ The house is crazy,” 
 says a weary traveller to himself, “ and will not stand 
 very long ; but it is a chance if it falls to-night, and 
 I will venture, therefore, to sleep in it to-night. ” 
 
 107. What are accommodation bills? 
 
 Inland bills , which are not based upon any trade 
 transactions, either present or future, but which are 
 drawn for the sole purpose of raising money. In 
 general, where an accommodation bill is concerned, 
 the only real creditor is the man who discounts the 
 bill, and the only real debtor is the man who gets the 
 amount of the bill minus that discount. It requires 
 great experience to distinguish accommodation bills, 
 when properly disguised by dishonest traders, from 
 
26 
 
 THE SCIENCE OF EXCHANGES. 
 
 bills which really are based on trade transactions or 
 are drawn in anticipation of trade transactions which 
 will certainly take place. 
 
 108. What is a security? 
 
 A security is that which is given in pledge for the 
 performance of an engagement. 
 
 109. What does banking depend upon? 
 
 In all its forms it depends upon credit. 
 
 110. What is the duty of a banker? 
 
 He ought to act as an intermediate party between 
 those who have money seeking employment, and those 
 who have industry and enterprise, but want money 
 to carry out their plans. 
 
 111. What are deposits ? 
 
 Deposits are any public or private moneys entrusted 
 to the care of bankers during business hours. 
 
 112. What effect has the deposit system upon the 
 circulation ? 
 
 It serves to economise the circulation, for bankers 
 need only keep whatever reserve of bank-notes they 
 find sufficient to meet the average demands of 
 depositors; it also serves the same purpose to an 
 enormous extent by making transfers from one 
 account to another possible. The amount settled 
 at the clearing-house in London by transfer, during 
 the year 1857, was £1,900,000,000, and all this 
 without the employment of a single bank-note or 
 sovereign. 
 
 113. What is panic? 
 
 It is a state of general alarm, arising from loss of 
 credit. 
 
 114. What is external panic ? 
 
 External panic is a panic arising from the exhaustion 
 
THE SCIENCE OE EXCHANGES. 
 
 27 
 
 of bullion, consequent upon continued adverse ex- 
 changes. 
 
 115. What is internal panic? 
 
 Internal panic is a panic arising from the amount 
 of bank-notes issued against other security than that 
 of bullion being too large, and thereby causing doubts 
 as to the convertibility of the bank-notes and an 
 internal demand for bullion. 
 
 116. What is the best guard against external 
 panic ? 
 
 The only true way of guarding against external 
 panic is raising the rate of interest slowly and steadily 
 during a drain of bullion, till at last it will become 
 cheaper to export other commodities, and the foreign 
 exchanges will turn in our favour. Whenever we buy 
 more than we sell in our dealings with other nations 
 the foreign exchanges become adverse, and the effect 
 is the same whether we buy commodities or invest in 
 foreign securities — only another form of buying. 
 
 117. Is there any other means of guarding against 
 external panic ? 
 
 The Bank of England may strengthen the reserve by 
 gradually realising securities, but a sudden realisation 
 of securities to a large amount is not to the advantage 
 of the Bank or the public. 
 
 118. Is there any remedy for internal panic? 
 
 As banking is dependent upon credit, our monetary 
 system gives us no remedy for an internal panic ex- 
 cept the strict limitation of the amount of bank-notes 
 which we allow by law to be issued against other 
 security than that of bullion. Sir Robert Peel assumed 
 that the circulation in Great Britain had never been 
 
28 
 
 THE SCIENCE OF EXCHANGES. 
 
 reduced so low as seventeen millions, and lie also 
 assumed that it will never again be reduced lower 
 than it has been reduced in former times, and he came 
 to the conclusion that in the worst circumstances he 
 might safely allow fourteen million four hundred and 
 seventy-five thousand pounds in bank-notes to be 
 issued against other security than that of bullion, and 
 still have three million pounds in gold, or thereabouts, 
 necessarily remaining in the country. By his Act of 
 1 844 he divided the Bank of England into two de- 
 partments, the issue-department and the banking- 
 department, and he permitted the issue- department 
 to issue £14,475,000 in bank-notes against other 
 security than that of bullion, any issue of bank-notes 
 over this amount to necessitate a corresponding amount 
 of bullion being received into the till of the issue- 
 department, that is, that any bank-notes issued over 
 the amount of £14,475,000 should be only so many 
 certificates of the deposit of a corresponding amount of 
 bullion. Sir Robert Peel allowed the Bank of England, 
 and it alone, to buy bullion with its own notes, and 
 thus increase its issues. On bullion being withdrawn 
 from the till of the issue- department a precisely equal 
 amount of bank-notes must be cancelled by the Bank 
 of England, so that the fluctuations in the amount of 
 bank-notes issued over the fixed amount are regulated 
 by the fluctuations in the amount of the bullion as it 
 comes in and goes out of the country, according to the 
 state of the foreign exchanges. Sir Robert Peel, at the 
 same time, limited the issues of all the other exist- 
 ing banks in England to the exact average amount of 
 bank-notes which each of them had in circulation 
 
THE SCIENCE OF EXCHANGES. 
 
 29 
 
 during the space of twelve weeks preceding the 12tli 
 April, 1844; whatever this amount proved to be, no 
 bank in England was to exceed it, whatever amount 
 of gold they might hold in their tills. No London 
 bank but the Bank of England can issue bank-notes, 
 and no bank created after the 6th of May, 1844, can 
 issue them either. In Scotland and Ireland bank-notes 
 are not a legal tender ; in England Bank of England 
 notes are a legal tender everywhere except at the Bank 
 of England and its branches; but there is this difference 
 between the issues of the Scotch and Irish banks and 
 the issues of the English banks (the Bank of England 
 being excepted) — the latter cannot issue bank-notes 
 above the fixed amount, but the former are allowed to 
 issue over and above the fixed amount any amount of 
 bank-notes they please, provided that for every bank- 
 note so issued they possess a corresponding amount 
 of sovereigns, either at their head offices, if they are 
 Scotch banks, or at any of the four depots chosen in 
 Ireland for that purpose, if they are Irish. In Great 
 Britain, then, the power of issue has been very strictly 
 limited ; but even with these limitations, if all holders 
 of bank-notes were to present them simultaneously for 
 payment, their demands could not be met ; our mone- 
 tary system must be dependent upon credit. 
 
 119. How does a bank increase its liabilities ? 
 
 By increasing its securities, and thus paying out 
 bank-notes or coin again when deposited in the course 
 of business. 
 
 120. Can a bank fail as a banking concern and yet 
 maintain the convertibility of its notes ? 
 
 Certainly, if it invests too largely in securities, and 
 
30 
 
 THE SCIENCE OF EXCHANGES. 
 
 those securities cannot be readily converted into 
 cash. 
 
 121. How does a bank which is strictly limited in 
 its power of issue obtain the money to invest in secu- 
 rities ? 
 
 By employing its customers’ deposits and its own 
 capital. 
 
 122. What makes it difficult to understand ques- 
 tions bearing on the issue of bank-notes ? 
 
 Because people do not clearly separate in their 
 minds the business of issuing from that of banking ; 
 issuing is creating money, banking is managing money 
 after it has been issued. 
 
 123. What is the difference between paying bank- 
 notes out of a bank in the ordinary course of business 
 and reissuing bank-notes ? 
 
 Bank-notes deposited by customers in the ordinary 
 course of business are already issued, and the bank 
 pays them out again as so much money, merely keep- 
 ing whatever amount is sufficient to meet the average 
 demands made upon it ; reissuing bank-notes is issu- 
 ing bank-notes again which have been tendered for 
 payment in gold at the bank, and have been paid. 
 The object of the Act of 1844, was to secure that over 
 and above a certain fixed amount of bank-notes issued 
 against other security than that of bullion, any addi- 
 tional issue of bank-notes should be only so many cer- 
 tificates of the deposit of a corresponding amount of 
 bullion, and, therefore, when bullion is withdrawn 
 from the issue- department, a precisely similar amount 
 of bank-notes ought to be cancelled. 
 
 124. Why is the permission to issue a certain amount 
 
THE SCIENCE OE EXCHANGES. 
 
 31 
 
 of bank-notes against other security than that of bullion 
 so very valuable ? 
 
 Because there is a double return of profit on capital 
 thus invested ; first, the dividends arising from capi- 
 tal invested in profitable securities ; secondly, the in- 
 terest payable on the bank-notes issued against those 
 securities. 
 
 125. Is the power of issuing bank notes over the 
 fixed amount one which can be safely used by any 
 other bank than the Bank of England? 
 
 It is very doubtful whether it is a safe power in the 
 hands of the Scotch and Irish banks, even strictly 
 limited as they are at present ; they may and perhaps 
 often do abuse the power granted to them. 
 
 126. Give an instance to show how the Scotch and 
 Irish banks may avail themselves of the power of extra 
 issue ? 
 
 Let us suppose that one of those banks has an 
 authorised circulation of £100,000, and notes issued 
 to that amount against other security than that of gold 
 coin, and that it holds £25,000 in sovereigns, of which 
 £15,000 are at its depot or head office, and £10,000 
 in its own till ; by the Act of 1844 it might issue, if it 
 pleased, £25,000 in bank-notes, by transferring the 
 £10,000 in sovereigns , which it holds in its ow7i till, to 
 its depot or head office, but this would leave it no fund 
 in gold coin to maintain the convertibility of its autho- 
 rised issue. It issues, we will say, £20,000 in bank- 
 notes above its fixed amount, and transfers £5000 in 
 sovereigns to its head office. Its affairs now stand thus : 
 it has a total circulation of £120,000 in bank-notes, 
 and it holds £25,000 in sovereigns ; but as it has issued 
 
32 
 
 THE SCIENCE OF EXCHANGES. 
 
 £20,000 in bank-notes over its fixed amount, it holds, 
 in reality, but £5000 in sovereigns, against which no 
 extra notes have been issued to meet its authorised 
 issue of £100,000, this is one twentieth . 
 
 127. In what, then, does the unsoundness of such a 
 system consist ? 
 
 In the necessity which it entails on any banks which 
 follow it of evading the Act of 1844, though for very 
 short intervals, should any pressure or difficulties 
 arise. A part of the gold coin which the banks ought 
 to keep at their depots or head offices, by the Act of 
 1844, if they issue any bank-notes over their fixed 
 amount, can be called upon, for a very short time, to 
 help out the small fund of sovereigns which the banks 
 keep in their own tills to maintain the convertibility 
 of their authorised circulation, and against which 
 they issue no extra notes. Temporary as such an 
 evasion of the Act of 1844 is, it gives the banks 
 time to realise securities and put their houses in 
 order should there be signs of pressure. 
 
 128. Can the Scotch and Irish banks make a 
 profit on their extra issues without evading the Act 
 of 1844? 
 
 As long as the times are prosperous and there is no 
 pressure, they can ; they are able to keep a much 
 larger note-circulation afloat, and to give much more 
 accommodation in consequence of their extra issues. 
 The profit is not made absolutely on the extra issues 
 themselves, for there is the expense of issuing, the 
 wear and tear of the notes, and a duty of seven shil- 
 lings per cent, on every issue to be taken into account ; 
 but on the increased business which the extra issues 
 
THE SCIENCE OF EXCHANGES. 38 
 
 bring to the bank. When monetary storms and 
 pressure arise, the Act of 1 844 must be temporarily 
 evaded, and a risk of awakening an internal panic 
 amongst their customers must be run. 
 
 129. Give an instance to show how large their in- 
 direct profit must be. 
 
 The Bank of France for some considerable time 
 lately paid £16,000 a month in premiums, buying 
 gold ; this was, of course, in itself, a dead loss, but the 
 bank considered it would be much more than com- 
 pensated by the increase in its business, as it was 
 able to keep a much larger note circulation afloat, and 
 to give much more accommodation that it would other- 
 wise have done. 
 
 130. What has been often the ruin of joint-stock 
 banks ? 
 
 Making enormous advances to directors without 
 proper security, and alluring depositors by high rates 
 of interest in order to obtain the funds necessary for 
 those advances. 
 
 131. Is there any real safeguard against commer- 
 cial disasters ? 
 
 No ; the tide of trade must ebb and flow ; adverse 
 circumstances, such as famine, or war, or undue spe- 
 culation, will come upon us, whatever we do ; but the 
 Act of 1 844 enables us to meet them better, because 
 it preserves the convertibility of our paper-issues, and 
 prevents the calamity of internal panic being added to 
 external panic. 
 
 132. What is the reserve in the Bank of England ? 
 
 It is the amount of bank-notes kept by the bank 
 
 in the till of the banking-department, in order 
 
 3 
 
34 
 
 THE SCIENCE OE EXCHANGES. 
 
 to meet the average demands of depositors, and 
 all other demands whatever made on the bank. When 
 a drain of bullion begins, as the bank cannot get 
 at the notes which are in the hands of the public, 
 it must come on the reserve, and cancel bank-notes 
 taken from it as the bullion is being withdrawn from 
 the issue-department. The bank must take care to 
 protect the reserve in order to be able to meet the 
 demands made on her, and when a drain of bullion 
 is going on the way to do this is by slowly and steadily 
 raising the rate of interest as the bullion goes on di- 
 minishing, for money is in reality getting scarce, and 
 more ought to be paid for its use. The bank may still 
 further protect the reserve by realising as large an 
 amount of securities as she can conveniently do with- 
 out injury to herself, and without awakening alarm in 
 the minds of the public. 
 
 133. What effect has this course of action on the 
 foreign exchanges ? 
 
 A steady increase in the rate of interest will check 
 the exportation of bullion, which is only exported be- 
 cause it happens to be the commodity which we can 
 best spare at that time, and the contraction of the 
 circulation caused by the drain of bullion, and the 
 corresponding withdrawal of bank-notes from the re- 
 serve, will soon lead to a fall of prices which will 
 induce foreign nations to buy more largely in our 
 markets, and thus turn the foreign exchanges in our 
 favour. 
 
 134. Is it wise of the Bank of England to refuse to 
 discount for the discount houses ? 
 
 Yes ; if the Bank of England were to discount for 
 
THE SCIENCE OF EXCHANGES. 
 
 85 
 
 the discount houses, she would expose herself to the 
 danger of their uniting in times of panic, presenting 
 very large amounts of bills, and demanding their dis- 
 count on the threat of stopping payment if they did 
 not get it. Such a course of action would embarrass 
 the bank, and might cause most serious mischief to 
 the country. The discount houses are in the habit of 
 taking money at call to an enormous amount, and 
 whenever they have to pay a high rate of interest for 
 it they can afford to keep but small cash-balances 
 idle ; as long as the Bank of England discounted for 
 them they discounted bills rather under the bank 
 rate, in order to get the business into their hands, and 
 if bad times came, and their cash was run out, they 
 had a great mass of bills on hand ready to present to 
 the bank for discount in a threatening manner. Now 
 that the bank has wisely refused to discount for them, 
 and money begins to show signs of scarcity, they are 
 afraid to discount bills under the bank rate, and the 
 bills, instead of being massed together in the hands of 
 a phalanx of dealers, find their way to the Bank of 
 England, the National Bank, or any other of the strong 
 money-holders who are in a firmer position than the 
 discount houses, and not likely to increase the diffi- 
 culties of the situation by any very sudden require- 
 ments. 
 
 135. What was the only check on the issues of the 
 Bank of England before the Act of 1819 ? 
 
 The common rule of the bank, to discount only 
 good mercantile bills at sixty days’ date, at a fixed 
 rate, which chanced to be about the market rate of 
 interest at the time, with her extra issues of bank- 
 
36 
 
 THE SCIENCE OF EXCHANGES. 
 
 notes. Notes issued on these terms were within some 
 sort of limits ; that is, they were not so pregnant with 
 mischief as bank-notes issued under no checks at all, 
 as the country banks issued them. 
 
 136. What is the plain principle involved in the 
 matter P 
 
 That, however clever a person you may be, you 
 cannot contrive to make anything plenty for a con- 
 tinuance which is in reality scarce. Bank-notes, 
 which pretend to be of equal value with a fixed 
 amount of standard gold, if they are to maintain a 
 precisely equal value with that gold, must vary in 
 amount exactly as the amount of gold itself varies ; 
 they must get scarce as gold gets scarce, and get 
 plenty as gold gets plenty. 
 
 137. Can we prevent the temporary inconvenience 
 which commerce in England suffers from when an 
 advance in our rate of discount is caused by any 
 sudden demand for money on the part of any nation 
 who deals with us ? 
 
 A certain amount of pressure and inconvenience is 
 unavoidable, but by strictly adhering to the Act of 
 1844, and by steadily advancing the rate of interest 
 as our circulation contracts, the matter adjusts itself. 
 No nation can obtain more from us than we owe 
 them, and the more our rate of interest advances the 
 more money is attracted to us from every quarter, for 
 more can be had for it with us than elsewhere, so 
 that pressure and inconvenience from this source 
 cannot last long. 
 
 138. What is the gold and silver coin kept for in 
 the banking- department P 
 
THE SCIENCE OF EXCHANGES. 
 
 37 
 
 It is kept for the convenience of customers ; no 
 bank-notes are issued against this gold coin, for then 
 the bank-notes and gold against which they are 
 issued would be in circulation at the same time. 
 This amount is, like the stock in a jeweller’s shop, 
 necessary to the business of a bank, and the holding 
 it is a dead loss. 
 
 139. If the currency were purely metallic, would 
 that be a safeguard against panic ? 
 
 Certainly not ; as long as the deposit system pre- 
 vailed, and auxiliary currency was in existence, 
 bankers would then, as now, hold only whatever 
 amount of gold they found necessary to meet the 
 average demands of their customers ; and if any 
 extraordinary demand was to take place, they 
 could only meet it by realising securities, which, in 
 times of panic, must always be done at a loss. 
 
 140. Are there any valid objections to a great 
 central issuing-establishment for the whole of Great 
 Britain, under the control of the House of Commons ? 
 
 The objections do not appear to be valid. Ob- 
 jectors say that it would be dangerous to allow so 
 large an amount of bank-notes to be issued against 
 Government securities, and that' it would render con- 
 vertibility impossible in times of panic ; but, from the 
 very nature of our monetary system, convertibility 
 must always be impossible in times of panic, for if 
 all the holders of bank-notes were to present them 
 for payment in gold at one time their demands could 
 not be met, the securities against which our limited 
 amount of bank-notes are issued could not be con- 
 verted into gold during such an emergency. As long 
 
38 
 
 THE SCIENCE OF EXCHANGES. 
 
 as the amount of bank-notes permitted to be issued 
 in Great Britain, against other security than that of 
 bullion, is lower than the circulation could ever be 
 reduced to in the worst possible circumstances, we 
 are safer with our bank-notes issued against Govern- 
 ment securities than we could be if they were issued 
 against any other securities whatever other than 
 bullion itself. Objectors also say that entrusting the 
 business of issuing bank-notes to private enterprise 
 secures more care, diligence, and economy in the 
 management of that business, than if it was entrusted 
 to a central issuing-establishment under the control 
 of the House of Commons. The same might be said 
 of any Government establishments whatever, but with 
 less truth in this special instance, for the business 
 of issuing bank-notes is purely mechanical, only 
 requiring the very best preventives against the possi- 
 bility of forgery that science can discover. 
 
 141. What decided advantage would be gained by 
 this plan ? 
 
 It would then be perfectly safe to issue one-pound 
 notes in England as well as in Scotland and Ireland, 
 and the loss in wear and tear arising from the circu- 
 lation of sovereigns would be avoided ; for gold 
 would then lie in the tills of the issuing-establishment 
 till needed for exportation when the foreign ex- 
 changes became adverse to us. There would be a 
 danger arising from forgery, but this danger is now 
 incurred with our present system, and the difficulty 
 of forging the present Bank of England notes is very 
 great. The profit arising from the issue of bank- 
 notes against Government securities ought to form 
 
 o O 
 
THE SCIENCE OF EXCHANGES. 
 
 39 
 
 part of the revenue of the country. Bank-notes 
 should be payable in gold on demand at the central 
 issuing-establishment, or at any of its branches, 
 which should exist in all the very large cities, and be 
 a legal tender everywhere else. The House of Com- 
 mons should decide what amount of bank-notes might 
 be safely issued against other security than that of 
 bullion, and no alteration in this amount should be 
 possible without the consent of the House of Com- 
 mons. The duty of such a central issuing-establish- 
 ment would then be simply mechanical, and bullion 
 should only be withdrawn on the presentation of a 
 corresponding amount of bank-notes; so that it 
 would be unnecessary to keep any reserve of bank- 
 notes, as those who wanted to get bullion must pre- 
 viously obtain bank-notes themselves to the amount 
 required. 
 
 142. Why should the regulation of such an esta- 
 blishment be entrusted to the House of Commons, and 
 not to the Government alone ? 
 
 Because putting it in the hands of the House of 
 Commons would make it almost impossible to job the 
 issuing, or, in plain words, to make use of it for 
 political purposes. 
 
 143. Are we ever likely to have such a system in 
 Great Britain and Ireland ? 
 
 No, for our present system works sufficiently well. 
 It is only mentioned here because it is the best system 
 for any country to adopt. Italy, for instance, which 
 is being reconstructed, would do well and wisely in 
 selecting it. 
 
 144. Are there any improvements which we could 
 
40 
 
 THE SCIENCE OF EXCHANGES. 
 
 introduce into our present system as established by 
 Sir Robert Peel? 
 
 Yes ; there are three things which might be altered 
 with advantage : 
 
 (1) Bank of England notes should be made a legal 
 tender all over the United Kingdom except at the 
 Bank of England and its branches, which should be 
 properly distributed amongst the great towns. 
 
 (2) The power of extra issue should be taken from 
 the Scotch and Irish banks. 
 
 (3) All banks which have now a power of issue 
 entrusted to them should be allowed to issue one- 
 pound notes. 
 
 The first of these measures would enable the Scotch 
 and Irish banks to hold Bank of England notes instead 
 of sovereigns, as the English country banks now do ; 
 the second would diminish considerably the profits of 
 banking in Scotland and Ireland, but would place the 
 banks in a firmer position to meet any difficulties ; 
 the third would give the convenience of one-pound 
 notes to the English people, and save much wear and 
 tear in the use of sovereigns. 
 
 145. What is the advantage of publishing the ac- 
 count of the Bank of England every week ? 
 
 It enables capitalists and men of business, by com- 
 paring the account of one week with another, to make 
 some guess at what the value of money is likely to be. 
 They look to the amount of bullion held by the bank, 
 and the state of the reserve. 
 
 146. Would a statement of the same kind, but 
 relating only to the central issuing-establishment pro- 
 posed, have the same effect ? 
 
THE SCIENCE OF EXCHANGES. 
 
 41 
 
 Certainly ; capitalists and men of business would 
 then only look to the amount of bullion held each 
 week by that establishment. 
 
 147. What does a contraction of the circulation lead 
 to? 
 
 It leads to an increase in the value of the currency 
 and a gradual fall of prices in consequence of that 
 increase in value ; we then sell more commodities to 
 foreign nations than we did before, for they are en- 
 couraged to buy by the fall in prices, and this serves 
 to turn the foreign exchanges in our favour. 
 
 148. What does an expansion of the circulation 
 lead to ? 
 
 It leads to a depreciation in the value of the cur- 
 rency and a gradual rise of prices ; we then buy 
 more commodities than we did from foreign nations, 
 for we want to get rid of our spare cash. 
 
 149. Why is bullion exported? - 
 
 Because it happens to be the cheapest commodity 
 for us to import at that time — we can best spare it. 
 
 150. Why is bullion imported ? 
 
 Because it happens to be the cheapest commodity 
 for foreign nations to send to us at the time it is 
 imported ; besides, when our circulation begins to get 
 contracted, standard gold begins to increase in value 
 at home, the rate of interest rises, and money comes 
 to where it is most wanting and bears the highest 
 price. 
 
 151. What is the difference between a fall in price 
 and a fall in prices ? 
 
 A fall in price is a fall in the price of some one 
 kind of commodity, and is the result of some altera- 
 
42 
 
 THE SCIENCE OF EXCHANGES. 
 
 tion in the proportion which the supply of that com- 
 modity in some particular market bears to the demand 
 for it there. A fall of prices is a fall in all prices 
 generally, and is therefore the result of some alteration 
 in the value of gold, that being the standard of value 
 by which we measure the value of all other commodi- 
 ties in Great Britain. The same difference exists be- 
 tween a rise of price and a rise of prices. 
 
 152. Has the state of the circulation any effect on 
 the common alterations in prices which are constantly 
 happening P 
 
 No; for these alterations in prices are not general, 
 but confined to particular commodities ; partial rises 
 or falls in the prices of particular commodities arise 
 from some alteration in the proportion which the 
 supply of those commodities bears to the demand for 
 them. The state of the circulation can only affect all 
 prices, without any exception. 
 
 153. What effect has the state of the circulation on 
 the rate of interest in Great Britain P 
 
 Any expansion or contraction of the circulation 
 will have a temporary effect on the rate of interest, 
 causing it to rise or fall as money is plentiful or the 
 reverse, but this effect can only last till the circulation 
 returns to its natural state. 
 
 154. Will a steady fall in the value of gold all 
 over the world cause the rate of interest to fall in 
 Great Britain ? 
 
 No; for the interest payable in gold will fall in 
 value in exactly the same proportion as the principal 
 lent in gold ; temporary fluctuations in the rate of 
 interest will continue to take place, whatever may be 
 
THE SCIENCE OF EXCHANGES. 
 
 43 
 
 the change in the value of gold, for they depend upon 
 the particular value which money has at a particular 
 time in Great Britain, and not upon the general value 
 of gold all over the world. 
 
 155. Will a steady fall in the value of gold have 
 any effect on the circulation in Great Britain ? 
 
 It will have the effect of numerically increasing 
 the amount of currency in use in that country. 
 
CHAPTER V. 
 
 GOLD. 
 
 156. Is there any such thing in reality as a stand- 
 ard of value which is subject to no variation ? 
 
 No, there is not. If gold is chosen as the least 
 variable standard, and consequently the one by which 
 we are to measure the value of all other commodities, 
 it follows that when gold rises in value all other com- 
 modities must fall, and when gold falls in value all 
 other commodities must rise. 
 
 157. What does the value of gold depend upon ? 
 
 It depends upon the proportion which the supply 
 
 of gold bears to the demand for its employment. In 
 considering the gold question we must bear in mind 
 that the supply of gold may go on increasing for a 
 long time without any alteration taking place in its 
 value, provided that the demand for its employment 
 increases in the same proportion. 
 
 158. What separate causes may influence the ex- 
 changeable value of any commodity in a country 
 where gold is the standard of value ? 
 
 There are two causes. One is the proportion which 
 the supply of that commodity in any particular market 
 bears to the demand for its employment there, the 
 other is the abundance or scarcity of gold itself in that 
 market. 
 
 159. What must be the first signs of any fall in 
 the value of gold P 
 
 A marked rise in the price of all other commodities 
 
THE SCIENCE OF EXCHANGES. 
 
 45 
 
 must take place. Once Europe, for instance, is satu- 
 rated with supplies of gold, she will soon begin to 
 offer less commodities in exchange for an ounce of 
 that metal than she formerly did, and gold will fall 
 in value. Rises in the prices of particular commodi- 
 ties are often attributed to a fall in the value of gold, 
 when they ought to be attributed to the supply of 
 those commodities being too small in proportion to 
 the demand for their employment. Secondly, in those 
 countries where gold is the standard of value there 
 will be a steady numerical increase in the amount of 
 currency required by the wants of trade. 
 
 160. Has this general rise of prices yet taken 
 place ? 
 
 The French economists endeavour to prove that it 
 has ; but in order to prove that gold is steadily falling 
 in value they must prove that all other commodities 
 in all other markets of the world are steadily rising in 
 price, and this they fail to do ; they can only allege 
 partial rises in the prices of particular commodities. 
 Provisions have, no doubt, been steadily rising in price, 
 but it must be remembered that population is steadily 
 increasing in a greater ratio than food. 
 
 161. If we cannot clearly prove that a general rise 
 in prices all over the world has taken place, what 
 conclusion must we come to ? 
 
 We must conclude that gold has not yet fallen in 
 value, and that therefore the demand for the employ- 
 ment of gold has been able to keep pace with the 
 supply of that metal. 
 
 162. Must gold ultimately fall in value if the 
 supplies continue on their present scale ? 
 
46 
 
 THE SCIENCE OF EXCHANGES. 
 
 Certainly ; and the time when it will begin to fall 
 in value cannot be very far distant. No one can tell 
 how much gold will fall in value, as this depends 
 upon the proportion which the supplies of that metal 
 bear to the demand for their employment. 
 
 163. How long will gold continue to be supplied? 
 
 As long as it pays the expenses of its production. 
 
 164. What causes have been at work to increase 
 the demand for gold during the last ten years ? 
 
 A great stimulus to every kind of industry has 
 been given by the best medium of exchange becoming 
 more plenty than it was before, and the commerce of 
 the world has been much more rapidly developed on 
 account of that stimulus. Fresh supplies of gold, up 
 to a certain point, have not the effect of diminishing 
 the value of gold, but of increasing the demand for its 
 employment. The work of colonising new countries 
 is carried on more rapidly, railways are constructed, 
 packet services established, docks built-in short, 
 every kind of capital is more rapidly created ; and 
 all this activity in business absorbs the gold as it 
 arrives. 
 
 165. Up to what point do increasing supplies of 
 gold give this stimulus to trade and business ? 
 
 Till a marked rise in the price of all commodities but 
 gold takes place ; once this general rise in prices takes 
 place, gold has begun to fall in value, and the only 
 effect which further supplies of gold on the same 
 scale can have is to cause a further steady increase in 
 prices. 
 
 166. Will it then become necessary to alter the 
 standard value of gold in Great Britain ? 
 
THE SCIENCE OF EXCHANGES. 
 
 47 
 
 No ; for as long as gold is the only standard 
 of value it is measured in itself ; and as nothing is 
 charged on the coinage of gold, a coined ounce of 
 standard gold is exactly equal in value to an uncoined 
 ounce. 
 
 167. What effect will a steady fall in the value of 
 gold have on those nations who have chosen gold as 
 their standard of value ? 
 
 Creditors with debts of old standing will lose, 
 while their debtors will gain ; any one who has a fixed 
 income payable in money must lose ; there will also 
 be some distress amongst labourers of every kind, till 
 their salaries have been sufficiently increased ; but all 
 the loss we can sustain in Great Britain sinks into 
 insignificance when compared with the gain which we 
 must make in the diminution of the national debt. 
 The British people have nothing to fear from the gold 
 discoveries. 
 
 168. Will those nations who have chosen silver as 
 their standard of value gain equally with nations who 
 have chosen gold ? 
 
 They will, if either the supply of silver in the world 
 increases exactly in the same ratio as the supply of 
 gold, or if the demand for the employment of silver is 
 sufficiently diminished by the introduction of gold to 
 make silver fall in value in the same proportion as 
 gold has fallen. 
 
 169. Why has gold been chosen as the standard of 
 value in Great Britain in preference to silver ? 
 
 Because it costs much less in carriage than silver ; 
 as coin, it is more durable and more difficult for a 
 coiner to imitate ; it is also more easily counted. 
 
48 
 
 THE SCIENCE OF EXCHANGES. 
 
 170. Mention some of the countries where silver 
 has been chosen as the standard of value ? 
 
 Silver is the standard of value in Belgium and 
 Holland; in 1857 Austria, Prussia, and the Zolverein 
 chose silver as their standard of value ; the rouble of 
 silver is the standard money of Russia. In 1835 the 
 East India Company constituted silver money the only 
 legal money in British India, and since 1852 gold 
 has not been received in payment of the taxes there. 
 Any payments made in China are either in silver dollars 
 or silver ingots. In France the law of the 28th March, 
 1803, constituted the franc the legal money in that 
 country; it specifies this coin as a piece of silver 
 weighing five grammes, of which nine tenths are to be 
 fine silver. Although this is the law still in France, 
 and there is but one nominal standard of value, which 
 is silver, there are in reality two standards of value, 
 for debts in that country may be legally paid in either 
 gold or silver money, according to the option of the 
 debtor. 
 
 171. Is there any inconvenience in having a double 
 standard of value ? 
 
 Yes ; the dearest of the two metals, where there is a 
 double standard, will be exported whenever there is a 
 profit to be made on the excess of the marketable 
 value of the one over the legal value of the other. In 
 France, for instance, where a double standard practi- 
 ally exists, whenever the market price of gold falls to 
 a certain point below its legal price in silver, there is a 
 profit to be made by sending silver out of France in 
 exchange for gold ; on the other hand, whenever the 
 market price of gold rises to a certain point above its 
 
THE SCIENCE OF EXCHANGES. 
 
 49 
 
 legal price in silver, there is a profit to be made 
 by sending gold out of France in exchange for 
 silver. 
 
 172. What proof have we that this inconvenience 
 has existed ? 
 
 One kilogramme of gold (nine tenths pure) has been 
 made by the French law of the 28th March, 1803, 
 equal in value to fifteen and a half kilogrammes of 
 silver (nine ter ths fine). In the first part of the pre- 
 sent century the average marketable value of one kilo- 
 gramme of gold was above its legal value in silver, and 
 gold almost disappeared from France, for foreign mer- 
 chants paid their debts to French merchants in silver, 
 as they could get more silver for one kilogramme of 
 gold in their own markets than they could get by law 
 in the French markets. For instance, if a kilogramme 
 of gold was worth sixteen and a half kilogrammes of 
 silver at Hamburg, and a Hamburg merchant, who 
 had gold, wanted to pay a debt to a French merchant, 
 he changed his gold into silver at Hamburg, where 
 he could get one kilogramme of silver more for it, and 
 sent silver to France to pay his debt. French mer- 
 chants, too, paid their debts to foreign merchants in 
 gold as long as they could contrive to get a kilogramme 
 of gold for fifteen kilogrammes and a half of silver at 
 home, when its marketable price abroad was sixteen 
 and a half. During the last ten years the average 
 marketable value of one kilogramme of gold has been 
 generally below its legal value in silver, and silver has 
 been exported from France to a very large amount, 
 for French merchants can get more gold for fifteen 
 and a half kilogrammes of silver abroad than they can 
 
 4 
 
50 
 
 THE SCIENCE OE EXCHANGES. 
 
 get by law at home, and foreign merchants will never 
 pay their debts to French merchants in silver as long 
 as they can get a kilogramme of gold for a less price 
 in silver than that established by law in France. For 
 instance, supposing the price of one kilogramme of 
 gold to be fourteen and a half kilogrammes of silver 
 at Hamburg, and that a Flamburg merchant, who 
 has silver, owes a debt that can be paid by ten kilo- 
 grammes of gold to a French merchant, he buys the 
 gold at Hamburg to send to France, for if he sent 
 his silver to France he would have to send a hundred 
 and fifty -five kilogrammes of silver, according to the 
 French law, to pay his debt of ten kilogrammes of 
 gold, whereas at Hamburg he can buy the ten kilo- 
 grammes of gold for one hundred and forty-five kilo- 
 grammes of silver, and save ten kilogrammes of silver 
 in the transaction. 
 
 173. When one of the two precious metals is chosen 
 as a standard of value, what becomes advisable with 
 regard to the other in a country where gold and silver 
 money are both used ? 
 
 It becomes advisable to use the coins made of the 
 rejected metal as tokens, that is, to put a sufficient 
 quantity of alloy in them to prevent speculators taking 
 advantage of any rise or fall in the marketable value 
 of the standard metal as compared with its legal value 
 in the rejected metal. 
 
 174. What is meant by the term “tokens’? 
 
 Any denomination of money the intrinsic value of 
 which is below the nominal value assigned to it by 
 law, and which is not a legal tender above certain 
 small, fixed amounts. 
 
THE SCIENCE OF EXCHANGES. 
 
 51 
 
 175. Which of the two precious metals is to be 
 preferred as a standard of value ? 
 
 In a country where bank-notes for very small 
 amounts are permitted, as, for instance, the dollar 
 notes in America, it matters little which of the two 
 precious metals is chosen as the standard, provided 
 there be but one standard. In a country where these 
 small notes are not permitted gold is to be preferred 
 to silver as the one standard. A double standard can- 
 not be resorted to with advantage in any case. 
 
 176. Why is gold to be preferred to silver as a 
 standard of value in countries where small bank-notes 
 are not permitted ? 
 
 Because it is found more convenient to make use of 
 silver tokens than gold tokens. Silver tokens are the 
 best suited to make up amounts, and form but a very 
 inconsiderable part of the circulation in countries where 
 gold is the standard ; whereas, if gold tokens were 
 employed in countries where silver was the standard, 
 they would enter largely into the circulation, and be 
 made use of to pay heavy amounts, being more con- 
 venient than silver money ; the only way they could be 
 kept at the nominal value assigned to them by law, 
 would be, to make them always payable in silver on 
 demand, and this would necessitate the expense of 
 keeping large reserves of silver to enable the Govern- 
 ment to keep faith with the people. Bank-notes would 
 be to be preferred in most respects ; they would cost 
 much less, and be much harder to imitate, if proper 
 precautions against forgery were taken ; gold tokens 
 are consequently never made use of, and in countries 
 where silver is the standard gold coins are allowed to 
 
52 
 
 THE SCIENCE OF EXCHANGES. 
 
 circulate at their marketable value as so much metal ; 
 but this system has its inconveniences. Governments, 
 where it is in force, must declare every six months, or 
 oftener, at what price in silver they take gold coin in 
 payment of the taxes. If gold falls below its declared 
 value in silver, they lose on all the gold coin they 
 hold in the public treasury ; if it rises above its de- 
 clared value in silver, they gain, but their losses gene- 
 rally exceed their gains, as speculators are always on 
 the watch to profit by any alteration in the value of 
 gold ; there is an opening given for such speculations 
 to their own officers, and the public, too, always pay 
 in whichever coin costs them least. The uncertainty 
 as to the precise value of the gold coin in circulation 
 leads to higgling, delay, and vexation in every-day 
 business transactions. Gold, therefore, is to be pre- 
 ferred as the standard of value in countries where 
 small bank-notes are not permitted by law. 
 
 177. Has gold been falling in value when compared 
 with silver? 
 
 The diminution in the value of gold as compared 
 with silver is hardly perceptible, nor is it likely to be 
 permanent. The two precious metals will always 
 fluctuate a little in their respective values from acci- 
 dental circumstances; for instance, the late war in 
 China tended to enhance temporarily the value of 
 silver ; but if gold begins to fall decidedly in value, it 
 will drag silver down along with it. There will be two 
 causes at work to prevent silver rising in price along 
 with all the other commodities which are affected by 
 the fall in the value of gold, namely, an increased 
 activity in the silver mines of South America, and a 
 
THE SCIENCE OF EXCHANGES. 
 
 53 
 
 diminished demand for the employment of silver 
 as money. If the supply from the silver mines re- 
 mained stationary, and gold was to fall in value, silver 
 would rise in price, unless the introduction of extra 
 supplies of gold in some way diminished the demand 
 for the employment of silver. 
 
 178. Is there any reason for thinking that the 
 supply of silver will increase for the future ? 
 
 Yes ; the principal mines on which the world de- 
 pends for its supply of silver are in South America ; 
 they are of vast extent, and pronounced by scientific 
 men to be inexhaustible; but the supply of silver 
 from them till lately was limited by the dearness of 
 mercury, which is used to extract the silver from the 
 stone in which it is found by amalgamation. In 
 1850 a mine of mercury, called the New Almaden, 
 was discovered in California, and other large mines 
 have since been discovered in the Rocky Mountains, 
 so that mercury has fallen greatly in price. This, 
 along with improved machinery and increased facility 
 of transport, will have the effect of steadily increasing 
 the supply of silver from South America. 
 
 179. Is there any reason for thinking that, as gold 
 falls in value, the demand for the employment of silver 
 will diminish ? 
 
 Yes. It must be remembered that a continued 
 expansion of the circulation of any particular country 
 will produce a depreciation in the value of the currency 
 of that country, whether silver or gold be the standard 
 of value chosen there. Gold coin is not excluded, 
 from the most of those countries where silver is the 
 standard of value, but can circulate at its market 
 price as so much metal ; and once it is admitted to 
 
54 
 
 THE SCIENCE OE EXCHANGES. 
 
 form a part of the currency, it helps to expand the 
 circulation just as much as it would do in a country 
 where gold was the standard. In a country where 
 silver is the standard gold coin must meet at first 
 with great obstacles, from its not having a fixed value, 
 before it can enter largely into the circulation ; but 
 as prices rise, the inconvenience of having gold coin 
 in circulation without a fixed value will be so severely 
 felt, that the Government will be at last obliged to fix 
 its value, as lately happened in Belgium with regard 
 to French Napoleons; and gold coin will not only 
 form a considerable part of the currency, but will soon 
 begin to take the place of silver, from its superior con- 
 venience as money. Heavy payments, too, will be 
 made more frequently in gold bullion, and the effect 
 will be to diminish the demand for the employment of 
 silver. 
 
 180. If any particular country where silver was the 
 standard, in order to preserve its currency from depre- 
 ciation in value, was to refuse altogether to receive 
 gold in payment, what would happen ? 
 
 Silver would be attracted, after a little time had 
 elapsed, from those countries where gold was the 
 standard, or was admitted to form a part of the cur- 
 rency, and where, consequently, the currency was 
 depreciated in value, to this particular country where 
 the currency was not depreciated in value ; and this 
 influx of silver would continue till this last currency 
 became equally depreciated in value with the others, 
 
 • for every one would bring their silver to the market 
 where they could get most for it. 
 
 181. To what conclusion, then, must we come? 
 
 That as gold falls in value, there will not only be a 
 
THE SCIENCE OF EXCHANGES. 
 
 55 
 
 general rise of prices in countries where gold is the 
 standard, but there will also be a general rise of prices 
 in countries where silver is the standard, or, in other 
 words, that gold in its fall will drag down silver along 
 with it. Dr. Adam Smith alludes to the peculiar con- 
 nexion existing between gold and silver in the second 
 volume of the ‘ Wealth of Nations/ where he says — 
 “ Gold and silver are to be bought for a certain price, 
 like all other commodities ; and as they are the price 
 of all other commodities, so all other commodities are 
 the price of those metals.” This fall in the value of 
 silver, being exactly proportionate to the fall in the 
 value of gold, will be imperceptible as far as the two 
 precious metals are concerned ; it can only be ascer- 
 tained by a rise in the price of all other commodities. 
 
 182. What is an assay report? 
 
 An account in which the assayer states the purity 
 of the gold or silver which he has assayed. As the 
 carat weights in which the purity of gold is reckoned 
 are themselves reckoned in troy weight, we will give 
 a table of troy weight, and then a table of carat weight 
 as reckoned in troy weight. Troy weight : — 24 grains 
 = 1 pennyweight, 20 pennyweights = 1 ounce, 12 
 ounces = 1 pound. Carat weight: — 1 carat =10 
 pennyweights troy, 1 carat grain = 2 pennyweights 
 12 grains troy. There are, therefore, 4 carat grains of 
 CO grains troy each in every carat, and 24 carats in 
 the pound troy. Tine gold is gold which is 24 carats 
 fine. Standard gold is gold 22 carats fine, that is, 
 gold of which §fths are fine gold. An eighth of a 
 carat grain (or 7 \ grains troy) is the smallest division 
 of carat weight which the assayers recognise in making 
 
 O J o O 
 
56 
 
 THE SCIENCE OF EXCHANGES. 
 
 their reports, so that any fraction less than an eighth 
 is left out in every pound troy of gold which they 
 assay. If the gold to be assayed is of any number 
 of carats, or fractions of carats down to an eighth of 
 a carat grain, less than 22 carats, the assay er reports 
 it to be so many carats or fractions of carats worse 
 than standard gold ; if the gold to be assayed is above 
 22 carats and under 24, he reports it to be so much 
 better than standard gold by its exact excess above 
 22 carats ; but whether the gold to be assayed be 
 better or worse than standard gold, the assayer takes 
 no notice of any fraction of a carat smaller than the 
 eighth of a carat grain. The comparative difference 
 of any gold with regard to the standard metal is 
 called its betterness or worseness. The worseness of 
 gold is calculated to the nearest grain. 
 
 182*. How do you find the quantity of standard 
 gold in a given quantity of gold, either better or worse 
 than standard gold, as it may be reported ? 
 
 Multiply the given quantity of gold by the number 
 of carats in the report. Take parts for the grains, 
 quarter grains, or eighths of grains (should there be 
 fractions of a carat in the report), add these parts 
 to the sum previously obtained by multiplication. 
 Divide the sum total by 22 (in practice it is easier to 
 divide first by 2 and then by 11), the quotient will be 
 the betterness or worseness of the gold, according to 
 the report ; add it to the given quantity of gold if it 
 be a betterness, and subtract it therefrom if it be a 
 worseness, and the remainder will be the quantity of 
 standard gold. 
 
 183. What is the quantity of standard metal con- 
 
THE SCIENCE OE EXCHANGES. 
 
 57 
 
 tamed in 21 lbs. lOozs. 18 dwts. 12grs. of gold re- 
 ported worse 1 carat 3| grains ? 
 
 lbs. 
 
 ozs. 
 
 dwts. 
 
 grs. 
 
 
 21 
 
 10 
 
 18 
 
 12 
 
 for one carat. 
 
 10 
 
 11 
 
 9 
 
 6 
 
 for two grains. 
 
 5 
 
 5 
 
 14 
 
 15 
 
 for one grain. 
 
 1 
 
 4 
 
 8 
 
 16 
 
 for a quarter grain. 
 
 39 
 
 8 
 
 11 
 
 1 
 
 
 We have here divided what we put down for one carat 
 by two, in order to find what to put down for two 
 grains (or half a carat) ; we have repeated the same 
 process to find what to put down for one grain and 
 we have divided what we put down for one grain by 
 four, in order to find what to put down for a quarter 
 grain. The sum total is 89 lbs. 8 ozs. 11 dwts. 1 gr. 
 
 We now divide this first by 2, and then by 11 : 
 
 lbs. ozs. dwts. grs. 
 
 2 | 39 8 11 1 
 
 11 | 19 10 5 12 
 
 1 9 13 5 
 
 And this gives 1 lb. 9 ozs. 13 dwts. 5 grs. as the 
 worseness of the gold given. Subtract this from the 
 original quantity given : 
 
 lbs. ozs. dwts. grs. 
 
 21 10 18 12 
 1 9 13 5 
 
 20 1 5 7 
 
58 
 
 THE SCIENCE OF EXCHANGES. 
 
 This remainder is the quantity of standard gold re- 
 quired. 
 
 184. How do you obtain the quantity of fine gold 
 contained in a certain amount of standard gold ? 
 
 By subtracting one twelfth from the quantity of 
 standard metal, a twelfth, part or £, being the difference 
 between fine gold and standard gold. 
 
 185. How is gold valued which is either better or 
 worse than standard gold? 
 
 Its quantity in standard gold is found, and then it 
 is valued at the standard price per ounce ; or it may 
 be valued according to the report without putting it 
 into standard gold, by adding three shillings and 
 sixpence per carat, and tenpence halfpenny per grain 
 to the standard price, if it is better than standard 
 gold ; or by subtracting four shillings per carat and 
 one shilling per grain if it is worse, the price per 
 carat for the worseness being raised to pay for the 
 necessary refining. Thus, an ounce of 18 carat gold, 
 being 4 carats worse, would be valued at sixteen 
 shillings less than standard price, or £3 Is. 10 \d, 
 instead of £3 17s. 10^. 
 
 186. How is the standard weight of a given quantity 
 of silver found ? 
 
 Tine silver is silver §|J of which are pure silver, or 
 in every 12 ozs. of fine silver there must be 11 ozs. 
 2 dwts. of pure silver. The ounce used is the ounce 
 troy of 20 dwts., and the pennyweight is divided into 
 half-pennyweights. Multiply the given quantity of 
 silver by the number of pennyweights in the report ; 
 take a part for the half-pennyweight (if there be one 
 in the report), add this to the sum obtained by mul- 
 
THE SCIENCE OF EXCHANGES. 
 
 59 
 
 tiplication, and divide the sum total by 222 ; the 
 quotient will be the betterness or worseness, which you 
 can then add or subtract, according to the report, from 
 the given quantity of silver. The standard weight of 
 silver is generally calculated to one pennyweight. 
 
 187. What is the quantity of standard metal con- 
 tained in 27 lbs. 10 ozs. 10 grs. of silver reported 
 worse 1 oz. 17 dwts ? 
 
 Multiply 27 lbs. 10 oz. 10 dwts. by 37, the number 
 of pennyweights in the report. This gives 1031 lbs. 
 4 ozs. 10 dwts. Divide this by 222 : 
 
 222 | 1031 lbs. 4 ozs. 10 dwts. 
 
 4 lbs, 7 ozs. 15 dwts. 
 
 4 lbs. 7 ozs. 15 dwts. is the worseness. Subtract this 
 from 27 lbs. 10 ozs. 10 grs., the given quantity of 
 silver, and the remainder is the standard weight re- 
 quired — 23 lbs. 2 ozs. 15 dwts. 
 
 188. How is the quantity of pure silver contained 
 in a given quantity of silver found ? 
 
 Find the standard Weight, multiply this by 37, and 
 divide by 40, for standard silver is ||| or §£ fine. 
 
 189. How is the value of silver to be ascertained ? 
 
 There is no fixed value for silver ; the price fluctuates 
 
 according to the state of the markets. Silver coin is 
 generally reckoned at five shillings per ounce, and bar 
 silver from South America at from C)0d. to 62^. 
 per ounce. The Sysee silver of China is the purest 
 which has come to Great Britain. 
 
 190. Give an account of the present coinage in 
 Great Britain ? 
 
 Since 1816 gold has been the standard of value in 
 
60 
 
 THE SCIENCE OF EXCHANGES. 
 
 Great Britain, and much care is taken to secure a 
 proper gold coinage. Any one may bring gold to the 
 mint to be coined, provided it be not less than £10,000 
 in value, and that it has first been assayed by the 
 Royal Assayer, and obtained his certificate ; and the 
 mint is bound to return in coin, to the last grain, 
 exactly the weight of standard metal which it has 
 received, without any charge being made to the bearer. 
 Since 1837 no private individuals have availed them- 
 selves of this privilege, and the Bank of England alone 
 sends gold to the mint to be coined. She buys gold 
 with her own bank-notes, but will buy none which 
 has not been previously assayed by the Assayer Royal ; 
 she gives £3 17s. 9 d. per ounce for all the standard 
 gold brought to her, reserving a penny-halfpenny on 
 each ounce for herself, £3 17s. 1 Old. being the exact 
 legal price. The assayer, when he has assayed the 
 gold, reports to an eighth of a carat grain in the pound 
 troy, leaving out any smaller fractions to the loss of the 
 seller, who gets so much the less for his gold from the 
 bank; but these fractions are ''regained in the mint, 
 as it must return the exact standard weight of metal 
 which it has received, to the last grain, in coin. The 
 Bank of England, therefore, has a double profit in 
 buying gold — the penny-halfpenny which it keeps 
 back on each ounce, and any fractions which the 
 seller may have lost on having his gold assayed, but 
 which the bank regains from the mint on having the 
 gold coined. 
 
 The reason why private individuals do not have gold 
 coined on their own account seems to be that the 
 loss by the delay in the coinage exceeds the loss on 
 
THE SCIENCE OE EXCHANGES. 
 
 G1 
 
 selling to the Bank of England ; there is but one mint 
 in Great Britain, whereas there are seven in Erance. 
 There is an admixture of one twelfth of alloy in the 
 English gold -coinage ; this proportion is considered to 
 amalgamate better with the gold in cooling than the 
 French preparation of one tenth, and to produce in 
 consequence a more durable kind of coin. A sover- 
 eign weighs 1 23 ^ grains full weight, but a deficiency 
 of J grain JJJ is tolerated in circulation ; that is, if a 
 sovereign does not weigh 122f grains, it is considered 
 light. A half-sovereign is considered light if it weighs 
 less than 61^ grains. Light sovereigns, will, how- 
 ever, continue some time in circulation through the 
 country till they are remarked upon as not being of 
 full weight, when they cease to be legal money, and 
 the last holder must get rid of them at a loss to him- 
 self. When sovereigns find their way to the different 
 London banks, being deposited by customers, such as 
 railway companies, houses of business, &c., they are 
 sent in bags to the Bank of England, where machinery 
 is provided to weigh each separate sovereign ; those of 
 full weight are cast into one box, and those that are 
 light into another ; the banks who have sent the bags 
 are charged with the loss on these last, and they are 
 at once transferred to other machinery, which cuts 
 them in two, to be recoined again. The number of 
 sovereigns weighed daily at the Bank of England by 
 machinery varies from 60,000 to 70,000; there are 
 ten machines at work, and each is able to test thirty 
 sovereigns per minute with the nicest exactness. Light 
 gold coin, therefore, never remains very long in circu- 
 
62 
 
 THE SCIENCE OF EXCHANGES. 
 
 lation. The average yearly loss on the wear and tear 
 of gold coin is considered in round numbers to be 1 in 
 950. Siver coin in Great Britain is not a legal tender 
 above 40s. ; silver, of which 222 parts are pure silver 
 and 18 parts alloy, is standard silver, and a pound 
 troy of such silver is coined into 66 s., whereas, if the 
 price of silver be reckoned at 62c/. per ounce, and this 
 is above the average price, it ought to be coined into 
 62s. The 4s. are retained by Government as a seig- 
 niorage to defray the expense of the coinage and to 
 keep it in repair, for Government are bound to give 
 good silver coin in exchange for any which may have 
 sustained injury in circulation, provided that injury 
 has not occasioned the defacement of the coin, that is 
 to say, as long as enough of the superscription remains 
 to warrant to what country the coin belongs. The 
 Bank of England notifies to Government when silver 
 coin is wanting, and they employ brokers to buy silver 
 in the open market ; it is then coined and sent to the 
 Bank of England, and as it is absorbed in the circula- 
 tion Government is gradually repaid by the bank. 
 If silver was to rise in value much, as compared with 
 gold, Government would be compelled to put less 
 silver in its coins than it does now, for if it con- 
 tinued to coin the pound troy of standard silver 
 into 665 ., it would pay speculators to melt the silver 
 coin ; for instance, if silver rose to 65 . per ounce, there 
 would be a profit of 4s. or 5s. on the melting of every 
 seventy-two, and so on. The average yearly loss in 
 wear and tear of silver coin is considered in round 
 numbers to be 1 in 200 . The copper coinage has been 
 
THE SCIENCE OF EXCHANGES. 
 
 63 
 
 remodelled, and a bronze coinage, like that in France, 
 introduced. Bronze or copper money is not a legal 
 tender for more than 12 d. 
 
 191. Give some account of the coinage of France. 
 
 The coinage in France is on the decimal system. 
 The franc is made by the law of the 28th March, 1803, 
 the solemeasure of value, and must contain five grammes 
 of silver, of which nine tenths are to be fine silver, and 
 one tenth alloy. The same proportion of alloy is used 
 in the gold coinage. By the same law the proportion 
 between the respective values of silver and gold is 
 fixed to be as 1 is to 15^, or 1 kilogramme of gold to 
 15 \ kilogrammes of silver. The expense of the coin- 
 age is borne by whoever brings the metal to the mint, 
 whether it be silver or gold ; a kilogramme of silver is 
 coined into 200 francs, at a charge of 1 franc 50 cen- 
 times, and a kilogramme of gold is coined into 155 
 Napoleons, at a charge of 6 francs 70 centimes; to 
 coin, therefore, its equivalent in silver, or 15| kilo- 
 grammes of silver, costs 23 francs 25 centimes, a dif- 
 ference of 16 francs 55 centimes in favour of gold coin. 
 The French Government, in 1803, believed that it had 
 established one sole measure of value, to wit, the franc, 
 whereas, by permitting a double-paying medium, with 
 a fixed proportion between the two precious metals, 
 it practically created a double standard of value. As 
 long as the marketable value of one kilogramme of gold, 
 estimated in silver, continued above its legal value in 
 silver in France, the French people used silver money, 
 for the simple reason that it cost them less than gold ; 
 but once the marketable value of one kilogramme of 
 gold, estimated in silver, fell below its legal value in 
 
64 
 
 THE SCIENCE OF EXCHANGES. 
 
 silver in France, the French people began to use gold 
 coin instead of silver, for the simple reason that it cost 
 them less than silver. The dearest of the two metals 
 (when there is a practical double standard) will always 
 be exported. The bronze coins are tokens like the 
 British copper money, and are not a legal tender over 
 50 centimes. 
 
CHAPTER VI. 
 
 THE FOREIGN EXCHANGES. 
 
 192. Give an instance of exchange when it is said 
 to be favorable, when adverse, and when at par 
 between two places in different countries. 
 
 (1) When you pay a sum of money in London 
 which contains ten ounces of standard gold by mintage 
 valuation, for a bill which you can have cashed in New 
 York for a sum of money which contains an equal 
 quantity of standard gold by mintage valuation, ex- 
 change is said to be at par between London and New 
 York, 
 
 (2) When you pay less in London for such a bill, it 
 is said to be at a discount, and exchange is said to be 
 in favour of London, and against New York. 
 
 (3) When you pay more in London for such a bill, 
 it is said to be at a premium, and exchange is said to 
 be against London, and in favour of New York. 
 
 The true par of exchange, therefore, between any 
 two places in different countries, is the being able to 
 obtain a quantity of standard gold or silver, when you 
 cash a bill in the one place, exactly equal to the quan- 
 tity of standard gold or silver which you have paid for 
 the same bill in the other ; it is not the merely obtain- 
 ing an equal nominal amount of money, for if the cur- 
 rency of any country is much depreciated in value from 
 over-issues of paper money or a base coinage, so much 
 
66 THE SCIENCE OF EXCHANGES. 
 
 the more of it will be required to make up the ne- 
 cessary amount, and this in exact proportion to the 
 extent of the depreciation in value which has taken 
 place. 
 
 198. What is a rate of exchange? 
 
 It is the price of the money of any one country 
 reckoned in the money of any other country. 
 
 194. What is the course of exchange? 
 
 The fluctuations in the rates of exchange above 
 and below what is considered to be par between 
 any two places in different countries are called the 
 course of exchange between those places. When two 
 countries have one and the same standard the par 
 of exchange between them is on a solid, fixed basis ; 
 but when one country has gold for its standard and 
 the other has silver, the number of ounces of stand- 
 ard silver in the one country which are to be con- 
 sidered equal to an ounce of standard gold in* the 
 other must first be fixed, and the par of exchange 
 is on a basis which must fluctuate slightly as the 
 relative proportion in value which the precious metals 
 maintain towards each other fluctuates. 
 
 195. Explain the course of exchange as quoted in 
 the newspapers. 
 
 If the rate of exchange is considered with regard 
 to any two places, it will be seen that the price given for 
 any particular sum of money may vary, but that the 
 particular sum of money to be bought is always the 
 same, though more or less may be given for it. 
 Eor instance, Paris may give London 25 francs 80 
 centimes or 25 francs 50 centimes for a pound 
 sterling, but whatever Paris gives, the pound ster- 
 
THE SCIENCE OF EXCHANGES. 
 
 67 
 
 ling is fixed and invariable, though the price paid 
 for it may vary. The place which pays a variable 
 price in its own money for a fixed sum in the money 
 of some other place is said to give so much of its 
 own money, while the place to whom that variable 
 price is paid for the fixed sum in its own money 
 is said to receive so much of the money of the other 
 place; thus, London gives Palermo 1 19| pence for 
 one onza, but receives 6 dollars 25 silver groschen 
 from Berlin for a pound steriing. 
 
68 
 
 THE SCIENCE OF EXCHANGES. 
 
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 117? to £; Oporto, ninety days 52f to |, and so on. 
 
THE SCIENCE OF EXCHANGES. 
 
 69 
 
 196. How many kinds of exchanges are there? 
 
 There are three — direct, cross, and arbitrated. 
 
 Direct exhange is the operation of exchange between 
 any two places in different countries, without the me- 
 dium of any other place, as between London and Paris. 
 Cross exchange is the operation of exchange between 
 any two places in foreign countries, as considered from 
 some third place, as between Paris and Amsterdam at 
 London. Arbitrated exchange is the operation of ex- 
 change between any two places in different countries, 
 through the medium of some other place or places in 
 other countries. 
 
 197. What is the object of bankers and cambists 
 in all these operations ? 
 
 It is to choose whatever mode of payment costs 
 them least ; for remittances abroad they will choose 
 whatever mode of payment gives the greatest sum in 
 foreign money for a given sum in the money of their 
 own country, and for returns to their own country 
 they will choose whatever mode gives the greatest sum 
 in the money of their own country for a given sum in the 
 money of any foreign country. What is bad, therefore, 
 for remittances, will be good for returns, and vice versa ; 
 for instance, the rate of 25 francs 70 centimes per 
 £1 is a good rate for remittance to Paris from Lon- 
 don, because you get more foreign money than usual 
 for a given sum of your own money, but it is a bad 
 rate for a return of money to London, because you get 
 less of your own money than usual for a given amount 
 of foreign money. The terms cash and bills are 
 generally used instead of remittances and returns ; 
 
70 
 
 THE SCIENCE OE EXCHANGES. 
 
 thus, when 25 francs 70 centimes can be had for£l 
 in Paris, it is said to be better for cash in London, 
 that is, the laying out of cash in London, and worse 
 for bills or receiving returns from Paris, because less 
 English money can be then obtained for a given sum 
 of French money. 
 
 198. Is there any limit to the extent of the rise 
 above or the fall below par, as the exchange between 
 London and any other place is favorable, or the re- 
 verse ? 
 
 In ordinary cases the limit is the total expense of 
 transmitting bullion from the one place to the other ; 
 by total expense we do not mean the mere carriage of 
 bullion, for, except in times of war, this will vary 
 hardly at all, but we mean all charges whatever con- 
 nected with the transmission of bullion, including the 
 calculation of the rates of interest obtainable for the 
 money represented by the bullion in the country it is 
 sent from and in the country it is sent to. If a mer- 
 chant had to pay more for a bill on any place than it 
 would cost him to transmit bullion or coin to that 
 place, he would not buy the bill, but would send the 
 bullion or coin instead ; on the other hand, a banker or 
 cambist who holds a bill will not generally take less 
 for it than it would cost him to send it to the place on 
 which it is drawn, have it cashed there, and the pro- 
 ceeds sent to him in coin or bullion. The higher 
 the rate of interest rises at home the more it will 
 cost to send bullion or coin abroad, as the price 
 which could have been had for its use as money at 
 home must be taken into consideration, and, except 
 
THE SCIENCE OE EXCHANGES. 
 
 71 
 
 in the case of a loan, it will only be transmitted from 
 one country to another when this is the cheapest mode 
 for the debtor’s country to satisfy its foreign creditors, 
 either from its having superfluous cash at home or 
 from its having no other mode of payment imme- 
 diately available for the purpose. 
 
 199. What is the natural tendency of bullion ? 
 
 It is to flow towards those markets where the best 
 price can be obtained for it, so that the raising of the 
 rate of interest to a very high point in any country 
 has the double effect of preventing the exportation of 
 the bullion or coin which is in that country and of 
 attracting bullion or coin to it from foreign coun- 
 tries. 
 
 200. What generally regulates the rise above or the 
 fall below par, which is constantly going on, within 
 the limit which we previously mentioned, between 
 any two places in different countries P 
 
 The proportion which exists between the number 
 of bills on either of those places which chance to be on 
 sale in their respective markets, and the demand for 
 their employment. If, for instance, there be many bills 
 on London for sale at New York, and but little demand 
 for them, bills on London will fall at New York till 
 they reach the specie-importing point, that is to say 
 till they fall to what it would cost the holders of them 
 to get them cashed in London, and in ordinary times 
 they will fall no lower ; on the other hand, if there be 
 few bills on London for sale at New York, and great 
 demand for them, bills on London will rise at New 
 York till they reach the specie-exporting point, that is 
 to say, till they rise to what it would cost to transmit 
 
72 
 
 THE SCIENCE OE EXCHANGES. 
 
 bullion or coin instead of making use of bills, and in 
 the general run of instances they will not rise above 
 this point. The price of bills, therefore, depends upon 
 supply and demand, like the price of any other mer- 
 chandise, but it does not generally rise higher or fall 
 lower than a certain point on either side of the par 
 of exchange, as above or below this point the demand 
 for bill ceases, and specie is imported or exported, as 
 the case may be. 
 
 201. What other element affects the price of bills? 
 
 The credit of the drawer, acceptor, and indorser of 
 
 the bills. A bill backed by first-class names will 
 always command a higher price than a bill backed by 
 second-class names; anything which tends to diminish 
 the credit of any country will at once lower the price of 
 all bills drawn upon it. 
 
 202. In what case may the price of bills fall below 
 the specie-importing point ? 
 
 In any case of sudden panic, where the owners 
 of the bills cannot afford to wait sufficiently long 
 to get the bills cashed in the country they are drawn 
 upon. The capitalists who buy the bills under such 
 circumstances make so much extra profit, but they 
 must lose the use of the money which they give for 
 the bills during the interim. 
 
 203. In what case may the price of bills rise above 
 the specie-exporting point ? 
 
 In any country where the currency is much depre- 
 ciated from over-issues of paper money, and where the 
 export of bullion is forbidden by law, the price of bills 
 may rise much above the specie-exporting point when- 
 ever the merchants of that country have no produce of 
 
THE SCIENCE OF EXCHANGES. 
 
 73 
 
 any kind available to export as a means of paying their 
 debts. 
 
 204. What are bills drawn in blank ? 
 
 Bills which are not based upon any actual trade trans- 
 actions between any two different countries, but which 
 are either drawn in anticipation of the ordinary trade 
 transactions between those countries or are drawn as 
 a means of obtaining the money which is paid as their 
 price ; in either case they may be called foreign accom- 
 modation bills. They have an important influence on 
 the state of the foreign exchanges, as there is generally 
 a large amount of them afloat. 
 
 205. When the exchange between London and 
 New York is favorable to New York, and bills on Lon- 
 don are near the specie-importing point, what effect 
 has this on the exporting and importing merchants in 
 New York? 
 
 The importing merchants have a decided advantage 
 over the exporting merchants, for they can buy the 
 exporter’s bills at a discount, and thus pay for their 
 own importations. 
 
 206. What effect has the same state of the exchange 
 on the exporting and importing merchants in London ? 
 
 The exporting merchants have a decided advantage 
 over the importing merchants, as they can sell the bills 
 which they draw on New York at a premium, while 
 the importers must either pay the premium for the 
 bills they want or be at the cost of transmitting 
 coin or bullion ? 
 
 207. What is the only means which any particular 
 country possesses of regulating the foreign exchanges, 
 as far as it is itself concerned ? 
 
74 
 
 THE SCIENCE OF EXCHANGES. 
 
 The raising or lowering the rate of interest, accord- 
 ing to its state of debt or credit with all other 
 countries — 
 
 (1) When it owes more to other countries, taking all 
 its transactions together, than they owe to it, an efflux 
 of coin or bullion soon takes place, and the rate of 
 interest must then be raised at home ; this will have 
 the effect of restricting its purchases in foreign countries 
 and increasing its sales at home for exportation, and 
 the foreign exchanges will very slowly become more 
 favorable. 
 
 (2) When other countries owe more to it, taking all 
 their mutual transactions into account, than it owes 
 to them, an influx of coin or bullion soon takes place, 
 and the rate of interest will then fall of itself at home ; 
 this will have the effect of increasing its purchases 
 in foreign countries and restricting its sales at home 
 for exportation, and the foreign exchanges will slowly 
 become less favorable. The state of the foreign 
 exchanges, as far as any particular country is con- 
 cerned, depends upon its state of debt or credit with 
 all other countries. 
 
CHAPTER VII. 
 
 TAXATION. 
 
 208. What is taxation in Great Britain? 
 
 It is the cost of the British constitution, that is, 
 the per-centage which we must pay to secure our lives 
 and properties. 
 
 209. What ought a tax to be? 
 
 It ought to be but the price which we have to pay 
 for some advantage given to us in return. 
 
 210. How can we best consult the interests of the 
 whole mass of the nation ? 
 
 By encouraging free competition amongst all ex- 
 changers, irrespective of race or country, and thereby 
 lessening the cost of producing commodities. 
 
 211. Does taxation in any country necessarily 
 restrict competition in that country ? 
 
 No, it does not, provided that the same kind of 
 commodities are taxed exactly alike, whether they be 
 produced at home or abroad. Taxation only restricts 
 competition when the same kind of commodities are 
 unequally taxed, that is to say, when the price of 
 certain kinds of commodities which some competitors 
 supply is raised by taxation above the price of the 
 same kind of commodities which other competitors 
 supply. 
 
 212. What should be the aim of the financialist ? 
 
 To endeavour to make competition absolutely free. 
 
 213. What are direct taxes? 
 
76 
 
 THE SCIENCE OF EXCHANGES. 
 
 They are taxes which are directly and distinctly 
 demanded as taxes. 
 
 214. What are indirect taxes? 
 
 They are taxes npon the consumption of various 
 commodities, the payment of which can be avoided by 
 not consuming the commodities. 
 
 215. What are the objections to direct taxation ? 
 
 That it interferes with the private concerns of the 
 
 people too much, that it gives great opportunities for 
 fraud, and that it cannot be put equally on all classes, 
 but that those who are rich pay more than their fair 
 share of taxation. 
 
 216. What are the objections to indirect taxation ? 
 
 That it is not just that taxation should be optional, 
 
 and that any tax on the consumption of commodities 
 must prevent the natural development of trade. 
 
 217. What is the advantage of direct taxation? 
 
 That it presses on those who are best able to bear 
 
 it, and that it enables us to lighten indirect taxes on 
 the consumption of various commodities, which may be 
 called necessaries, whereby we both improve the con- 
 dition of the masses and greatly develop the trade of 
 the country ; for instance, lowering the taxes on tea, 
 sugar, wine, &c. 
 
 218. What is the advantage of indirect taxation ? 
 
 That a very large mass of the people are made con- 
 tributors to the revenue, by indirect taxes, whom no 
 system of direct taxation could reach, as in the case of 
 the tax on tobacco in Ireland. 
 
 219. What is the best system of taxation ? 
 
 A mixture of direct and indirect taxation, such as we 
 have in Great Britain. 
 
THE SCIENCE OF EXCHANGES. 
 
 77 • 
 
 220. What is the proportion between these two 
 modes of collecting our revenne, as it stands at 
 present ? 
 
 Mr. Milner Gibson stated lately that for every £22 
 paid by direct taxation, during 1860 and 1861, there 
 would be £78 paid by indirect taxation. 
 
 221. Why is this mixed system the best? 
 
 Because if we had only a direct system of taxation 
 
 it would fall too heavily on the richer classes ; direct 
 taxes could not be collected from the poorer classes, 
 and the great mass of the people would escape taxation 
 altogether. If we had only an indirect system of 
 taxation, we never could have developed the trade of 
 Great Britain to the enormous extent we have done, 
 for we could not have lowered the taxes on such com- 
 modities as tea, sugar, wine, corn, &c., sufficiently. 
 By mixing the two systems we are enabled to collect 
 the required amount of revenue in the least injurious 
 way to all classes of the nation. 
 
 222. Is the tendency in Great Britain towards 
 direct or towards indirect taxation ? 
 
 It is towards direct taxation ; so much palpable 
 benefit to the community at large has been derived 
 from the remission of some indirect taxes, and the 
 lowering of others. 
 
 228. How far is this tendency likely to go ? 
 
 It will go on till the heaviest income tax which 
 the Lords and Commons will bear in times of peace 
 has been arrived at ; the remainder of the revenue 
 must then be raised by indirect taxation. 
 
 224. Would universal suffrage make the direct 
 
78 
 
 THE SCIENCE OF EXCHANGES. 
 
 system of taxation go further than our present electoral 
 system does ? 
 
 It would seem in theory to be likely that the poor, 
 who are many, would, if they had the power, make the 
 rich, who are comparatively few, pay taxes for them- 
 selves and the poor too, but such is not found to be 
 the case. In America, where universal suffrage 
 obtains, the rich do not cry out that they are made 
 to pay more than their fair share of taxation by the 
 poor. 
 
 225. Mention Dr. Adam Smith’s four rules with 
 regard to taxation. 
 
 (1) That the subjects of a state should contribute 
 to the support of that state according to the revenue 
 which they respectively enjoy under its protection. 
 
 (2) That such contribution should not be arbitrary, 
 both the time of payment and the sum to be paid 
 being fixed. 
 
 (3) That every tax should be levied at the most 
 convenient time to the contributor. 
 
 (4) That the expense of collection should be as 
 small as possible. 
 
 226. If the expense of collection was precisely the 
 same, and we wanted to raise a revenue of seventy 
 millions by taxation, to which system ought we to 
 resort, the direct or the indirect ? 
 
 To the direct system, provided that we could levy 
 these direct taxes equally and fairly on all her Majesty’s 
 subjects in Great Britain, rich and poor, high and low, 
 for our trade would then be perfectly free to develop 
 itself, and would increase enormously. Anything 
 
THE SCIENCE OF EXCHANGES. 
 
 79 
 
 which cramps trade must weaken the tax-paying 
 capacities of the people. 
 
 227. Is it just that there should be a graduated 
 scale of income tax, the richest people paying a large 
 per-centage on their incomes, and then a low per- 
 centage gradually reached as the incomes dealt with 
 get less ? 
 
 Certainly not ; such a scale interferes with the 
 rights of property ; all men, whatever be their incomes, 
 ought to pay exactly the same per-centage, those only 
 being exempt whose incomes are so small that the tax 
 would not pay the expense of its collection. Taxing 
 any particular class at a higher rate of per-centage 
 than the rest, because they chance to be rich, is, in 
 reality, a confiscation of their property. 
 
 228. How may a heavy taxation be made to appear 
 lighter than it is in reality ? 
 
 (1) By spreading it over the greatest number of 
 contributors possible. A certain sum must be col- 
 lected for revenue ; the more you can increase the 
 number of those who must contribute towards that 
 sum the smaller will each single contribution become, 
 and the less grievous will the taxation appear to be. 
 
 (2) By repealing or lowering any taxes which inter- 
 fere with the free development of trade, and substi- 
 tuting other taxes in place of them. The repeal of 
 the corn laws, for instance, created a large, steady 
 trade with foreign nations, who send their grain to 
 Great Britain, and did more good to the people by 
 the employment caused by that trade than by the 
 mere cheapening of the loaf. The source of wealth is 
 trade ; the more, therefore, we can develop trade in 
 
so 
 
 THE SCIENCE OE EXCHANGES. 
 
 all its branches the richer we become, and the better 
 able to pay any taxation which is found to be neces- 
 sary. 
 
 229. What are excise duties ? 
 
 Taxes levied upon the consumption of commodities 
 which are produced within the kingdom. 
 
 230. What are customs duties ? 
 
 Taxes levied upon the consumption of commodities 
 which are produced in foreign countries and brought 
 into the kingdom. 
 
 231. Is the amount of duty remitted to the con- 
 sumer the only relief which he generally obtains from 
 a remission of the customs duties levied on commodi- 
 ties from abroad ? 
 
 No ; he may gain greatly by a reduction in the 
 price of the commodity on which the duty has been 
 remitted, for the competition from abroad, which that 
 remission produces, will bring down the price of the 
 commodity, so that the consumer not only gets the 
 relief given by the remission of the customs duty, but 
 he also gets the relief given by the reduction in price 
 from the increased competition. It is competition 
 which brings the profit made by the producers of any 
 commodity to its minimum rate, for one undersells the 
 other till this rate is reached. 
 
 232. Give an instance to explain this. 
 
 Brandy is made in Great Britain to a very con- 
 siderable extent, and is also imported from France, 
 but paid formerly a duty of 1 5 s. 2 d. per gallon ; now, 
 when this duty is lowered to 8s. 2 d. per gallon, the 
 British manufacturers who could successfully compete 
 with French brandy that paid a duty of lbs. 2d. per 
 
THE SCIENCE OE EXCHANGES. 
 
 81 
 
 gallon, may very likely not be able to compete with it 
 when it pays a duty of only 8s. 2d. per gallon ; or if 
 he is still able to compete, must lower his price, or 
 he would be undersold by the French manufacturer ; 
 so that in this case the consumer not only gains by a 
 remission of the customs duty on brandy, but he 
 gains also by a reduction in the price of the brandy 
 which he consumes. 
 
 233. What does this show ? 
 
 It shows that the customs duty and the excise duty 
 on any one commodity ought to be equalized, in order 
 to secure the freest competition amongst those who 
 supply that commodity ; if, for instance, the customs 
 duty on foreign brandy is higher than the excise duty 
 on home-made brandy, the distiller of brandy at home 
 is protected against the foreign distiller, to the dis- 
 advantage of the consumer. 
 
 234. Are export duties advantageous ? 
 
 If a country has almost the exclusive supply of any 
 commodity, a moderate export duty on that com- 
 modity may be advisable, as long as it does not in the 
 least interfere with the consumption of the commodity. 
 If other countries also produce the commodity, an 
 export duty on it is a bounty to encourage your rivals 
 in the market. Experience must decide, in the first 
 case, whether it is better to make the foreigner pay 
 the export duty, or to make your own people pay 
 some equivalent tax after they have got the highest 
 price for the commodity, which would, of course, in- 
 clude the export duty. Export duties have not been 
 found to answer in Great Britain. 
 
 235. Are import duties advantageous? 
 
 In no shape ; they cramp the natural development 
 
 6 
 
82 
 
 THE SCIENCE OE EXCHANGES. 
 
 of trade : but we are obliged to resort to them to get 
 the money required for revenue. 
 
 236. If indirect taxation is absolutely necessary, 
 what sort of commodities should we tax heavily, and 
 what sort lightly ? 
 
 We should tax heavily any commodities which are 
 not absolutely necessary for the health and welfare of 
 the people, but which they are in the habit of con- 
 suming, such as tobacco, gin, whiskey, brandy, &c. ; 
 but we should tax as lightly as possible such commo- 
 dities as wine, beer, tea, coffee, sugar, &c., for these 
 commodities are directly conducive to the health and 
 welfare of the people. 
 
 237. How long ought we go on lowering a tax on 
 the consumption of any of these last commodities ? 
 
 As long as the increased consumption on account of 
 that lowering brings the tax to the same amount at 
 the year’s end ; once a commodity has reached a price 
 which puts it practically in the hands of the people, 
 lowering the tax on it will increase its consumption 
 but very little. 
 
 238. What is a tariff? 
 
 A table of the duties established by law in any par- 
 ticular country. 
 
 239. What is an ad-valorem duty ? 
 
 A duty based upon the value of the commodity it 
 is imposed on, and which fluctuates as that value 
 fluctuates. 
 
 240. What is a specific duty? 
 
 A duty which may or may not be based on the 
 value of the commodity it is imposed on, but which 
 does not fluctuate as that value fluctuates. 
 
 241. Are there, then, two kinds of specific duties ? 
 
THE SCIENCE OF EXCHANGES. 
 
 83 
 
 Yes, there is the purely specific duty which is not 
 based on the value of the commodity it is imposed on, 
 as for instance, the tax on tea in Great Britain of 
 Is. 5 d. per pound, common congou, worth about lOd. 
 per pound, paying exactly the same duty as flowery 
 pekoe, worth 3s. 6d. per pound ; and there is the spe- 
 cific duty which is based upon the value of the com- 
 modity it is imposed on, but which does not fluctuate 
 as that value fluctuates. This may be called the speci- 
 fic duty on a classification of commodities arrived at 
 by valuation ; for instance, in the new French tariff, 
 under the one class, linen, instead of a purely specific 
 duty on every kind of linen, there is a specific duty of 
 fifteen per cent, on seven sub-classes of linens, and 
 this duty differs for each of them, as it has been ar- 
 rived at by calculating the rate of fifteen per cent, on 
 a previous valuation of each sub-class. 
 
 242. Are there any objections to the working of a 
 tariff on the purely ad-valorem system P 
 
 Yes ; such a tariff gives great opportunities for 
 wrangling and fraud, and there must always be a 
 danger of under- valuations to the detriment of the pub- 
 lic revenue. The advocates of the system declare that 
 it is the simplest, but this simplicity disappears on exa- 
 mination of the way the system works ; it is very simple 
 to strike an ad- valorem rate of twenty per cent, on the 
 value of any number of commodities, but it is very far 
 from being a simple matter to levy that rate on each 
 particular class of commodity according to its market 
 price. 
 
 243. Are there any objections to a tariff based upon 
 the purely specific system ? 
 
 There are no objections to the practical working of a 
 
84 
 
 THE SCIENCE OE EXCHANGES. 
 
 tariff on such a system, but the difficulty of forming 
 it successfully would prevent its being adopted. As 
 the purely specific system ignores value as a basis for 
 taxation, there are no guiding principles for the classi- 
 fication of commodities, or for the amount of duty to 
 be levied on each class. 
 
 244. Are there any objections to a tariff based 
 upon a system of specific duties on a classification of 
 commodities arrived at by valuation ? 
 
 Yes ; one of the principal objections lies in the ne- 
 cessity of frequently revising such a tariff, in order 
 to keep the specific duties always at the level, w r hich 
 they were originally designed to observe, with rela- 
 tion to the selling prices of the commodities. For 
 instance, if the specific duty on any particular com- 
 modity is fifteen per cent., arrived at by a previous 
 valuation of the commodity, should this last fall ten 
 per cent, in price, the specific duty no longer main- 
 tains its level, but becomes a specific duty of twenty- 
 five per cent, on the selling price, and therefore re- 
 quires alteration. The classification of commodities 
 in this system, too, leads to disputation and fraud; 
 for instance, in the French commercial treaty as re- 
 gards linen, there are seven classes of linens, and 
 superior linens may be classed as inferior ones, to 
 the detriment of the revenue in France, and so on in 
 every instance where such classification exists. 
 
 245. What is the best kind of tariff, then? 
 
 A tariff which admits all the three systems as 
 they can most conveniently be applied. Ad- valorem 
 duties are the best for those goods wdiich are sub- 
 ject to great and frequent variations in price. Spe- 
 cific duties, on a classification arrived at by valuation, 
 
THE SCIENCE OE EXCHANGES. 
 
 85 
 
 offer less opportunities for fraud than ad-valorem 
 duties, and work well if they are revised sufficiently 
 often so as to maintain their proper level with the 
 selling prices of the commodities they are imposed on ; 
 and purely specific duties will always recommend 
 themselves on account of their simplicity and the 
 security which they give against fraud. 
 
 246. What must we remember in considering the 
 expenditure of our revenue as a nation ? 
 
 That, putting out of the question the advantages 
 which we receive in return, the mere expenditure of 
 that revenue in the country gives hosts of our country- 
 men employment. This is no argument in favour of 
 taxation ; the greater the cost of production, the worse 
 for the consumer ; but it is to show, that although, 
 taken in this point of view, all these hosts of men are 
 unproductive labourers, they (the labourers) profit just 
 as much by their labour as if they were productive 
 labourers, though their employers do not. Unpro- 
 ductive labour is labour productive to the labourer, but 
 unproductive to the employer. A shipwright who works 
 in her Majesty’s dockyards gets just the same wages 
 as a shipwright who works in any private dockyard ; 
 the first is, by our case, an unproductive labourer; 
 the second, a productive one ; but each gets the same 
 price for the labour which he has to sell. A man who 
 has any particular kind of labour to sell gets just the 
 same price for it, whether it is productive or unpro- 
 ductive to his employer; for instance, a sailor on 
 board a yacht gets, at least, as good wages as a sailor 
 on board a trading screw ; so that if the expenditure 
 of revenue injures us, considered in the light of em- 
 
86 
 
 THE SCIENCE OF EXCHANGES. 
 
 ployers of unproductive labourers, it benefits us at the 
 same time, considered in the light of labourers in 
 receipt of that employment. But for this being the 
 case, we never could bear our present taxation. 
 
 247. What is the amount of money required for 
 revenue in Great Britain ? 
 
 About £70,564,000 for 1860. 
 
 248. How much of this amount goes to pay the 
 interest of the national debt ? 
 
 £26,200,000. 
 
 249. Is the rate of interest payable on this debt 
 fixed? 
 
 No ; it appears to be fixed, but it is not in reality 
 so ; the variations in the price of stock change the rate 
 of interest constantly. 
 
 250. What is the advantage of varying the price 
 of the stock, and fixing a nominal rate of interest ? j 
 
 More minute variations can take place in the price 
 of stock than could conveniently take place in the 
 rate of interest payable on that stock ; and the more 
 minute these variations in the price of stock are, the 
 freer the competition amongst the capitalists who want 
 to lend their money to Government, and the better also 
 for the public, who can have the money they want on 
 better terms from that very competition ; the accounts 
 necessary to keep open for the funds are much more 
 easily managed when the same rate of interest is pay- 
 able to all the holders. 
 
 251. What influences capitalists in their offers to 
 lend money to any Government ? 
 
 They judge what a fixed annuity of three per cent, is 
 worth in the money-market according to the market 
 
THE SCIENCE OF EXCHANGES. 
 
 87 
 
 rate of interest, and then they look to the credit of the 
 Government which is borrowing from them. 
 
 252. Are the funds equally profitable as an invest- 
 ment to British subjects who live at home, as to 
 British subjects who live abroad ? 
 
 No ; British subjects who live abroad have only 
 income-tax to pay on the interest derived from their 
 investment, whereas British subjects who live at home 
 not only have income-tax to pay on their dividends, 
 but contribute their share as individual tax-payers 
 towards the payment of their own interest. The 
 £26,200,000 required to pay the interest of the Na- 
 tional debt is all raised by taxation, and forms more 
 than a third of the whole amount of revenue collected. 
 
 253. Are the funds being high a sign of prosperity 
 in Great Britain ? 
 
 No ; the funds may rise from want of confidence 
 amongst capitalists, who buy into them because they 
 are the safest investment. 
 
 254. Are the Government savings-banks in Great 
 Britain a good institution ? 
 
 It is supposed by many that the loss on the opera- 
 tions of these banks is more than compensated by the 
 good they do in securing a safe investment for the hard- 
 earned savings of the lower classes ; but it is not just 
 that the British public should be taxed for the special 
 advantage of the class who invest in savings-banks. 
 There is at the present time, and there has been accu- 
 mulating for some years, a loss of more than two mil- 
 lions sterling upon the operations of these savings- 
 banks ; in fact, were they a private institution, they 
 would have been insolvent long ago. The cause is, 
 
88 
 
 THE SCIENCE OF EXCHANGES. 
 
 that Government have often to purchase when the 
 funds are high, and sell out when they are low ; and 
 as they are bound to make up the loss to the investors, 
 the public must be taxed in order to keep the system 
 going. It is easy to understand the principle of sub- 
 sidies where a certain sum is paid for a certain service 
 rendered ; but taxing the public for the benefit of a 
 particular class is unsound in principle, and ought to 
 be discontinued. Every facility should be given to 
 small capitalists to invest directly themselves in the 
 funds, as is done in France ; but they should be obliged, 
 like any other capitalists, to stand their chance of gain 
 or loss on their investments. 
 
 255. Can true free trade exist when only one nation 
 in the world is guided by its principles ? 
 
 It can, but only amongst the individuals who com- 
 pose that nation ; it does not exist with regard to her 
 foreign trade. This one nation has herself permitted 
 free competition, irrespective of race or country, in her 
 own markets ; but she is prevented by the protective 
 laws of other nations from competing freely in their 
 markets. Unless there is the same free competition in 
 the markets on each side, there is no true free trade 
 between nation and nation; there is only an approxi- 
 mation to it on the part of one nation. 
 
 256. When may trade be said to be free between 
 France and England ? 
 
 When an Englishman can deal in French markets 
 as if he was a Frenchman, and a Frenchman can deal 
 in English markets as if he was an Englishman. Trade 
 will then be free between France and England. 
 
 257. If we permit other nations to compete freely 
 
THE SCIENCE OF EXCHANGES. 
 
 89 
 
 • in our markets, so as to enable them to sell to us and 
 to buy of us, as it suits their advantage, what ought 
 we to expect in return ? 
 
 To be allowed to compete freely in their markets ; 
 or if they put import duties on our manufactures, to 
 be allowed to buy raw material from them either free 
 of export duty altogether, or subject to so moderate 
 a duty that it will not interfere with our consumption 
 of that material. 
 
 258. What has been the policy of Great Britain 
 hitherto with regard to the commercial restrictions im- 
 posed by foreign states ? 
 
 It has been to disregard such restrictions altogether, 
 and act as if they did not exist. English statesmen 
 consider that their country would lose more by a re- 
 taliatory system than she could gain. 
 
 259. Give an instance where a counterbalancing 
 import duty has not been considered advantageous to 
 English interests. 
 
 There are the paper-manufacturers in England. 
 Rags are the only materials of which paper of a suf- 
 ficiently good quality for printing can be made with 
 profit. They are very scarce in England, as American 
 agents buy them largely for the United States. The 
 French and Germans have now free access to the 
 English markets, which are the best in the world, for 
 the sale of their paper ; they have an abundant supply 
 of rags ; for, from their not having a free press, they do 
 not want so much paper of a certain quality as we do 
 in England ; but they maintain their rags at an arti- 
 ficially low price at home by putting a heavy export 
 duty on them, in order to be able to distance the 
 
90 
 
 THE SCIENCE OE EXCHANGES. 
 
 English paper-manufacturers in their own markets. 
 The English manufacturers said, “ If the French and 
 Germans will charge us no export duty on their rags, 
 let them send as much paper as they please to English 
 markets ; but it is very hard upon us that they should 
 keep their rags at an artifically low price at home, for 
 the avowed purpose of gaining an advantage over us 
 in our own markets. What we ask for, then, is such 
 an import duty on French and German paper, manu- 
 factured of rags, as will exactly counterbalance the 
 export duty which the French and Germans charge 
 us on the rags themselves/' The British nation 
 answered, “We admit that your case is a hard one, 
 but we cannot tax ourselves by a counterbalancing 
 duty, which must raise the price of paper, for your 
 sole advantage ; we should lose more than we could 
 gain by doing so.” 
 
 260. What, then, is the nature of the question 
 with regard to counterbalancing import duties? 
 
 A question of pounds, shillings, and pence; do 
 we lose more by the rise in price of the commo- 
 dity on which we put the counterbalancing import 
 duty than we gain by taxing ourselves for the ad- 
 vantage of a particular class ? In nine cases out of 
 ten we lose more than we could gain ; and, there- 
 fore, counterbalancing import duties will be very 
 rarely resorted to in England. 
 
 261. What is the principle that nations who 
 maintain their raw material at an artificially low 
 price at home, by placing export duties on it, most 
 probably act on? 
 
 It is that there is less profit to be made on the sale 
 
THE SCIENCE OF EXCHANGES. 
 
 91 
 
 of mere raw material than there would be on the 
 goods manufactured of that raw material ; and that 
 the additional profit to be made by the rise in price of 
 raw material, which would take place from all the world 
 having free access to it, would by no means counter- 
 balance the serious competition which their own 
 manufacturers must then meet with, for all other 
 manufacturers would be put on much more equal 
 terms with them. 
 
 262. What effect have export duties which tend to 
 keep any raw material at an artificially low price at 
 home? 
 
 They have the effect of bounties to the home manu- 
 factuers who require that raw material. 
 
 263. What, then, is the nature of the question with 
 regard to such export duties ? 
 
 A pounds, shillings, and pence question ; which is 
 it best worth a nation's while, to let its raw material 
 rise to what all the world will give for it, and boldly 
 meet the competition of the world in its manufactures, 
 or to keep its raw material at an artificially low price, 
 by putting export duties on it, and thus give a bounty 
 to its own manufacturers, and enable them to enter 
 those markets which they are allowed free access to 
 with peculiar advantages ? 
 
 264. Is a policy of retaliation advantageous ? 
 
 No, it is never advantageous, but it is sometimes 
 necessary ; for instance, it is by no means to our 
 advantage to keep such a huge fleet and standing 
 army as we now do in England, but as long as the 
 Emperor of the French maintains his armaments on 
 so vast a scale, we must maintain ours also ; both 
 
92 
 
 THE SCIENCE OF EXCHANGES. 
 
 sides are losers, yet the policy of retaliation is neces- 
 sary to defend ourselves. 
 
 265. What system is followed in Canada at pre- 
 sent with regard to import duties on manufactured 
 goods ? 
 
 The Canadian Government gives bounties to Ca- 
 nadian manufacturers, as far as it can, by putting 
 heavy import duties on manufactured goods coming 
 from other countries. 
 
 266. Is this system followed in the United 
 States ? 
 
 Unfortunately, it is ; but, in spite of the heavy im- 
 port duties, our manufacturers are often able to com- 
 pete for a time with the American manufacturers, 
 from the very high price of goods. 
 
 267. Has this system received support in any 
 other quarter lately ? 
 
 Yes ; the late Mr. Wilson has put ten per cent, 
 import duties on cotton yarns, and other specific duties 
 on cotton goods which come into India. This is giving 
 a great bounty to the Indian native manufacturers, with 
 the cheap labour they have at their disposal, with 
 plenty of land to grow cotton in, and with plenty of 
 English capital ready to be lent to them on good 
 security. 
 
 268. What does this tend to show? 
 
 The very great difficulty of the question. Mr. 
 Wilson went to India with the object of developing 
 its resources, and increasing the tax-paying capacities 
 of the country ; he looked to what is to the advantage 
 of India, and he considered that the native manufac- 
 turers ought to be encouraged by bounties. 
 
THE SCIENCE OF EXCHANGES. 
 
 93 
 
 269. If this is denied, what conclusion must we 
 come to ? 
 
 That Mr. Wilson wanted money for revenue, and 
 knew of no other means of getting it ; but, whichever 
 was his reason for putting the duties on, they must be 
 injurious to English manufacturers, who always want 
 extension of their markets in every possible direction. 
 Mr. Wilson has established a precedent, on English 
 authority, to encourage the Americans in their system, 
 which certainly does not answer in the United States, 
 goods being outrageously dear, especially all kinds of 
 clothing. 
 
 270. Does population increase in a greater ratio 
 than food? 
 
 It does, and the consequence is a steady rise in the 
 price of provisions all over the world. 
 
 271. Is there a limit to this increase ? 
 
 Certainly, the limit is the means of subsistence ; 
 but the earth’s food-producing powers must be taxed 
 in a very different way to what they are at present, 
 before we arrive at it. 
 
 272. What is the total number of inhabitants in 
 the United Kingdom, including the islands in the 
 British seas, as taken in the census of 1861 ? 
 
 They may be set down as not less than 29,031,164. 
 Of these, 20,061,725 were numbered in England and 
 Wales; 3,061,117 in Scotland; 5,764,543 in Ireland ; 
 and 143,779 in the Channel Islands and Isle of Man. 
 The army serving abroad, and the navy and merchant 
 seamen absent at sea, are not included. Since 1851, 
 notwithstanding the Irish emigration, the Russian 
 war, and other unfavorable circumstances, we have a 
 
94 
 
 THE SCIENCE OP EXCHANGES. 
 
 solid addition of more than a million and a half to the 
 population of the United Kingdom. 
 
 273. What is the golden rule in commerce? 
 
 Buy in the cheapest and sell in the dearest markets ; 
 without free trade this is impossible. 
 
 274 Is absenteeism an evil? 
 
 It depends on what kind of absenteeism it is. A 
 man may leave one part of the kingdom to reside in 
 another part which he prefers ; or he may leave the 
 kingdom altogether, and reside abroad. In the first 
 case absenteeism is no real evil ; for, although small 
 local interests suffer in the place left, other small local 
 interests gain in the place gone to : consumption for 
 the sake of enjoyment is not interfered with ; it 
 remains unaltered as far as the one kingdom is con- 
 cerned. In the second case absenteeism is a decided 
 evil ; for consumption for the sake of enjoyment is 
 diminished in the kingdom which the absentee leaves, 
 while it is increased in the kingdom which he goes to. 
 It must be remembered that it is only men of inde- 
 pendent property who can change their place of resi- 
 dence without loss to themselves ; professioual men 
 are very seldom able to do so. Thus absentees 
 necessarily form but a small class, and as long as 
 they remain in their own country it is completely 
 immaterial to the general prosperity of that country 
 in what part of it they may choose to reside. 
 
 275. What is the great difficulty to be contended 
 with in the management of our revenue in Great 
 Britain ? 
 
 That our expenditure is constantly increasing with- 
 out a corresponding increase in our national wealth. 
 
THE SCIENCE OF EXCHANGES. 
 
 5 
 
 On the one hand, we are always voting money for 
 some national purpose ; on the other, we are always 
 pressing for a diminution of taxation. 
 
 276. What are the best remedies? 
 
 1. To diminish the cost of the British constitution 
 as much as possible, by a judicious economy. 
 
 2. To endeavour to introduce free trade amongst 
 the nations we deal with, so that we may have plenty 
 of employment at home and healthy tax-paying 
 capacities. 
 
INDEX TO DEFINITIONS. 
 
 Abundance, 33. 
 Banking, 84. 
 Buying, 71. 
 
 Capital, 49. 
 Circulation, 87. 
 Commodity, 3. 
 Competition, 19 
 Consumption, 5, 
 Credit, 79. 
 Currency, 85. 
 
 Demand, 13. 
 Deposits, 111. 
 
 Exchange, 2. 
 
 Panic, 113. 
 
 Price, 41. 
 Production, 4. 
 Profit, 8. 
 
 Property, 48. 
 Protection, 38. 
 
 Rent, 44. 
 Retrenchment, 54. 
 
 Saving, 53. 
 Security, 108. 
 Selling, 72. 
 Speculation, 73. 
 Supply, 14. 
 
 Free Trade, 36. 
 Glut, 40. 
 Hoarding, 52. 
 
 Tax, 209. 
 Trade, 35. 
 Tariff, 238. 
 Tokens, 174. 
 
 Interest, 43. 
 Issue, 83. 
 
 Labour, 56. 
 
 Monopoly, 39. 
 Money, 80. 
 
 Value, 1. 
 
 Value-in-Exchange, 20. 
 
 Wages, 58-. 
 
 Want, 12. 
 
 Wealth, 34. 
 
 PRINTED BY EEFINGHAM WILSON, ROYAL EXCHANGE. 
 
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