head, your Committee will first state the opinions which they have received from. practical men, respecting the causes of the present state of the exchange. Mr. Greffulhe, a general merchant, trading chiefly to the continent, ascribed the fall of exchange between London and Hamburgh, near 18 per cent. below par, in the year 1809, "altogether to the commercial situation of this country with the continent; to the circumstance of the imports, and payments of subsidies, &c., having very much exceeded the exports." He stated, however, that he formed his judgment of the balance of trade in a great measure from the state of the exchange itself, though it was corroborated by what fell under his observation. He insisted particularly on the large imports from the Baltic, and the wines and brandies brought from France, in return for which no merchandise had been exported from this country. He observed on the other hand, that the export of colonial produce to the continent had increased in the last year compared with former years; and that during the last year there was an excess, to a considerable amount, of the exports of colonial produce and British manufactures to Holland above the imports from thence, but not nearly equal, he thought, to the excess of imports from other parts of the world, judging from the state of the exchange as well as from what fell generally under his observation. He afterwards explained, that it was not strictly the balance of trade, but the balance of payments, being unfavorable to this country, which he assigned as the principal cause of the rate of exchange; observing also, that the balance of payments for the year may be against us, while the general exports exceed the imports. He gave it as his opinion that the cause of the present state of exchange was entirely commercial, with the addition of the foreign expenditure of government; and that an excess of imports above exports would account for the rates of exchange continuing so high as 16 per cent. against this country, for a permanent period of time. It will be found in the evidence, that several other witnesses agree in substance with Mr. Greffulhe, in this explanation of the unfavorable state of the exchange; particularly Mr. Chambers and Mr. Coningham. Sir Francis Baring stated to the Committee, that he considered the two great circumstances which affect the exchange in its present unfavorable state, to be the restrictions upon trade with the continent, and the increased circulation of this country in paper, as productive of the scarcity of bullion. And he instanced, as examples of a contrary state of things, the seven years' war, and the American war, in which there were the same remittances to make to the continent for naval and military expenditure, yet no want of bullion ever was felt. The Committee likewise examined a very eminent continental merchant, whose evidence will be found to contain a variety of valuable information. That gentleman states, that the exchange cannot fall in any country in Europe at the present time, if computed in coin of a definitive value, or in something convertible into such coin, lower than the extent of the charge of transporting it, together with an adequate profit in proportion to the risk attending such transmission. He conceives, that such fall of our exchange as has exceeded that extent in the last 15 months, must certainly be referred to the circumstance of our paper currency not being convertible into specie; and that if that paper had been so convertible, and guineas had been in general circulation, an unfavorable balance of trade, could hardly have caused so great a fall in the exchange as to the extent of 5 or 6 per cent. He explains his opinion upon the subject more specifically in the following answers, which are extracted from different parts of his evidence. "To what causes do you ascribe the present unfavorable course of exchange ?-The first great depreciation took place when the French got possession of the north of Germany, and passed severe penal decrees against a communication with this country; at the same time that a sequestration was laid upon all English goods and property, whilst the payments for English account were still to be made, and the reimbursements to be taken on this country; many more bills were in consequence to be sold than could be taken by persons requiring to make payments in England. The communication by letters being also very difficult and uncertain, middle men were not to be found, as in usual times, to purchase and send such bills to England for returns; whilst no suit at law could be instituted in the courts of justice there against any person who chose to resist payment of a returned bill, or to dispute the charges of re-exchange. Whilst those causes depressed the exchange, payments due to England only came round at distant periods; the exchange once lowered by those circumstances, and bullion being withheld in England to make up those occasional differences, the operations between this country and the continent have continued at a low rate, as it is only matter of opinion what rate a pound sterling is there to be valued at, not being able to obtain what it is meant to represent." "The exchange against England fluctuating from 15 to 20 per cent., how much of that loss may be ascribed to the effect of the measures taken by the enemy in the north of Germany, and the interruption of intercourse which has been the result, and how much to the effect of the Bank of England paper not being convertible into cash, to which you have ascribed a part of that depreciation ?-I ascribe the whole of the depreciation to have taken place originally in consequenee of the measures of the enemy, and its not having recovered to the circumstance of the paper of England not being exchangeable for cash." "Since the conduct of the enemy which you have described, what other causes have continued to operate on the continent to lower the course of exchange ?—Very considerable shipments from the Baltic, which were drawn for and the bills negotiated immediately on the shipments taking place, without consulting the interest of the proprietors in this country much, by deferring such a negotiation till a demand should take place for such bills: The continued difficulty and uncertainty in carrying on the correspondence between this country and the continent: The curtailed number of houses to be found on the continent willing to undertake such operations, either by accepting bills for English account drawn from the various parts where shipments take place, or by accepting bills drawn from this country, either against property shipped, or on a speculative idea that the exchange either ought or is likely to rise: The length of time that is required before goods can be converted into cash, from the circuitous routes they are obliged to take: The very large sums of money paid to foreign ship owners, which in some instances, such as on the article of hemp, has amounted to nearly its prime cost in Russia: The want of middle men who as formerly used to employ great capitals in exchange operations, who, from the increased difficulties and dangers to which such operations are now subject, are at present rarely to be met with, to make combined exchange operations, which tend to anticipate probable ultimate results." The preceding answers, and the rest of this gentleman's evidence, all involve this principle, expressed more or less distinctly, that bullion is the true regulator both of the value of a local currency and of the rate of foreign exchanges; and that the free convertibility of paper currency into the precious metals, and the free exportation of those metals, place a limit to the fall of exchange, and not only check the exchanges from falling below that limit, but recover them by restoring the balance. PAR OF EXCHANGE Your Committee need not particularly point out in what respects these opinions received from persons of practical detail, are vague and unsatisfactory, and in what respects they are contradictory of one another; considerable assistance, however, may be derived from the information which the evidence of these persons affords, in explaining the true causes of the present state of the exchanges. Your Committee conceive that there is no point of trade, considered politically, which is better settled, than the subject of foreign exchanges. The par of exchange between two countries is that sum of the currency of either of the two, which in point of intrinsic value, is precisely equal to a given sum of the currency of the other; that is, contains precisely an equal weight of gold or silver of the same fineness. If 25 livres of France contained precisely an equal quantity of pure silver with 208. sterling, 25 would be said to be the par of exchange between London and Paris. If one country uses gold for its principal measure of value, and another uses silver, the par between those countries cannot be estimated for any particular period, without taking into account the relative value of gold and silver at that particular period; and as the relative value of the two precious metals is subject to fluctuation, the par of exchange between two such countries is not strictly a fixed point, but fluctuates within certain limits. An illustration of this will be found in the evidence, in the calculation of the par between London and Hamburgh, which is estimated to be 34/ 3% Flemish shillings for a pound sterling. That rate of exchange, which is produced at any particular period by a balance of trade or payments between the two countries, and by a consequent disproportion between the supply and the demand of bills drawn by the one upon the other, is a departure on one side or the other from the real and fixed par. But this real par will be altered if any change takes place in the currency of one of the two countries, whether that change consists in the wear or debasement of a metallic currency below its standard, or in the discredit of a forced paper currency, or in the excess of a paper currency, not convertible into specie; a fal having taken place in the intrinsic value of a given portion of one currency, that portion will no longer be equal to the same portion, as before, of the other currency. But though the real par of the currencies is thus altered, the dealers, having little or no occasion to refer to the par, continue to reckon their course of exchanges from the former denomination of the par; and in this state of things a distinction is necessary to be made between the real and computed course of exchange. The computed course of exchange as expressed in the tables used by the merchants, will then include, not only the real difference of exchange arising from the state of trade, but likewise the difference between the original par and the new par. Those two sums may happen to be added together in the calculation, or they may happen to be set against each other. If the country, whose currency has been depreciated in comparison with the other, has the balance of trade also against it, the computed rate of exchange will appear to be still more unfavorable than the real difference of exchange will be found to be; and so if that same country has the balance of trade in its favor, the computed rate of ex change will appear to be much less favorable than the real difference of exchange will be found to be. Before the new coinage of our silver in King William's time, the exchange between England and Holland, computed in the usual manner according to the standard of their respective Mints, was 25 per cent. against England; but the value of the current coin of England was more than 25 per cent. below the standard value; so that if that of Holland was at its full standard, the real exchange was in fact in favor of England. It may happen in the same manner, that the two parts of the calculation may be both opposite and equal, the real exchange in favor of the country by trade being equal to the nominal exchange against it by the state of its currency; in that case, the computed exchange will be at par, while the real exchange is in fact in favor of that country Again, the currencies of both the countries which trade together may have undergone an alteration, and that either in an equal degree, or unequally; in such a case, the question of the real state of the exchange between them becomes a little more complicated, but it is to be resolved exactly upon the same principle. Without going out of the bounds of the present inquiry, this may be well illustrated by the present state of the exchange of London with Portugal, as quoted in the tables of the 18th of May last. The exchange of London on Lisbon appears to be 672; 672d. sterling for a milree is the old established par of exchange between the two countries; and 67% accordingly is stili said to be the par. But by the evidence of Mr. Lynde, it appears, that, in Portugal, all payments are now by law made one-half in hard money, and one half in government paper; and that this paper is depreciated at a discount of 27 per cent. Upon all payments made in Portugal, therefore, there is a discount or loss of 131⁄2 per cent, and the exchange at 674, though nominally at par, is in truth, 13 per cent. against this country. If the exchange were really at par, it would be quoted at 56 65-100 or apparently 13 per cent. in favor of London, as compared with the old par which was fixed before the depreciation of the Portuguese medium of payments. Whether this 13 per cent, which stands against this country by the present exchange on Lisbon, is a real difference of exchange, occasioned by the course of trade and by the remittances to Portugal on account of government, or a nominal and apparent exchange occasioned by something in the state of our own currency, or is partly real and partly nominal, may perhaps be determined by what your Committee have yet to state. It appears to your Committee to have been long settled and understood as a principle that the difference of exchange resulting from the state of trade and payments between two countries is limited by the expense of conveying and insuring the precious metals from one country to the other; at least, that it cannot for any considerable length of time exceed that limit. The real difference of exchange, resulting from the state of trade, and payments never can fall lower than the amount of such expense of carriage, including the insurance. The truth of this position is so plain, and it is so uniformly agreed to by all the practical authorities, both commercial and political, that your Committee will assume it as indisputable. It occurred, however, to your Committee that the amount of that charge and premium of insurance might be increased above what it has been in ordinary periods even of war, by the peculiar circumstances which at present obstruct the commercial intercourse between this country and the continent of Europe; and that as such an increase would place so much lower than usual the limit to which our exchanges might fall, an explanation might thereby be furnished of their present unusual fall Your Committee accordingly directed their enquiries to this point. COST OF TRANSPORTING GOLD. It was stated to your Committee, by the merchant who has been already mentioned as being intimately acquainted with the trade between this country and the Continent, that the present expense of transporting gold from London to Hamburgh, independent of the premium of insurance, is from 1 to 2 per cent.; that the risk is very variable from day to day, so that there is no fixed premium, but he conceived the average risk, for the fifteen months preceding the time when he spoke, to have been about 4 per cent., making the whole cost of sending gold from London to Hamburgh for those fifteen months at such average of the risk, from 5 to 6 per cent.-Mr. Abraham Goldsmid stated, that in the last five or six months of the year 1809, the expense of sending gold to Holland varied exceedingly, from 4 to 7 per cent. for all charges, covering the risk as well as the costs of transportation. By the evidence which was taken before the Committees upon Bank Affairs, in 1797, it appears that the cost of sending specie from London to Hamburgh in that time of war, including all charges as well as an average of insurance, was estimated at a little more than 3 per cent. It is clear, therefore, that in consequence of the peculiar circumstances of the present state of the war, and the increased difficulties of intercourse with the Continent, the cost of transporting the precious metals thither from this country has not only been rendered more fluctuating than it used to be, but, upon the whole, is very considerably increased. It would appear, however, that upon an average of the risk for that period when it seems to have been highest, the last half of the last year, the cost and insurance of transporting gold to Hamburgh or to Holland did not exceed 7 per cent. It was of course greater at par icular tin.es, when the risk was above that average. It is evident also that the risk, and consequently the whole cost of transporting it to an inland market, to Paris, for example, would upon an average, be higher than that of carrying it to Amsterdam or Hamburgh. It follows that the limit to which the exchanges, as resulting from the state of trade, might fall and continue unfavorable for a considerable length of time, has, during the period in question, been a good deal lower than in former times of war; but it appears also, that the expense of remitting specie has not been increased so much, and that the limit by which the depression of the exchanges is bounded has not been lowered so much, as to afford an adequate explanation of a fall of the exchanges so great as from 16 to 20 per cent. below par. The increased cost of such remittance would explain, at those moments when the risk was greatest, a fall of something more than 7 per cent. in the exchange with Hamburgh or Holland, and a fall still greater perhaps in the exchange with Paris; but the rest of the fall which has actually taken place, remains to be explained in some other manner. Your Committee are disposed to think from the result of the whole evidence, contradictory as it is, that the circumstances of the trade of this country, in the course of the last year, were such as to occasion a real fall of our exchanges with the Continent to a certain extent, and perhaps at one period almost as low as the limit fixed by the expense of remitting gold from hence to the respective markets. And your Committee is inclined to this opinion, both by what is stated regarding the excess of imports from the Continent above the exports, though that is the part of the subject which is left most in doubt; and also by what is stated respecting the mode in which the payments in our trade have been latterly effected, an advance being paid upon the imports from the Continent of Europe, and a long credit being given upon the exports to other parts of the world. IMPORTS AND EXPORTS. Your Committee, observing how entirely the present depression of our exchange with Europe is referred by many persons to a great excess of our imports above our exports, have called for an account of the actual value of those for the last five years; and Mr. Irving, the Inspector-General of Customs, has accordingly furnished the most accurate estimate of both that he has been enabled to form. He has also endeavored to forward the object of the Committee by calculating how much should be deducted from the value of goods imported, on account of articles in return for which nothing is exported. These deductions consist of the produce of fisheries, and of imports from the East and West Indies, which are of the nature of rents, profits, and capital remitted to proprietors in this country. The balance of trade in favor of this country, upon the face of the account thus made up, was: So far, therefore, as any inference is to be drawn from the balance thus exhibited, the exchanges during the present year, in which many payments to this country on account of the very advantageous balances of the two former years may be expected to take place, ought to be peculiarly favorable. Your Committee, however, place little confidence in deductions made even from the improved document which the industry and intelligence of the Inspector-General has enabled him to furnish. It is defective, as Mr. Irving has himself stated, inasmuch as it supplies no account of the sum drawn by foreigners (which is at the present period peculiarly large), on account of freight due to them for the employment of their shipping, nor, on the other hand, of the sum receivable from them (and forming an addition to the value of our exported articles), on account of freight arising from the employment of British shipping. It leaves out of consideration all interest on capital in England possessed by foreigners, and on capital abroad belonging to inhabitants of Great Britain, as well as the pecuniary transactions between the governments of England and Ireland. It takes no cognizance of contraband trade, and of exported and imported bullion, of which no account is rendered at the Custom House. It likewise omits a most important article, the variations of which, if correctly stated, would probably be found to correspond in a great degree with the fluctuations of the apparently favorable balance; namely, the bills drawn on government for our naval, military, and other expenses in foreign parts. Your Committee had hoped to receive an account of these from the table of the House; but there has been some difficulty and consequent delay in executing a material part of the order made for them. It appears from An Account, as far as it could be made out, of sums paid for expenses abroad in 1793-4-5-6,” inserted in the Ap pendix of the Lords' Report on the occasion of the Bank Restriction Bill, that the sums so paid were, In 1793. "1795. "1796.. £2,785,252 The following is an account of the official value of our Imports and Exports with the Continent of Europe, alone, in each of the last five years : The balances with Europe alone in favor of Great Britain, as exhibited in this imperfect statement, are not far from corresponding with the general and more accurate balances before given. The favorable balance of 1809 with Europe alone, if computed according to the actual value, would be much more considerable than the value of the same year, in the former general statement. A favorable balance of trade on the face of the account of exports and imports, presented annually to Parliament, is a very probable consequence of large drafts on Government for foreign expenditure; and augmentation of exports, and a diminution of imports, being promoted and even enforced by the means of such drafts. For, if the supply of bills drawn abroad, either by the agents of Government, or by individuals, is disproportionate to the demand, the price of them in foreign money falls, until it is so low as to invite purchasers; and the purchasers, who are generally foreigners, not wishing to transfer their property permanently to England, have a reference to the terms on which the bills on England will purchase those British commodities which are in demand, either in their own country, or in intermediate places, with which the account may be adjusted. Thus, the price of the bills being regulated in some degree by that of British commodities, and continuing to fall till it becomes so low as to be likely to afford profit on the purchase and exportation of these commodities, an actual exportation nearly proportionate to the amount of the bills drawn can scarcely fail to take place. It follows, that there cannot be, for any long period, either a highly favorable or unfavorable balance of trade; for the balance no sooner affects the price of bills, than the price of bills, by its re-action on the state of trade, promotes an equalization of commercial exports and imports. Your Committee have here considered cash and bullion as forming a part of the general mass of exported or imported articles, and as transferred according to the state both of the supply and the demand; forming, however, under certain circumstances, especially in case of great fluctuations in the general commerce, a peculiarly commodious remittance. Your Committee have enlarged on the documents supplied by Mr. Irving, for the sake of throwing further light on the general question of the balance of trade and the exchanges, and of dissipating some very prevalent errors which have a great practical influence on the subject now under consideration. ACTUAL STATE OF FOREIGN EXCHANGE. That the real exchange against this country with the continent cannot, at any time, have materially exceeded the limit fixed by the cost at that time of transporting specie, your Committee are convinced upon the principles which have been already stated. That, in point of fact, those exchanges have not exceeded that limit seems to receive a very satisfactory illustration from one part of the evidence of Mr. Greffulhe, who, of all the merchants examined, seemed most wedded to the opinion that the state of the balance payments alone was sufficient to account for any depression of the exchanges, |