RATE OF EXCHANGE WITH ASIA
The following points are important because, on the one hand, they show how England recoups its losses when its rate of exchange with Asia is unfavourable, at the expense of other countries, whose imports from Asia are paid through English middlemen. On the other hand, they are important because Mr. Wilson once again makes the foolish attempt here to identify the effects of the export of precious metal on the rates of exchange with the effect of the export of capital in general upon these rates; the export being in both cases not as a means of paying or buying, but for capital investment. In the first place, it goes without saying that whether so many millions of pounds sterling are sent to India in precious metal or iron rails, to be invested in railways there, these are merely two different forms of transferring the same amount of capital to another country; namely, a transfer which does not enter the calculation of ordinary mercantile business, and for which the exporting country expects no other return than the future annual revenue from the income of these railways. If this export is made in the form of precious metal, it will exert a direct influence upon the money-market and with it upon the interest rate of the country exporting this precious metal; if not necessarily under all circumstances, then under the previously outlined conditions, since it is precious metal and as such is directly loanable money-capital and the basis of the entire money system. Similarly, this export also directly affects the rate of exchange. Precious metal is exported only for the reason, and to the extent, that bills of exchange, say on India, which are offered in the London money-market, do not suffice to make these extra remittances. In other words, there is a demand for Indian bills of exchange which exceeds their supply, and so the rates turn for a time against England, not because it is in debt to India, but because it has to send extraordinary sums to India. In the long run, such a shipment of precious metal to India must have the effect of increasing the Indian demand for English commodities, because it indirectly increases the consuming power of India for European goods. But, if the capital is shipped in the form of rails, etc., it cannot have any influence on the rates of exchange, since India has no return payment to make for it. Precisely for this reason, it need not have any influence on the money-market. Wilson seeks to establish the existence of such an influence by declaring that such an extra expenditure would bring about an additional demand for money accommodation and would thus influence the interest rate. This may be the case; but to maintain that it must take place under all circumstances is totally wrong. No matter where the rails are shipped and whether laid on English or Indian soil, they represent nothing but a definite expansion of English production in a particular sphere. To contend that an expansion of production, even within very broad limits, cannot take place without driving up the interest rate, is absurd. Money accommodation, i.e., the amount of business transacted which includes credit operations, may grow; but these credit operations can increase while the interest rate remains unchanged. This was actually the case during the railway mania in England in the forties. The interest rate did not rise. And it is evident that, so far as actual capital is concerned, in this case commodities, the effect on the money-market will he just the same, whether these commodities are destined for foreign countries or for domestic consumption. It could only make a difference when capital investments by England in foreign countries exerted a restraining influence upon its commercial exports, i.e., exports for which payment must be made, thus giving rise to a return flow, or to the extent that these capital investments are already general symptoms indicating the over-expansion of credit and the initiation of swindling operations.
In the following, Wilson puts the questions and Newmarch replies.
"1786. On a former day you stated, with reference to the
demand for silver for the East, that you believed that
the exchanges with India were in favour of this country,
notwithstanding the large amount of bullion that is
continually transmitted to the East; have you any
ground for supposing the exchanges to be in favour of
this country? — Yes, I have.... I find that the real
value of the exports from the United Kingdom to
India in 1851 was £7,420,000; to that is to be added
the amount of India House drafts, that is, the funds
drawn from India by the East India Company for the
purpose of their own expenditure. Those drafts in that
year amounted to £3,200,000, making, therefore,
the total export from the United Kingdom to India
£10,620,000. In 1855... the actual value of the export
of goods from the United Kingdom had risen to
£10,350,000 and the India House drafts were £3,700,000,
making, therefore, the total export from this country
£14,050,000. Now as regards 1851, I believe there are
no means of stating what was the real value of the import
of goods from India to this country, but in 1854
and 1855 we have a statement of the real value; in 1855,
the total real value of the imports of goods from
India to this country was £12,670,000 and that
sum, compared with the £14,050,000 I have mentioned, left
a balance in favour of the United Kingdom, as regards the
direct trade between the two countries, of £1,380,000"
[B. A. 1857].
Thereupon Wilson remarks that the rates of exchange are also affected by indirect commerce. For instance, exports from India to Australia and North America are covered by drafts on London, and therefore affect the rate of exchange just as though the commodities had gone directly from India to England. Furthermore, when India and China are considered together, the balance is against England, since China has constantly to make heavy payments to India for opium, and England has to make payments to China, so that the sums go by this circuitous route to India (1787, 1788).
1791. Wilson now asks if the effect on the rates of exchange will not be the same whether capital
"went in the form of iron rails and locomotives, or
whether it went in the form of coin."
Newmarch correctly answers:
"The £12 million which have been sent during the last
few years to India for railway construction served to
purchase an annuity which India has to pay at regular
intervals to England. "But as far as regards the immediate
operation on the bullion market, the investments of the
£12 million would only be operative as far as
bullion was required to be sent out for actual money
disbursements."
1797. [Weguelin asks:) "If no return is made for this iron (rails), how can it be said to affect the exchanges? — I do not think that that part of the expenditure which is sent out in the form of commodities affects the computation of the exchange.... The computation of the exchange between two countries is affected, one might say, solely by the quantity of obligations or bills offering in one country, as compared with the quantity offering in the other country against it; that is the rationale of the exchange. Now, as regards the transmission of those £12,000,000, the money in the first place is subscribed in this country ... now, if the nature of the transaction was such that the whole of that £12,000,000 was required to be laid down in Calcutta, Bombay, and Madras in treasure ... a sudden demand would very violently operate upon the price of silver, and upon the exchange, just the same as if the India Company were to give notice tomorrow that their drafts were to be raised from £3,000,000 to £12,000,000. But half of those £12,000,000 is spent ... in buying commodities in this country ... iron rails and timber, and other materials it is an expenditure in this country of the capital of this country for a particular kind of commodity to be sent out to India, and there is an end of it." — "1798. [Weguelin:] But the production of those articles of iron and timber necessary for the railways produces a large consumption of foreign articles, which might affect the exchange? — Certainly."
Wilson now thinks that iron represents labour to a large extent, and that the wage paid for this labour largely represents imported goods (1799), and then questions further:
"1801. But speaking quite generally, it would
have the effect of turning the exchanges against
this country if you sent abroad the articles which
were produced by the consumption of the imported
articles without receiving any remittance for them
either in the shape of produce or otherwise? — That
principle is exactly what took place in this country
during the time of the great railway expenditure
[1845]. For three or four or five years, you spent upon
railways £30,000,000, nearly the whole of which went
in the payment of wages. You sustained in three
years a larger population employed in constructing
railways, and locomotives, and carriages, and
stations than you employed in the whole of the factory
districts. The people ... spent those wages in buying
tea and sugar and spirits and other foreign
commodities; those commodities were imported; but
it was a fact, that during the time this great
expenditure was going on the foreign exchanges
between this country and other countries were not
materially deranged. There was no efflux of bullion,
on the contrary, there was rather an influx."
1802. Wilson insists that with an equalised trade balance and par rates between England and India the extra shipment of iron and locomotives "would affect the exchanges with India." Newmarch cannot see it that way so long as the rails are sent out as capital investment and India has no payment to make for them in one form or another; he adds:
"I agree with the principle that no one country can
have permanently against itself an adverse state of
exchange with all the other countries, with
which it deals; an adverse exchange with one
country necessarily produces a favourable exchange
with another."
Wilson retorts with this triviality:
"1803. But would not a transfer of capital be the same
whether it was sent in one form or another? — As regards
the obligation it would." — "1804. The effect therefore
of making railways in India, whether you send
bullion or whether you send materials, would
be the same upon the capital-market here in
increasing the value of capital as if the whole was
sent out in bullion?
If iron prices did not rise, it was in any case proof that the "value" of "capital" contained in the rails had not been increased. What we are here concerned with is the value of money-capital, i.e., the interest rate. Wilson would like to identify money-capital with capital in general. The simple fact is essentially that 12 million were subscribed in England for Indian railways. This is a matter which has nothing directly to do with the rates of exchange, and the designation of the £12 million is also the same to the money-market. If the money-market is in good shape, it need not produce any effect at all on it, just as the English railway subscriptions in 1844 and 1845 left the money-market unaffected. If the money-market is already in somewhat difficult straits, the interest rate might indeed be affected by it, but certainly only in an upward direction, and this, according to Wilson's theory, would favourably affect the rates of exchange for England, that is, it would work against the tendency to export precious metal; if not to India, then to some other country. Mr. Wilson jumps from one thing to another. In Question 1802 it is the rates of exchange that are supposed to be affected, and In Question 1804 the "value of capital" — which are two very different things. The interest rate may affect the rates of exchange, and the rates of exchange may affect the interest rate, but the latter can be stable while the rates of exchange fluctuate, and the rates of exchange can be stable while the interest rate fluctuates. Wilson cannot get it through his head that the mere form in which capital is shipped abroad makes such a difference in the effect, i.e., that the difference in the form of capital is of such importance, and particularly its money-form, which runs very much counter to enlightened economy. Newmarch replies to Wilson one-sidedly in that he does not indicate that he has jumped so suddenly and without reason from rate of exchange to interest rate. Newmarch answers Question 1804 with uncertainty and equivocation:
"No doubt, if there is a demand for £12,000,000 to be
raised, it is immaterial, as regards the general
rate of interest, whether that £12 million is required
to be sent in bullion or in materials. I think,
however"
[a fine transition, this "however," when he intends to say the exact opposite]
"it is not quite immaterial"
[it is immaterial, but, nevertheless, it is not immaterial]
"because in the one case the £6 million would be
returned immediately; in the other case it would not
be returned so rapidly. Therefore it would make some"
[what definiteness!]
"difference, whether the £6 million was expended
in this country or sent wholly out of it."
What does he mean when he says six million would return immediately? In so far as the £6 million have been expended in England, they exist in rails, locomotives, etc., which are shipped to India, whence they do not return; their value returns very slowly through amortisation, whereas the six million in precious metal may perhaps return very quickly in kind. In so far as the six million have been expended in wages, they have been consumed; but the money used for payment circulates in the country the same as ever, or forms a reserve. The same holds true for the profits of rail producers and that portion of the six million which replaces their constant capital. Thus, this ambiguous statement about returns is used by Newmarch only to avoid saying directly: The money has remained in the country, and in so far as it serves as loanable money-capital the difference for the money-market (aside from the possibility that circulation could have absorbed more coin) is only that it is charged to the account of A instead of B. An investment of this kind, where capital is transferred to other countries in commodities, not in precious metal, can affect the rate of exchange (but not the rate of exchange with the country in which the exported capital is invested) only in so far as the production of these exported commodities requires an additional import of other foreign commodities. This production then cannot balance out the additional import. However, the same thing happens with every export on credit, no matter whether intended for capital investment or ordinary commercial purposes. Moreover, this additional import can also call forth by way of reaction an additional demand for English goods, for instance, on the part of the colonies or the United States.
________________________________________
Previously (1786), Newmarch stated that, owing to drafts of the East India Company, exports from England to India were larger than imports. Sir Charles Wood cross-examines him on this score. This preponderance of English exports to India over imports from India is actually brought about by imports from India for which England does not pay any equivalent. The drafts of the East India Company (now the East India government) reserve themselves into a tribute levied on India. For instance, in 1855, imports from India to England amounted to £12,670,000; English exports to India amounted to £10,350,000; balance in India's favour £2,250,000. [i.e, approximately 2¼ million: more precisely, £2,320,000. — Ed.]
"If that was the whole state of the case, that
£2,250,000 would have to be remitted in some
form to India. But then come in the advertisements
from the India House. The India House advertise to
this effect that they are prepared to grant drafts on
the various presidencies in India to the extent of
£3,250,000."
[This amount was levied for the London expenses of the East India Company and for the dividends to be paid to stockholders.]
"And that not merely liquidates the £2,250,000 which
arose out of the course of trade, but it presents
£1,000,000 of surplus" (1917) [B. A. 1857].
"1922. [Wood:] Then the effect of those India House
drafts is not to increase the exports to India,
but pro tanto to diminish them?"
[This should read: to reduce the necessity of covering the imports from India by exports to that country to the same amount.] Mr. Newmarch explains this by saying that the British import "good government" into India for these £3,700,000 (1925). Wood, as a former Minister for India, knows full well the kind of "good government" which the British import to India, and correctly replies with irony:
"1926. Then the export, which, you state, is caused by
the East India drafts, is an export of good
government, and not of produce."
Since England exports a good deal "in this way" for "good government" and as capital investment in foreign countries — thus obtaining imports which are completely independent of the ordinary run of business, tribute partly for exported "good government" and partly in the form of revenues from capital invested in the colonies or elsewhere, i.e., tribute for which it does not have to pay any equivalent — it is evident that the rates of exchange are not affected when England simply consumes this tribute without exporting anything in return. Hence, it is also evident that the rates of exchange are not affected when it reinvests this tribute, not in England, but productively or unproductively in foreign countries; for instance, when it sends munitions for it to the Crimea. Moreover, to the extent that imports from abroad enter into the revenue of England — of course, they must be paid for in the form of tribute, for which no equivalent return is necessary, or by exchange for this unpaid tribute or in the ordinary course of commerce — England can either consume them or reinvest them as capital. In neither case are the rates of exchange affected, and this is overlooked by the sage Wilson. Whether a domestic or a foreign product constitutes a part of the revenue — whereby the latter case merely requires an exchange of domestic for foreign products — the consumption of this revenue, be it productive or unproductive, alters nothing in the rates of exchange, even though it may alter the scale of production. The following should be read with the foregoing in mind:
1934. Wood asks Newmarch how the shipment of war supplies to the Crimea would affect the rate of exchange with Turkey. Newmarch replies:
"I do not see that the mere transmission of warlike
stores would necessarily affect the exchange, but
certainly the transmission of treasure would affect
the exchange."
In this case he thus distinguishes capital in the form of money from capital in other forms. But now Wilson asks:
"1935. If you make an export of any article to a
great extent, for which there is to be no corresponding
import"
[Mr. Wilson forgets that there are very considerable imports into England for which corresponding exports have never taken place, except in the form of "good government" or of previously exported investment capital; in any case imports which do not enter into normal commercial movement. But these imports are again exchanged, for instance, for American products, and the circumstance that American goods are exported without corresponding imports does not alter the fact that the value of these imports can be consumed without an equivalent flow abroad; they have been received without reciprocal exports and can therefore be consumed without entering into the balance of trade],
"you do not discharge the foreign debt you have
created by your imports"
[but, if you have previously paid for these imports, for instance, by credit given abroad, then no debt is contracted thereby, and the question has nothing to do with the international balance; it resolves itself into productive and unproductive expenditures, no matter whether the products so consumed are domestic or foreign],
"and therefore you must by that transaction affect
the exchanges by not discharging the foreign debt, by
reason of your export having no corresponding imports?
— That is true as regards countries generally."
This lecture by Wilson amounts to saying that every export with no corresponding import is simultaneously an import with no corresponding export, because foreign, i.e., imported, commodities enter into the production of the exported article. The assumption is that every export of this kind is based on, or creates, an unpaid import and thus presupposes a debt abroad. This is wrong, even when the following two circumstances are disregarded: 1) England receives certain imports free of charge for which it pays no equivalent, e.g., a portion of its Indian imports. It can exchange these for American imports and export the latter without importing in return; in any case, so far as the value is concerned, it has only exported something that has cost it nothing. 2) England may have paid for imports, for instance, American imports, which constitute additional capital; if it consumes these unproductively, for instance, as war materials, this does not constitute any debt towards America and does not affect the rate of exchange with America. Newmarch contradicts himself in Nos. 1934 and 1935, and Wood calls this to his attention in No. 1938:
"If no portion of the goods which are employed in the
manufacture of the articles exported without
return [war materials], came from the country to which
those articles are sent, how is the exchange with
that country affected; supposing the trade with Turkey
to be in an ordinary state of equilibrium, how is
the exchange between this country and Turkey affected
by the export of warlike stores to the Crimea?"
Here Newmarch loses his equanimity; he forgets that he has answered the same simple question correctly in No. 1934, and says:
"We seem, I think, to have exhausted the practical
question, and to have now attained a very elevated region
of metaphysical discussion."
________________________________________
[Wilson has still another version of his claim that the rate of exchange is affected by every transfer of capital from one country to another, no matter whether in the form of precious metal or commodities. Wilson knows, of course, that the rate of exchange is affected by the interest rate, particularly by the relation of the rates of interest prevailing in the two countries whose mutual rates of exchange are under discussion. If he can now demonstrate that surpluses of capital in general, i.e., in the first place, commodities of all kinds including precious metal, have a hand in influencing the interest rate, then he is a step closer to his goal; a transfer of any considerable portion of this capital to some other country must then change the interest rate in both countries, with the change taking place in opposite directions. Thereby, in a secondary way, the rate of exchange between both countries is also altered. — F. E.]
He then says in the Economist, May 22, 1847, page 574, which he edited at the time:
"No doubt, however, such abundance of capital as is indicated by large stocks of commodities of all kinds, including bullion, would necessarily lead, not only to low prices of commodities in general, but also to a lower rate of interest for the use of capital. If we have a stock of commodities on hand, which is sufficient to serve the country for two years to come, a command over those commodities would be obtained for a given period, at a much lower rate than if the stocks were barely sufficient to last us two months. All loans of money, in whatever shape they are made, are simply a transfer of a command over commodities from one to another. Whenever, therefore, commodities are abundant, the interest of money must be low, and when they are scarce, the interest of money must be high. As commodities become abundant, the number of sellers, in proportion to the number of buyers, increases, and, in proportion as the quantity is more than is required for immediate consumption, so must a larger portion be kept for future use. Under these circumstances, the terms on which a holder becomes willing to sell for a future payment, or on credit, become lower than if he were certain that his whole stock would be required within a few weeks".
In regard to the statement, it is to be noted that a large influx in precious metal can take place simultaneously with a contraction in production, as is always the case in the period following a crisis. In the subsequent phase, precious metal may come in from countries which mainly produce precious metal; imports of other commodities are generally balanced by exports during this period. In these two phases, the interest rate is low and rises but slowly; we have already discussed the reason for this. This low interest rate could always be explained without recourse to the influence of any "large stocks of commodities of all kinds." And how is this influence to take place? The low price of cotton, for instance, renders possible the high profits of the spinners, etc. Now why is the interest rate low? Surely not because the profit, which may be made on borrowed capital, is high. But simply and solely because, under existing conditions, the demand for loan capital does not grow in proportion to this profit; in other words, because loan capital has a movement different from industrial capital. What the Economist wants to prove is exactly the reverse, namely, that the movements of loan capital are identical with those of industrial capital.
In regard to the statement, if we reduce the absurd assumption of stocks for two years in advance to the point where it begins to take on some meaning, it signifies that the market is overstocked. This would cause a fall in prices. Less would have to be paid for a bale of cotton. This would by no means justify the conclusion that money for the purchase of this cotton is more easily borrowed. This depends on the state of the money-market. If money can be borrowed more easily, it is only because commercial credit is in a state requiring it to make less use than usual of bank credit. The commodities glutting the market are either means of subsistence or means of production. The low price of both increases the industrial capitalist's profit. Why should it depress the interest rate, unless it be through the antithesis, rather than the identity, between the abundance of industrial capital and the demand for money accommodation? Circumstances are such that the merchant and industrial capitalist can more easily advance credit to one another; owing to this facilitation of commercial credit, both industrialist as well as merchant need less bank credit; hence the interest rate can be low. This low interest rate has nothing to do with the influx in precious metal, although both may run parallel to each other, and the same causes bringing about low prices of imported articles may also produce a surplus of imported precious metal. If the import market were really glutted, it would prove that a decrease in the demand for imported articles had taken place, and this would be inexplicable at low prices, unless it were attributed to a contraction of domestic industrial production; but this, again, would be inexplicable, so long as there is excessive importing at low prices. A mass of absurdities — in order to prove that a fall in prices = a fall in the interest rate. Both may simultaneously exist side by side. But if they do, it will be a reflection of the opposition in the directions of the movement of industrial capital and the movement of loanable money-capital. It will not be a reflection of their identity.
In regard to the statement, it is hard to understand even after this exposition why money interest should be low when commodities are available in abundance. If commodities are cheap, then I may need only £1,000 instead of the previous £2,000 to buy a definite quantity. But perhaps I nevertheless invest £2,000, and thus buy twice the quantity which I could have bought formerly. In this way, I expand my business by advancing the same capital, which I may have to borrow. I buy £2,000 worth of commodities, the same as before. My demand on the money-market therefore remains the same, even though my demand on the commodity-market rises with the fall in commodity-prices. But if this demand for commodities should decrease, that is, if production should not expand with the fall in commodity-prices, an event which would contradict all the laws of the Economist, then the demand for loanable money-capital would decrease, although the profit would increase. But this increasing profit would create a demand for loan capital. Incidentally, a low level of commodity-prices may be due to three causes. First, to lack of demand. In such a case, the interest rate is low because production is paralysed and not because commodities are cheap, for the low prices are but a rejection of that paralysis. Second, it may be due to supply exceeding demand. This may be the result of a glut on the market, etc., which may lead to a crisis and coincide with a high interest rate during the crisis itself; or, it may be the result of a fall in the value of commodities, so that the same demand can be satisfied at lower prices. Why should the interest rate fall in the last case? Because profits increase? If this were due to less money-capital being required for obtaining the same productive or commodity-capital, it would merely prove that profit and interest are inversely proportional to each other. In any case, the general statement of the Economist is false. Low money-prices for commodities and a low interest rate do not necessarily go together. Otherwise, the interest rate would be lowest in the poorest countries, where money-prices for produce are lowest, and highest in the richest countries, where money-prices for agricultural products are highest. In general, the Economist admits: If the value of money falls, it exerts no influence on the interest rate. £100 bring £105 the same as ever. If the £100 are worth less, so are the £5 interest. This relation is not affected by the appreciation or depreciation of the original sum. Considered from the point of view of value, a definite quantity of commodities is equal to a definite sum of money. If this value increases, it is equal to a larger sum of money. The opposite is true when it falls. If the value is equal to 2,000, then 5% = 100; if it is equal to 1,000, then 5% = 50. But this does not alter the interest rate in any way. The rational part of this matter is merely that greater money accommodation is required when it takes £2,000 to sell the same quantity of commodities than when only £1,000 are required. But this merely shows that profit and interest are here inversely proportional to each other. For the lower the prices of the components of constant and variable capital, the higher the profit and the lower the interest. But the opposite can also be and is often the case. For instance, cotton may be cheap because no demand exists for yarn and fabrics; and cotton may be relatively expensive because a large profit in the cotton industry creates a great demand for it. On the other hand, the profits of industrialists may be high precisely because the price of cotton is low. Hubbard's table proves that the interest rate and the prices of commodities execute completely independent movements, whereas the movements of the interest rate adhere closely to those of the metal reserve and the rates of exchange.
The Economist states:
"Whenever, therefore, commodities are abundant, the
interest of money must be low."
Precisely the opposite obtains during crises. Commodities are superabundant, inconvertible into money, and therefore the interest rate is high; in another phase of the cycle the demand for commodities is great and therefore quick returns are made, but at the same time, prices are rising and because of the quick returns the interest rate is low.
"When they [the commodities] are scarce, the interest
of money must be high."
The opposite is again true in the slack period following a crisis. Commodities are scarce, absolutely speaking, not with reference to demand; and the interest rate is low.
In regard to the statement, it is pretty evident that an owner of commodities, provided he can sell the latter at all, will get rid of them at a lower price when the market is glutted than he would when there is a prospect of the existing supply becoming rapidly exhausted. But why the interest rate should fall because of that is not so clear.
If the market is glutted with imported commodities, the interest rate may rise as a result of an increased demand on the part of the owners for loan capital, in order to avoid dumping their commodities on the market. The interest rate may fall, because the fluidity of commercial credit may keep the demand for bank credit relatively low.
________________________________________
The Economist mentions the rapid effect on rates of exchange in 1847 of the raising of the interest rate and other circumstances exerting pressure on the money-market. But it should be borne in mind that the gold drain continued until the end of April in spite of the change in the rates of exchange; a turn did not take place here until early May.
On January 1, 1847, the metal reserve of the Bank was £15,066,691; the interest rate 3½%; three months' rates of exchange on Paris 25.75; on Hamburg 13.10; on Amsterdam 12.3¼. On March 5, the metal reserve had fallen to £11,595,535; the discount had risen to 4%; the rate of exchange fell to 25.67½ on Paris; 13.9¼ on Hamburg; and 12.2½ on Amsterdam. The drain of gold continued. See the following table:
In 1847, the total export of precious metal from England amounted to £8,602,597.
Of this to the
United States £3,226,411
France £2,479,892
Hanse towns £958,781
Holland £247,743
In spite of the change in the rates at the end of March, the drain of gold continued for another full month, probably to the United States.
"We thus see" [says the Economist, August 2, 1847,
p. 954] "how rapid and striking was the effect of
a rise in the rate of interest, and the pressure
which ensued in correcting an adverse exchange,
and in turning the tide of bullion back to this country.
This effect was produced entirely independent of the
balance of trade. A higher rate of interest caused a
lower price of securities, both foreign and English,
and induced large purchases to be made on foreign
account, which increased the amount of bills to
be drawn from this country, while, on the other hand,
the high rate of interest and the difficulty of obtaining
money was such that the demand of those bills fell off,
while their amount increased.... For the same cause
orders for imports were countermanded, and
investments of English funds abroad were realised
and brought home for employment here. Thus, for example,
we read in the Rio de Janeiro Price Current of the
10th May, 'Exchange [on England] has experienced a
further decline, principally caused by a pressure
on the market for remittance of the proceeds of large
sales of [Brazilian] government stock, on English
account. Capital belonging to this country, which has
been invested in public and other securities abroad,
when the interest was very low here, was thus again
brought back when the interest became high."
