Chap. V: How, when other Expedients prove ineffectual for the discharging of Balances, the same may be paid by the Means

We have now applied the principles formerly laid down, towards discovering the most proper expedients for removing or palliating the three inconveniences to be struggled with in regulating exchange. First, How to estimate the value of a balance due: Secondly, How to pay it with the coin or bullion of the country: and lastly, How to prevent the price of exchange from affecting any thing more than the balance to be paid, after all reciprocal debts have been compensated.

It remains to inquire, what are the most proper methods to acquit what a nation may owe, after it has done all it can to pay the value of their balance in the other way.

At first sight, it must appear evident that the only method here is to give security, and pay interest for what cannot be paid in any other value. This in the end is constantly what is done by every nation; but as the ordinary methods of bringing it about, are very perplexed, and are attended with expences which raise exchange to a great height, and thereby prove a prodigious discouragement to trade in general: it would be no small advantage, could all this loss on exchange be thrown equally upon every class within the state, instead of being thrown entirely upon its commerce.

As this is the expedient to be proposed, it will not be amiss to observe, that foreign balances arise chiefly upon four articles. First, The great importation and consumption of foreign productions. Secondly, The payment of debts and interest due to foreigners. Thirdly, The lending money to other nations. And, Fourthly, The great expence of the state, or of individuals, abroad.

Could all the bad consequences arising from these four causes, and the high exchange occasioned by them, be cast upon that interest alone which occasions them, I should not propose to lay the whole body of the nation under contribution for repairing the loss.

But if from the nature of the thing, as matters stand, the whole be found to fall upon trade, without a possibility of preventing it; in this case, I think it would be better for the nation, in cumulo, to lend its assistance, and to share the burden, than to allow it to fall upon that part of the body politic from which the whole draws its vigour and prosperity.

It cannot be denied, that when a heavy balance is due by a nation, it has the effect of raising exchange upon every draught or remittance. When bills are demanded to pay a foreign claim, it cannot be determined from which of the four articles, just now mentioned, the claim has arisen. Whether for national purposes or not, the exchange is the same, and equally affects the whole interest of trade.

If this be a fair state of the case, I think we may determine that such balances ought to be paid by the assistance and intervention of a statesman's administration.

The object is not so great as at first sight, it may appear. We do not propose that the value of this balance should be advanced by the state: by no means. They who owe the balance must then, as at present, find a value for the bills they demand. Neither would I propose such a plan for any nation who had, upon the average of their trade, a balance against them; but if, on the whole, the balance be favourable, I would not, for the sake of saving a little trouble and expence, suffer the alternate vibrations of exchange to disturb the uniformity of profits, which uniformity tends so much to encourage every branch of commerce.

We have abundantly explained the fatal effect of a wrong balance to banks which circulate paper; and we have shewn how necessary it is that they should perform what we here recommend, to be done by the state itself. There is therefore nothing new in this proposal: it is merely carrying the consequences of the same principle one step farther, and making it a branch of policy, for government to be assisting to trade in the payment of balances, where credit abroad is required; and we have proposed that this assistance should be given out of the public money.

The greatest, and indeed, I think, the only objection to this scheme, is, that by it the condition of our foreign creditors, will be bettered, for no value received from them. This I allow will be the case when the balance is against England: but it will be compensated to the creditors by the loss they will sustain when the balance is in her favour. But supposing there should be a benefit to foreign creditors, will not this circumstance raise the confidence of all the world in the English funds? If, upon a proposal to government to lower the rate of money by refunding the debts which bear a higher interest than what money can be procured for, the continent should pour her wealth into our subscription, might we not then more readily expect a supply from that quarter? Besides, is not all the interest due to foreign creditors paid in bank paper? Is not this demandable in coin, and will not this coin be exported, if credit be not found? Were the bank of England to keep a subscription open, at all times, in Amsterdam, for money to be borrowed there, on the payment of the interest in that city, who doubts but loans might be procured at much less expence than at present, when we are beating about for credit every where, until by the return of a favourable balance upon the trade of England, she shall be enabled to fill up the void.

I feel my own insufficiency to unfold the many intricacies which such an operation must imply. I therefore shall not attempt what, at any rate, I must leave imperfect. What has been said, together with what has been thrown out on the same subject, in treating of other matters, is sufficient to give a hint, concerning the expediency of the plan in general. And as to the objection which arises from the payments to the public creditors abroad, I shall reserve the more ample discussion of it till I come to consider the doctrine of public credit.