Principles of Political Economy and Taxation. 195 



II. The aggregate amount of all the premiums of bills on 

 B sold in A (supposing them to have the average value) will be 

 the expense of the transfer of so much gold as is necessary to 

 restore the equilibrium. 



If the amount of the premiums were greater, it would be pos- 

 sible to make money by drawing bills on B, selling them, and 

 transferring gold from A to meet them. If the amount of the 

 premiums were less, the holders of bills would refuse to sell, 

 and those who had debts to discharge in B would have to incur 

 the expense of transferring gold : and, rather than do this, they 

 would pay a larger premium. 



III. The premium on all good bills on B sold in A will be 

 the same. 



Supposing the market of bills regulated by competition this 

 will obviously be true : for one good bill is on the same footing 

 as another. 



18. I now proceed to calculate the rate of exchange under 

 given conditions of the imports and exports. 



I shall suppose that the bills on B negociated in A are drawn 

 for the payment of the exports from A to B. Let Sep be the 

 exports, and Sis the imports, in this case. Then Sep is the 

 amount of the bills drawn, and Sep — Sis of the gold which it 

 will be necessary to transfer, in order to balance the account. 

 Let x be the premium on 1. Therefore xSep is the premium 

 on the whole mass of bills. Also, let y be the expense of trans- 

 ferring a unit of gold from B to A. Therefore y(Sep-Sis) is the 

 expense of transferring the balance. Hence, by postulates II 

 and III of last article, we have 



xSep = y(Sep — Sis) ; 

 u u 2 



