•Ifie RURAL NEW-YORKER 
759 
A Primer of Economics 
By John J. Dillon 
Part: XXVI 
FOREIGN EXCHANGE 
lu the broad senso also, foreign ex¬ 
change means the exchange of commodi¬ 
ties or services of the people of one coun¬ 
try with the people of a foreign country, 
but here, too, foreign exchange has come 
to have a special meaning, and has come 
to mean not the buying and selling and 
delivery of commodities, but the system 
by which the amounts due the business 
man in one country are paid to the busi¬ 
ness man of another country. The sys¬ 
tem of liquidating accounts between men 
of different countries is essentially more 
complicated than the system of a domes¬ 
tic exchange. Bank checks could not be 
used at all. because the foreign creditor 
would lose the use of the money while the 
goods were in transit, and while the 
check was on its way to him and back 
to the bank on which it was drawn and 
the proceeds in some way sent to him. 
The creditor besides would have no way 
of knowing whether the check would be 
honored or not. ami in case of default 
he would be obliged to make good at the 
bank which cashed the check, and in some 
cases it might result jn serious embar¬ 
rassments. Neither is paper money suit¬ 
ed to the payment of foreign accounts, 
because the paper money is really a credit 
or a promise to pay real money, and if 
accepted, the foreign creditor would be 
obliged to assume the loss of time and 
other expense of converting the paper 
promise into the currency of his own 
country. Another complication in foreign 
exchange is the different standards of 
money units in different countries. Our 
unit is the dollar. The English unit is 
the pound. The French unit is the franc. 
The German unit is the mark. The Scan¬ 
dinavian countries’ unit is the kroner. 
They are all on the gold basis, but before 
a debt in one country can be paid in the 
money of another country it is necessary 
to compute the gold value of the debt in 
the money of the other country. For an 
example, if an American wished to pay 
$500 to an English merchant, he would 
have to compute the equivalent of .$500 in 
English pounds, hillings and pence. If 
the gold fs the standard used in both 
countries, then it is only necessary to 
tiud equal weights in the same degree of 
purity, but when Gie money standard is 
different, say one gold and the other sil¬ 
ver, then it is also recessary to find the 
comparative values of the two metals in 
the markets of the world. It is evident 
that foreign exchange, and consequently 
foreign business, would be facilitated if 
all civilized countries agreed to adopt 
a common money unit. They seem to be 
restrained from doing so by the influence 
of those who profit by the present system 
and restrained also by a national vanity 
which each country feels in its own sys¬ 
tem, but which the demands of trade will 
some time, no doubt, overcome. 
In domestic trade we know that goods 
are not directly exchanged, one for the 
other. Each article or consignment is 
valued or priced in terms of money. The 
money, however, does rot pass from hand 
to hand to any very considerable extent, 
hut hank checks and other forms of credit 
are used to effect payments. In trade 
between one country and another there 
is still less barter and hand-to-hand pay¬ 
ments. Between on© country and an¬ 
other the usual means of payment is by 
the “bill of exchange.” .Tones of America 
sells goods to Woodhull of England to 
the amount of $1,000. At the same time 
Brundage of England sells commodities 
to the value of $1,000 to Adams of Amer¬ 
ica. It would clearly be a waste of time 
and expense and risk to send gold back 
and forth across the ocean to pay these 
bills. Instead. .Tones draws a bill of sale 
against Woodhull. Adams, who owes 
$1,000 in England, pays the bill from 
Jones and sends it to Brundage, who pre¬ 
sents it to Woodhull and receives pay¬ 
ment. Both bills are liquidated without 
sending any money across the ocean from 
one country to the other. 
. While this example illustrates the prin¬ 
ciple in practice, the bills of exchange do 
not pass from one merchant to another. 
In fact, it would be difficult to find 
debtors and creditors in foreign countries 
whose bills would just balance in this 
way. It is not necessary to do so. In 
each country there are brokers or banks 
which make a business of buying and 
selling bills of exchange and charge a 
brokerage or commission for their serv¬ 
ices. These banks or brokers usually have 
branches or correspondents in the foreign 
countries; and if there are not sufficient 
bills offered them against foreign mer¬ 
chants, they draw bills of their owi 
against their own correspondents. 
When exports and imports are about 
even, and there are no other purposes for 
which payments are to be made, the bills 
will exchange for their face value, and 
we say the exchange is at par. If. how¬ 
ever, America exports more goods than it 
imports from Europe, there will be more 
bills to sell than the amount of foreign 
bills which the brokers or bankers can 
buy.. This will leave a balance which the 
foreign banks may have to settle by send 
ing gold to America to pay for the ex¬ 
cess of our exports oyer imports. In this 
case the cost of the exchange would be 
increased, and our American bills on Eu¬ 
rope would sell for less than their face 
value. We then say exchange is at a 
discount. On the other hand, if we im¬ 
port more than we export, there would 
be a demand for our bills to meet the 
excess of European bills, and our bills 
would sell for more than their face value. 
We then say exchange is at a premium. 
The variations, of course, would not ex¬ 
ceed the cost of transporting gold across 
the ocean. This variation in exchange 
has a tendency to equalize exports and 
imports. When we have an excess of 
exports, the cost of exchange is increased 
against the exporter. When we have an 
excess of imports, the cost of exchange 
is decreased to the importer, and, of 
course, the conditions in the foreign coun¬ 
tries are in each case reversed. 
While all the principal nations of the 
world are theoretically on a gold basis, 
practically none of them just now is on 
a gold basis. In fact, on account, of the 
financial disturbance due to the late 
World War, all nations are really work¬ 
ing on a credit or paper money basis, and 
this accounts for the wide and unusual 
variations in foreign exchange. We our¬ 
selves accept paper money at face value 
because the United States Government 
promised to pay a dollar in gold for it. on 
demand, and we have faith that it will do 
so. At the same time everybody knows 
that it would be impossible for the Gov¬ 
ernment to keep the promise just now if 
any considerable portion of the paper 
money were presented for payment. As 
a matter of fact, neither the United States 
Government nor any other government in 
the world is now redeeming its paper 
money in gold. They are consequently 
all on a credit basis, and, like individuals 
when their credit is low, their promises 
to pay later are discounted. 
A New Jersey farmer who sold some 
land in Saskatchewan after the war, 
when Canadian exchange was at a dis¬ 
count. was disappointed to find that it 
would cost him $1,500 to have the pro¬ 
ceeds of the sale in Canadian money con¬ 
verted into United States money. lie 
wanted to know who got the $1,500. The 
facts were these : ITe exchanged his Ca¬ 
nadian land for the promises of a Cana¬ 
dian bank to give him gold dollars for the 
paper dollars that he received; but the 
Canadian bank refused to pay the gold 
on demand. Consequently he had nothing 
but suspended promises to pay dollars, 
and these promises were not as good in 
New York as the gold itself. If the 
Canadian bank would promptly pay gold 
on demand, as promised, the discount on 
the bill of exchange drawn in New York 
against the buyer of the land would be 
trifling. The seller was simply confused 
by the difference in value at the time be¬ 
tween a Canadian promise and a United 
States promise. Nobody got the $1,500. 
He traded his land for written promises 
which were not. as valuable as the United 
States promises that he wanted in ex¬ 
change for them. If the bank or money 
broker who gave the New Jersey owner, 
^ay, STOOO United States money for his 
$4,500 Canadian money, held his Canada 
money _ until exchange between the two 
countries returns to par, he would, of 
course, make the $1,500 as profit, 'but he 
would. lose the use of the money in the 
meantime, and his best policy would be to 
take a small profit on the exchange at the 
time. 
Tarring Corn 
In answer to W. W. G. in regard to 
using coal tar on corn to discourage 
crows, I will say it is the best thing I 
know of for the purpose, and the corn can 
be planted m any way or kind of planter 
or drill just as well as though it had not 
been tarred, if it is properly done. The 
trouble is you use too much tar. A crow 
will leave a kernel of corn with two 
specks of tar on it as quickly as he would 
one tarred all over. A teaspoonful of tar 
is enough for one-lialf bushel of corn. Put 
your corn in a tub, pail, basket or other 
convenient receptable, then make a pad¬ 
dle, as you would if you were going to mix 
some paint. Dip the end of the paddle in 
the tar and stir the corn briskly for a few 
moments, or until thoroughly specked all 
oyer, not black; then dust a little dry 
dirt or land plaster over the corn and stir 
again. The corn is ready to use in anv 
manner you wish, with no trouble what¬ 
ever from the tar, and the crows will 
leave it alone just as quickly as they 
would if it had a sticky daub of tar on 
each kernel. M. h. b. 
Cherry Creek, N. Y. 
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