Balance upon the real par, no mark of a balance upon trade; proved by examples.
The mint price regulates the price of bullion; and there it will nearly stand, while the balance of trade is either at par, or favourable to a country. Exchange therefore, or a wrong balance, can only make it rise; and it returns to where it was, by the force of another principle.
In the next place, were I to allow that the balance of trade regulates the price of bullion, it would not follow that what is called the real par of exchange is a rule to judge of the balance of trade of a nation. Is it not plain, that if France, for example, being at present obliged to send great sums into Germany, upon account of the war (anno 1760,) has reduced the price of her coin to a par with bullion, that all nations will profit of it as much in their trade with France, as if the balance was become favourable to them; since the course of exchange will then answer according to the conversion of bullion for bullion in all remittances to France.
But were France at present to remit money to any other country, which has the balance favourable, and where coinage is paid, suppose to Spain, while the balance between France and Spain is supposed to be exactly even; would not the real par between the money of Spain and of France mark an exchange against France, for the value of the coinage imposed by Spain? This is the reason why, in time of war, exchange between France and England appears more favourable to England than in time of peace. But does this anywise prove that the balance of trade is then more in favour of England? by no means: for let me suppose the balance of their trade to remain the same after the peace as at present; is it not evident, that in proportion as the coin of France shall rise above the bullion, that the balance of trade will become, in appearance, against England?
By the balance of trade, I here constantly understand a certain quantity of bullion sent by one nation to another, to pay what they have not been able to compensate by an exchange of their commodities, remittances, &c. and not that which they compute in their bills as the difference between the respective values of coin and bullion in both countries.
How, then, is the real par of exchange to be regulated, so as to determine which nation pays a balance upon the exchange of their commodities?
The real par of exchange to be fixed by the fluctuating value of the coin, not by the permanent quantity of the bullion it contains.
I answer, To determine that question, let bullion over all the commercial world be stated at 100, and let coin in every country be compared with it, according to the current price. In England, for example, (were all disorders of the coin removed) coin must always be as 100. In France, when the balance is favourable, at 108.27. In Germany (were the Emperor’s late regulation with Bavaria to be made general) at 101. And so forth, according to the price of coinage imposed every where. These advanced values above the 100, never can rise higher; and the more the balance of their respective trade is unfavourable, the nearer they will severally come to 100; below which they never can fall. These fluctuations will constantly be marked in exchange; because all circumstances are exactly combined by merchants; but the balance of the trade will only be marked by what exchange is made to vary from these proportions.