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The Pamphlet Collection of Sir Robert Stout: Volume 81

Chapter IV. — Protection

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Chapter IV.

Protection

One of the most insidious foes of genuine reform of our social system is the policy of Protection of home industries. To begin with, the name begs the question. The word naturally suggests ideas associated with what is good and praiseworthy Surely no one can argue against the protection of industries. Perhaps not in the literal sense, but most assuredly one can in the technical sense which the word has acquired in relation to the fiscal systems of countries. It is most unfortunate that the exponents of the theory of promoting industry by taxing imports should have been permitted to appropriate such a term as Protection. This virtue-assuming name has helped to perpetuate the errors which it covers and has impeded the progress of true reform. If the function of a name is to express the qualities and tendencies of an idea, then the name "Destruction" would be more fitting.

The most cursory survey of the commercial world discovers signs of a growing belief in the efficacy of the system of Protection to promote a country's wealth. Nations seem on the eve of a bitter and prolonged warfare of tariffs. New Zealand has just raised her tariff. Australia is advancing, bounding along the same road. America is preparing for a tremendous struggle on this same fiscal issue. Indeed, Britain is the only considerable country whose Government is not meddling with the course of trade. And even in Britain there is not lacking a disposition on the part of a zealous and perhaps growing minority to urge her to a complete change of her traditional policy. In fiscal problems, error seems specially facile in assuming plausible and winning guises. Its parade of superficial logic deceives the man unaccustomed to searching analysis of ideas. It has a semblance of truth which the undiscriminating popular mind fails to distinguish from the reality.

"In the Dominion of New Zealand," we are told, "a great quantity of woollen goods is annually imported. If a tex were imposed on these imports sufficient to exclude them, a tremendous impetus would be given to the local woollen industry. More labour would be employed. The money formerly expended on foreign goods would be circulated in the Dominion. The home producer would be benefitted at the expense of the foreign." To one versed in the principles of economics the above reasoning is seen to be faulty at every step. Yet to the mass of working people in the Australasian colonies at any rate, and to a multitudinous class page 27 of business men, it has the verity of a syllogism. The reasoning is re-enforced by patriotic sentiment expressed in every variety of tricky phrase-Let British men buy British goods," "New Zealand for the New Zealanders" (to use a common expression of Mr Seddon the late Premier of New Zealand). Somehow or other, the belief has rooted deeply that to purchase locally-made commodities is to confer benefits upon the labour and enhance the prosperity of one's own country a degree immeasurably greater than by purchasing foreign goods. A searching scrutiny of fundamentals is required that such popular errors may be wrenched from their sockets.

There are many benefits which Protection can secure to a country It can give support to industries in their infancy and nurture them into justy manhood.; it can shelter them in their time of weakness from the withering blast of the competition of strong, long-established rivals in foreign countries; it can give a diversity of employments and thereby a diversity of social life; it can render a country in a large measure self-reliant and independent of supplies from alien nations.

Let us speak with equal plainness upon the disabilities of Protection. It cannot contribute anything to the solution of the un-employed problem; it cannot raise wages; it cannot increase the demand for local labour, or make employment more abundant; it cannot augment a country's wealth. So far as its effect upon wages is concerned, Protection has always failed to realise the hopes of its protagonists.

But a high tariff involves something more than the negation of virtues; it possesses positive evils. A high tariff contracts a community's productive capacity, diminishes the consumer's purchasing power, and lessens the real wages of labour. Besides this, it keeps alive international animosities which the peaceful course of trade would help to allay. Its grip of the popular mind is due to the belief that by importing commodities a country confers greater benefits on the foreigner than it receives; that one nation's gain is another's loss; that trade is advantageous to the seller, but detrimental to the buyer; that a country grows rich by exporting and poor by importing; that the best way of advancing one nation's prosperity is by beggaring another. Adam Smith bursts into a transport of indignation at the false notions and the mean and petty jealousies that encumber trade. "In this manner," he says, "the sneaking arts or underling tradesmen are erected into political maxims for the conduct of a great empire. By such maxims as these nations have been taught that their interest consisted in beggaring all their neighbours. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades and to consider their gain as its own loss. Commerce, which ought naturally to be among nations as among individuals a bond of union and friendship, has become the most fertile source of discord page 28 and animosity. The capricious ambition of Kings and Ministers has not during the present and preceding century been more fatal to the repose of Europe than the impertinent jealousy of merchants and manufacturers."

So much for bare averments as to what Protection can and cannot do. They prove nothing, but they serve to state the problem. Now, let us look at the general attitude of Protectionist countries to foreign trade. The dimensions of the problem will be better appreciated. That attitude will be seen to involve strange contradictions and indefensible positions. There is not a country in the world with any claim to civilisation which is not eager to obtain new markets for its produce. Every effort is made to push the sale of its commodities in foreign lands. We bemoan in this Dominion that we are so far away from the centres of commerce. We hail with delight the progress of invention which enables as to land our meat and butter in excellent, condition at the Antipodes. We subsidise steamships to extend our trade. We welcome anything that will reduce freights, quicken the speed of ships, or in any way lessen the cost of transportation. We are looking hopefully to China and Japan, watching their awakening, and making estimates of their value as markets for our produce. It is conceded with unanimity that no pains must be spared in producing articles for export which, by their quality and cheapness, shall obtain a commanding position in foreign lands. Our dairy and agricultural produce is subjected to the minutest Government inspection to protect it against deterioration. It is carefully graded and tested. So jealous are we of the reputation of our produce abroad.

Our attitude towards the importation of foreign goods from foreign countries is quite different. Whilst we view with complacency the growth of our export trade, we look with apprehension at the advance of the import trade. The one we regard with the liveliest satisfaction, the other with dread and fear. As goods come pouring into the country we tremble for the fate of local industries. We expatiate on the advantages of letting our own people make the goods instead of the foreigner, of keeping our money in our own country instead of sending it abroad to enrich our foreign competitors. There seems some lack of patriotism in employing the labour of distant lands to make commodities which the labour of our own country could make. Hence patriotism and a multitude of other worthy sentiments are enlisted in the service of the policy which would check imports as destructive to local industry.

However it may be disguised, the above represents the attitude to foreign trade of all countries that attempt to foster local industries by tariffs. They point with alarm to a country whose imports exceed its exports. They speak of the balance of trade being "favourable" when exports exceed imports. By some means page 29 the notion has laid bold of men's minds that a nation is enriched by what it export and impoverished by what it imports. The satisfaction an export trade and the apprehension with which an import trade are regarded are pretty general amongst all classes of men. It is the strength and wide diffusion of this belief which accounts for the amazing faith in the efficacy of tariffs. This belief fallacy though it be, is susceptible, as has been said, of presentation in the most plausible dress.

"If the foreign goods," its upholders urge, "were not purchased, the demand for local goods would be increased, and this increased demand for goods would necessarily lead to an increased demand for labour to produce them; hence Protection, by restricting imports, intensifies the demand for local labour." There can be no doubt Protection owes its influence to such misconceptions of foreign trade. This its leaders will probably disavow. Nevertheless, Protection is a lost cause when collect notions of foreign trade are the property of the masses. Misconception hero is the great fortress of the selfish interests of manufacturers and politicians. The rudimentary principles of trade require to be stated in simple and untechnical language.

Foreign commerce is, in the long run a mere exchange of commodities. It is a system of barter on a colossal scale. This barter is aided by money, or, more truly, credit instruments, which are the medium of the exchange. The foreign trade of a country always consists in exchanging goods of less value to it for goods of greater value. Imports arc the payment, for exports, and they tend to balance each other everywhere. A country cannot be deluged with the cheap products of foreign merchants to the extinction of its industries. A country with cheap labour and boundless natural resources cannot, under a system of Freetrade, destroy the commerce of a country whose labour is dear and whose soil is churlish and ungenerous. No nation ever was, and no nation ever could be, drained of its money or precious metals by the action of trade. To lessen imports is to lessen exports. To increase exports is to compel an increase of imports. Except under abnormal conditions, trade is always profitable to both parties to it. It increases a country's wealth, enlarges the stock of its consumable commodities, and makes its labour more productive.

The above statements, crisp and audacious, have been grouped together to challenge attention. If true, they undermine the theory of Protection. To establish them is the duty of the present chapter.

"Trade is an exchange of commodities." Money in this connection is merely the medium of the exchange. At bottom, trade is barter. Money has been introduced to facilitate the exchanges. The inconveniences of barter are apparent on the surface. If a boot-maker has a pair of boots for sale and wants to buy a pair of page 30 trousers, he must find a tailor who not only has trousers for sale, but who also wants boots. The expenditure of time and labour in bringing together men with mutual wants and mutual means of satisfying them is incalculable. The intervention of money avoids this. It provides a standard by which the values of all things are measured. The values of all merchantable commodities are expressed in terms of money. But, more important still, money represents general purchasing power. A sovereign will purchase goods or services of any kind. If a bootmaker sells his boots for a sovereign he can buy with that sovereign trousers from any tailor, whether the particular tailor wants a pair of boots or not. The tailor's possession of the sovereign represents his power to purchase a sovereign's worth of goods of any description. Money, having this property of general purchasing power, is universally accepted by sellers It is universally wanted, because it can at will be converted into any commodities. "Goods are sold for money in order that money itself may, at the time and in the place most suitable and convenient, be in turn sold for goods." Thus the necessity is obviated of bringing together two men each possessing what the other wants, and each wanting what the other possesses.

Nevertheless, the principle of trade has not been altered. When the bootmaker sells his boots for £1 and with it buys a pair of trousers, the boots are as truly exchanged for the trousers as in a system of barter. The man who buys the boots cannot supply the seller with trousers, but he supplies him with the £1 wherewith the trousers can be bought from any tailor, irrespective of the latter's want or otherwise of a pair of boots. "It is not," says Mr Mill in the third volume of his "Principles of Political Economy, "with money that things are really purchased. Nobody's income (except that of the gold or silver miner) is derived from the precious metals The pounds or shillings which a person receives weekly or yearly are not what constitute his income; they are a sort of tickets or orders which he can present for payment at any shop he pleases, and which entitle him to receive a certain value of any commodity that he makes choice of. The farmer pays his Labourers and his landlord in these tickets, as the most convenient plan for himself and them; but their real income is their share of his corn, cattle and hay and it makes no essential difference whether he distributes it to them direct, or sells it for them and gives them the price; but as they would have to sell it for money if he did not, and as he is a seller at any rate, it best suits the purposes of all that he should sell their share along with his own and leave the labourers more leisure for work and the landlord for being idle. The capitalists, except those who are producers of the precious metals, derive no part of their income from those metals, since they only get them by buying them with their own produce; while all other persons have their incomes paid to them by capitalists, or by those who have received payment from the capitalists, and as the capitalists have nothing from the first except their produce, it is that and nothing else which supplies page 31 all income furnished by them. There cannot, in short, be intrinsically a more insignificant thing in the economy of society than money except in the character of a contrivance for sparing time and labour. It is a machinery for doing quickly and commodiously what would be done, though less quickly and commodiously, without it; like many other kinds of machinery, "adds Mr Mill, "it only exerts a distinct and independent influence of its own when it gets out of order."

It is the general purchasing power of money which has given rise to misconceptions concerning its functions. Since money will buy anything, men toil and strain to bring forth something which will buy money. Thus the grand virtue of money in facilitating exchanges is often lost sight of, and money is pursued as an end in itself.

As money is the medium of exchange, it follows that exports must equal imports in international trade. Foreign trade is no more than a complex development of the simple transaction we have been considering between the bootmaker and the tailor. The principle is the same, although its operation may be disguised. The commodities which a country imports are paid for in the long run by the commodities it exports, and not by gold.

The importance of this truth is so vital that it ought to be written in illuminated capitals in every work dealing with fiscal problems. Let it once grip a man's understanding, and the bold of Protection must needs be relaxed. The dread of a large import trade is the belief that it deprives local labour of employment. If Britain, it is argued, did not import so much wheat there would be more employment for British farm labourers. If New Zealand did not import American and English boots there would be more employment for New Zealand bootmaker. But the imports must be paid for, and they cannot be paid for by money; therefore they must be paid for by commodities produced for export. Britain must send out woollens and cottons in exchange for the agricultural produce; New Zealand must send out meat and grain in exchange for the boots and shoes. And fabrics cannot be produced without labour in Britain; neither can grain be grown without labour in New Zealand. If as the result of foreign trade, Britain requires less labour for agriculture, she requires more for manufacture. Similarly. New Zealand requires more for agriculture and less for manufacture. Thus to import boots is to export butter and cheese, and does not lessen the demand for home labour. If the labour is not required for making boots, it is required for making those things which must be exported in, payment of the boots. Every purchase implies a sale, and every sale a purchase. There must be an exact balance between what is poured into the markets of the world and what is drawn out. Popular speech often seems to be based on the belief that a country is impoverished when it imports and en- page 32 riched when it exports. Hence we are urged to multiply obstacles to importation, and at the same time by means of reduced freight; and faster shipping services to increase the facilities for exportation Yet the truth is a nation is enriched by its imports, which are the only payment for those products which it sends from its shores

But the reader may demur from the proposition, incidentally laid down, that imports cannot be paid for by money. Close attention to this point will be amply repaid. Indeed, it is the crux of the fiscal problem. Why cannot a country he drained of its gold to pay for its imports? What necessity is imposed upon it to export commodities? The necessity is that of an economic law that never deviates. That law is this: as water tends to find one level, so prices of the same commodities at the same time tend to find one level the world over. If allowance be made for cost of freight, fetal tariffs, and other impediments of trade, the statement is true that prices are the same everywhere. Now, what determines the general level of prices? The amount of money in circulation, supplement of course, by the present highly organised system of credit. But for the purposes of the argument we can treat credit as money, since it economises the use and performs the function of money as a medium of exchange. Money, then, is the medium of exchange Money is also the standard by which we measure value. If there is a large amount of money relative to the number of exchanges to be effected, prices will be high; if there is relatively a small amount of money, prices will he low. Trade is the process whereby the man who produces goods brings them into the hands of the man who wants to consume them, and money is the means employed. The goods must pass from hand to hand for this purpose, and they do so by the instrumentality of money. The goods as they are exchanged are expressed in terms of money. Now, if there is an abundance of money in proportion to the number of exchange transactions to be effected, prices will be high. If money is scans, prices will be low. To understand the effect of money on general prices, one must put on one side the work to be done, the exchanges to be effected by money, and on the other the amount of money that is available for the performance of this work. The proportion of the money to the work determines the general level of prices-that is, makes things generally dear or cheap.

We can now revert to the problem whether foreign trade can drain a country of its money. Let us suppose that imported goods are being paid for by money. As goods come in, gold coins go out Gradually the currency, the medium of exchange, is depleted. But as this process of depletion goes on, prices fall, and in proportion to the depletion. The money for doing the work of exchange is lessened, while the number of exchanges to be effected remains the same. Thus it becomes scarce, relative to the work it has to do; whence it follows that a sovereign will purchase more commodities page 33 then formerly. Money is the only means by which in modern society we purchase commodities. Consequently, if the money is reduced by one half, say, and the amount of commodities to be purchased remains the same (population being the same, the demand for commnodities would not vary much) prices must be reduced by one-half. If we want to find the aggregate price of all the marketable goods and services of a country, we get it by estimating the amount of money that is offered for these goods and services. Thus to increase the money is to increase price, and to lessen the money is to lessen price.

A simple illustration will clarify this most important of economic truths. Suppose that Robinson Crusoe had saved from his ship a small of gold coins, and that in exploring his island he came across 100 move men in like case to himself, each also with an equal stock of coin. They cannot eat and drink the coin. It will not help them to hunt and fish or build huts and boats. But they will soon realise the advantage of a rudimentary division of labour; some will do the fishing, some the house-building, some the tailoring, etc. With this division of employments, trade will arise through the necessity of an exchange of products. The inconvenience of barter-will very quickly manifest itself, and the money they have will be used as the medium of their exchanges. One is made a hanker, and each puts his money in the bank and is credited with what he puts in. The money in the bank, say £500, is to he used for buying and selling the possessions of each. Thus the value of the possessions expressed in money is £500. Had the amount of the money been £250, the value of the same possessions would have been £ 250. The amount of money for use in exchanges thus determines the general level of prices.

Or suppose six men come into a market each with but one article to sell, and each wanting to purchase one article belonging to another. One article, we will suppose, is as valuable as another. All that is wanted is an exchange. Each man brings one article and wants to go away with another. If the amount of money to effect these exchanges is £36, the price of each article will be £3, as twelve exchanges will be requisite. If, through foreign trade drawing away half the money, the amount to effect these exchanges is only £18, then the price of each article will be £1 10s.

These illustrations serve to show that money, being the medium of exchange, is also the determinant of general prices. Prices rise or fall with the amount of money in circulation. Well, then, if a country—say New Zealand—were to pay for its imports by money and large quantities of money were sent out to meet indebtedness to foreign creditor, the general level of prices for its commodities must fall. If half the circulating medium were in that way sent out of the country, prices in New Zealand would fall bv one-half. page 34 But what happens when this result has been reached? The drain of gold has reduced prices one-half. Assuming the prices in Set Zealand before the drain commenced were about the same as in other countries, allowing for freight, etc., they are now only half what they are in other places. As a consequence, it will no longer pay the manufacturers in these other countries to send their goods to new Zealand, where they can only secure half the price obtainable else where. Imports to New Zealand will stop. The goods formerly imported will have gone in search of the higher prices. Thus the drain of gold has stopped—imports. But its effect is not limited there.

A drain of gold stimulates the export trade. Prices are so low that it pays local producers better to send their goods to Britain for sale than to sell them at home. After paying cost of carriage and other expenses incident to exportation, a better return is obtained in the British markets than in the home one. Thus goods have stopped coming in, and goods have begun going out. The cessation of imports has stopped the drain of gold, and now there is a drain of commodities, while the amount of currency remains stationary and prices begin to rise. Furthermore, whilst local prices remain far below foreign prices, no goods will be imported in exchange for the goods that are being exported. No. the Dominion's exports will necessarily be paid for by money. Thus goods will go out and money will come in. The outcome of this process will he a rise in local prices, and the process will continue until prices have reached the normal level—until, in short, the general level of prices in New Zealand is the same, after allowing for the factors already noticed, as in other countries.

The above argument demonstrates the impossibility of any country being deprived of its gold by foreign trade. The slighest tendency in this direction shows itself in a fall in prices, and the fall in prices arrests the tendency. The action of money on prices is such as to preclude the possibility of goods being exchanged ultimately for anything but goods. Such being the influence of the fluidity of money on prices, it becomes demonstrably impossible for a country, however inferior in natural resources or industrial efficiency, to be robbed of its currency and deluged with foreign commodities.

Payment cannot long continue to be paid in money. If goods are not exported, importation must stop or the national assets must be mortgaged. Even in the latter case, the indebtedness must at some time be redeemed, and redemption can only be effected by the exportation of commodities It is the rigorous necessity of providing for payment, which can only be made by goods, which preserves the industries of the weakest countries. Foreign trade may cause this industry or that industry to languish but it must necessarily stimulate others. Of course if it were possible for one page 35 country to receive regularly the goods of another without exporting anything in exchange, it is difficult to see what hardship the former would suffer. The only need a country has for industries is to produce commodities, required for consumption, and if these commodities were supplied by foreign labour without payment, the country would be in the enviable position of enjoying satisfied and luxurious idleness. In short, foreign trade is, perforce, an exchange of goods.

The soundness of this conclusion is confirmed by reference to the fiscal history of any country. At first sight, there seems wide disparity between the values of the imports and exports of Great Britain. The imports were in 1905 £565,020,000, the exports £407,597,111 The excess of imports seems enormous, and similar excess has been characteristic of Britain's trade for many years. Is the balance, then, being paid for by money? Sir R. Giffen, the eminent statistician, gives an emphatic denial. The excess represents payment to British creditors by foreign debtors of interest on loans, costs of transport of goods over sea and other items of credit in favour of Britain. A great deal of the excess is made up of freight charges, for it must be remembered that three-quarters of the world's ocean trade is done in British bottoms.

In New Zealand the exports exceed the imports. The exports in 1905 were £15,655,947. the imports £12,82,.857. This excess is accounted for by the fact that New Zealand is a debtor country. The interest on her national debt alone is over £2,000,000 a year, and this interest is paid for by commodities. Thus imports tend to balance exports, and exports imports.

If further proof were required that foreign trade is an exchange of commodities, it is supplied in the small quantities of money which pass between nations from year to year. New Zealand's export of specie in 1905 was £13,875. The import of specie was £347,679. The import is larger in amount than the export because New Zealand has no mint. In any case, the movement of specie is insignificant compared with the volume of trade.* Of course, it is not maintained that exports must equal imports in any one year, but that over a series of years they must do so.

Trade being demonstrably an exchange of commodities, what becomes of the popular belief that Protection gives employment to Labour? The labour not required to produce the article imported is required to produce the article exported. So that, whatever virtues Protection may have, it does not give a country's workers employment; and whatever evils Freetrade may possess, it does not drain a country of its money.

page 36

The nature and benefits of foreign trade cannot be understood apart from the causes which give rise to it. Nations only trade with each other when it is profitable to do so. They pursue self-intent in the same way as individuals. There cannot continue between two countries trade which is profitable to one only. Countries exchange products because of mutual advantage to be gained. This truth can be set in the clearest light by an extreme case. There is considerable trade between England and the Channel Islands. The islands import all their wheat from England, yet they can produce wheat much more cheaply than the imported article can be sold for in the islands. What, then, is the cause of this importation of wheat? Why do the local farmers not grow it, and capture the home market! The answer is to be found in the special advantages which the Channel Islands have for the production of early potato and fruit. Whilst they can produce wheat cheaper than Britain, they can produce fruit and potatoes still cheaper. Their advantages over Britain in the growth of fruit is greater than their advantage in the growth of wheat. Hence the Channel Islands have turned their wheat fields into orchards, and by doing so they have obtained the maximum gain. The islanders, instead of applying a portion of their labour to the growth of wheat for home consumption, apply it to the growth of fruit to export in exchange for wheat. The way in which the gain from such exchange accrues is obvious. Suppose an acre of land under wheat yields forty bushels, whilst the same acre under orchard, with the same labour, will produce fruit for export which can be exchanged for sixty bushels of wheat. In this case the same labour and land, devoted to fruit, will yield in effect twenty bushels more wheat than if devoted directly to the raising of wheat. It is not always advisable, then, for a country to make for itself what it can produce cheaper than the foreigner. Thus it follows that a country superior in every respect to another might find it profitable to import from that other, importing those commodities for which its superiority was less marked. In other words, trade may arise betwen two countries, one of which is superior to the other in respect of the production of all the commodities the subject of exchange. A country's foreign trade consists in exporting those goods in the production of which it has the greatest advantage or least disadvantage, and importing those goods in the productions of which it has least advantage or greatest disadvantage.

These illustrations serve to show that foreign trade augments the wealth of a country. What is less valuable to it, it exports for what is more valuable. The labour and capital of the country is concenerated upon those industries for which the country is most adapted. Trade invariably means an exchange of a lesser for a greater value.

It is not proposed to enter into the merits of the controversy between Freetrade and Protection. Whatever may be said for Protection, there is no doubt that Freetrade secures for a nations page 37 the employment of its labour and capital in the production of those things for which its soil, climate density of population, and other natural conditions best fit it. Freetrade consequently means the maximum of productivity.

But neither Freetrade nor Protection solves the questions to which this book is devoted. In Freetrade Britain there is appallling poverty and distress. In Protectionist Germany and United States there is the same. The root idea of foreign trade has been dealt with here to show there is no magic power in Protection to quicken the demand for Labour, make money plentiful, and bring in the industrial millennium for which so many are striving. Consistent with this purpose, the treatment of the problems of money and fiscal relationship has been confined within narrow limits. In dealing with money no mention has been made of the effect of the rapidity of circulation and of credit instruments. Neither has the alleged beneficial effect of Protection on infant industries been examined. These and other kindred matters have been disregarded as unnecessary to the object in view. This is not a treatise on foreign trade or money, but if the truth has been firmly grasped that trade is but an exchange of commodities, the power of Protection to seduce men from the path of true reform will have been diminished. The spell which it exercises on some minds will, it is hoped, have been broken, and energies liberated for the pursuit, of those reforms which will indeed bring amelioration of society.

N.B.—Nothing is more calculated to give just notions of the [unctions of money and destroy the fetish of gold and silver than an enumeration of the various articles that have at different time-and in different countries been used as money. Almost every portable article of consumption has at one time been so used and indeed, the precious metals are not universally employed now. In Africa some of the tribes on the West Coast use cowrie shells. In parts of Japan they use rice: in Central Asia, packages of tea; in Central Africa pieces of calico; in Abyssinia cubes of salt. These commodities are used as the general medium for effecting exchanges. In civilised countries gold and silver have displaced all other commodities as standard currency because of their ready portability, great durability, and high intrinsic value.

As showing how an overplus of money relative to the exchanges to be effected raises the general level of prices, merchants in Sweden in the 17th century had to take wheelbarrows with them to carry their money. In the interior of China even to-day, where the depreciated copper coin called the "cash" is the only currency, merchants have to hire porters to carry their money.

The inconvenience of the absence of a circulating medium was acutely by Mr Wallace when travelling in the Malay Archipelago. Many of the islands had no proper currency, and when he page 38 came across a native with fish or other food that he wanted, be couldn't secure it unless he happened to have in his baggage something which the native wanted. The difficulty of obtaining this coincidence, essential to barter, often caused Wallace and his party to be deprived of their dinner. It also enormously increased the impedimenta of travel. The party had to provide themselves with trinkets, guns, etc., so as to be ready to meet every variety of taste.

Colonel Young husband experienced the same drawbacks recently in his expedition into Thibet. He found many trite without currency, and suggests the introduction of one as the first step to civilisation.

The use of money in any but the most rudimentary societies is indeed essential. It is as indispensable to the interchange of commodities as language to the interchange of ideas; but it is no more wealth than the dictionary is Shakespeare or Milton.

* The importation of large quantities of money into America during the recent crisis was due to the total collapse of credit, and in no way affects the argument of this chapter.