But there are other causes in operation which' materially affect the rate of ex change and the price of bills. The ac commodation of a remittance in the form of a bill of exchange is worth a calculable sum, the maximum being the compound of the labour, expense, and risk of the transmission of money in specie. Suppose this maximum to be one per cent., it is evident it is worth the while of the re mitter to pay any sum short of 10/. for the purchase of a bill equivalent to 1000/. Now the market price of bills is mainly dependent on the relation of the supply to the demand, and this again is primarily regulated by the state of trade between two given countries. When the value of the exports to any country in a given period is equal to the value of the imports from the same country in the same period, the trade is said to be balanced: the bills drawn in each country upon the other will be equal in amount, and this equili brium constitutes what is called the real par of exchange. But this state of things can never actually exist. Even where, upon the average of years or months, the trade is nearly even, there will be disturb ing circumstances which will have a tem porary effect upon the exchanges. There will consequently be occasional scarcity and occasional abundance of f3reiffn bills in the market. When scarce, their price of course is higher, or, as it is ordinarily expressed, they bear a premium. At such times the imports exceed the exports, and the exchanges are said to be against us. Suppose that, in the trade between Eng land and France, the value of our imports from France exceeds that of our exports to France by about three-fourths. The acct of this, if matters were left to them selves, would be, that of the remittances to France three-fourths must be made in specie, and that the bills in which the re maining one-fourth was made would be at the maximum price, that is to say, tak ing the scale before adopted, would bear a premium of all but one per cent. But it is an established fact, that in every trading community the value of the whole of the exports taken together is, upon an average, very nearly balanced by the value of the whole of the imports, or, in other words, that ultimately all commo dities imported are paid for directly or indirectly in commodities exported. Therefore, the bills drawn in England upon foreign countries nearly balance the bills drawn in foreign countries upon England in the same period. Thus, al though there may be a deficiency in Lon don, to the extent of three-fourths, of bills upon France, there may be an excess, in nearly the same ratio, of bills upon Bel gium, and in like manner there may be an excess in Belgium, to the same extent, of bills upon France. The London bill merchant by means of his agent will buy bills upon Paris at Antwerp, where they are cheapest, and bring them for sale to London, where they are dearest. The cost of procuring, and the profit of the bill-merchant, therefore, upon this trans action, constitute the third element in the calculation. Supposing then the bill to be a good one, that is to say, guaranteed by names of known and established credit, the only remaining operation is to esti mate the discount according to mercantile practice, or„ in other words, the interest of 10001. in money for the time which will elapse before payment of the bill ; and the combined result will give the sum in francs for which the bill is to be drawn, or the amount of bills already drawn to be given in exchange for 1000/.
Bills of exchange are also in frequent use for the purpose of remittance from one part of the United Kingdom to an other. Thus the trader in Manchester, Leeds, or Birmingham, who has a pay ment to make in London, remits bills of his customers in the country. These are discounted by the moneyed capitalists through the intervention of bill-brokers. A few of the London bankers also dis count for the accommodation of their customers, and the Bank of England deals extensively in that department.
The bills so cashed are transmitted to the provincial banks to be presented at ma turity for payment. Conversely, in the provincial towns the country bankers dis count bills on London, and transmit them to their correspondents there for payment. The rate of discount varies to the demand for money, and the character of the particular bills ; but it is seldom, upon regular transactions, more than four, or less than two and a half per cent.
Bills of exchange are also much used as follows :—A tradesman may not be able to pay ready money, but he can give the seller an order for payment on some other person, receiving or paying the difference, as the case may be, and making an allow ance by way of interest, or, which is the same thing in other words, paying an ex tra price, in proportion to the time of the bill's currency. To the seller this mode of dealing is better than the giving of a naked credit, as he gets an additional chance of payment, and a written acknow ledgment of his debt. When the nego tiability of inland bills was admitted, they served all the purposes of actual money, because in the same manner as the original seller had taken the order in payment, another would receive it from him in the purchase of other commodi ties ; or it might be at once discounted or converted into cash by application to a money-dealer.
The drawing of a bill supposes that the drawee either has in his possession funds of the drawer, or is his debtor to the amount specified in the order: it was therefore an easy step in the transactions of wholesale dealing for the seller to draw upon the buyer, for the price of the goods, a bill payable to his (the seller's) own order at some future day. This bill the buyer immediately accepted, and thus in effect acknowledged himself to be the debtor of the drawer to the amount spe cified, and engaged to pay the holder at maturity. By this arrangement, now very general, the buyer obtains credit for the term at the expiration of which the bill is made payable, and the seller has the advantage of a fixed day for payment being named in the bill, and a means of procuring cash if he chooses to negotiate the bill.
Bills of Exchange are also frequently drawn and accepted under such circum stances as follow :—There are in most of the principal trading ports of the world, merchants who carry on the business of general factors or agents for sale, and whose establishments are known among mercantile men under the name of com mission-houses. The course of dealing with such houses is, for the most part, this :—A., a manufacturer at Manchester, consigns a cargo of cotton pieces to B. and Co., a commission-house at Mexico, for sale on his account TLe English correspondents of B. and Co. are Messrs. C. and Co. of London. By an arrange ment among these several parties A. draws on C. and Co. for half or two thirds, as may be agreed, of the invoice price of the goods consigned, and by dis counting the bill with his banker obtains at once an instalment in money, which immediately returns into his capital, and becomes useful in producing more goods. Ultimately, account sales are furnished by the Mexican house, and A. again draws on C. and Co. for the balance in his fa vour. Annual balances are struck be tween B. and Co. and C. and Co., and remittances by bills for the adjustment of the account complete the transaction. Now the advantages of this anticipatory part-payment are obvious, more espe cially in the trade with distant countries, as South America or the East Indies. But the practice has degenerated into something of an abuse ; for it has of late been frequent with the consigners of goods to make out invoices with prices artificially high, and so to procure a re munerating return even from the pro portion for which they are authorized to draw in advance. The effect is to throw upon the consignees the whole risk, which was formerly shared between the two, aid proportionately to impair the steadiLibb and security of commerce.