Note A2-5-10 — Chapter III

Let us suppose that, hitherto, the English had supplied their demand for wine from France, and paid therefor in commodities made of steel; and that now France prohibits the importation of the latter and requires gold instead. If the English take this gold out of their own circulation, the value in exchange of the gold which remains to them rises; the prices of all commodities fall, state debts and private debts become more oppressive, etc. If, to avoid this, they send their steel wares, which France has rejected, to California, to obtain gold there in exchange, they find that California has as much of steel wares as it requires, and that it can be induced to extend its consumption of them only by a corresponding lowering of their price. But if, on the other hand, the gold which has flowed towards France has produced a rise in the price of commodities, and a decrease in the exportation of commodities; and has then flowed out of the country, to Germany for instance; England may in consequence be placed in a position to effect its payments for French wine with the gold which its manufactured articles have been exchanged against in Germany. But all this always supposes that the prices of commodities have fallen in England and risen in other countries; that is, a changed and, so far as England is concerned, an unfavorable distribution of the precious metals—which is found in connection with a relatively decreased productiveness of English labor. The English cost of production may yet continue to be covered, notwithstanding; but, when it has been diminished by a lowering of wages, interest, etc., the national wealth suffers in consequence. Compare Torrens, Budget, p. 50 ff., who precisely on this bases the greater security of trade between the mother country and its colonies; and which also found expression in the Peel reform plan of 1842 ff. Adam Smith approximated to this view when he ascribed a more favorable balance to the country which paid for its imports with its own instead of with foreign products. (W. of N., IV, ch. 3-2, p. 329, Bas.)