exportation, in any year, a sum of gold great enough to warrant half the variation in speculative prices which has been supposed to have resulted from such gain or loss of the metal. I am referring only to actual gain or loss of gold not to, for instance, a downward movement in prices. when brought about by fear that great quantities of gold will be exported to pay for American securities, this fear being based upon a belief that foreigners want to get rid of such securities.

NOTE TO THIRD EDITION.-When the currency became positively redundant after the crisis of 1893, the exportations of gold quite properly caused great fear of results, for a premium on gold was actually in sight. It seemed possible that gold money would become merchandise.

CHAPTER VIII.

FOREIGN EXCHANGE UNDER NORMAL AND

UNDER ABNORMAL CONDITIONS.

THIS country does much of its business upon borrowed capital, but unfortunate as is the situation, it is not nearly so bad as would be the situation if we were unable to borrow or if our power of borrowing were curtailed. The merchant who, from large profits, pays a small portion for interest may well look upon his good credit as a very good thing; and Americans who bewail the sending of interest and dividend moneys to foreigners should console themselves with the thought that these payments are only a small portion of the total earnings on the capital which has been invested by foreigners in America. Nobody has any right to object to the benefit derived by us from our high credit abroad. When an American security is taken by a

foreigner, the fact indicates that American capital can be employed to better advantage, and the fact of there being held abroad an enormous mass of American securities, indicates the release of an enor mous sum of American capital for more profitable uses. Eastern capital is extensively used in the Western and Southern States, both because it cannot be so profitably used at home, and because the Westerners and Southerners can make a profit by its use in excess of the interest and dividends sent to Eastern capitalists. European capital is extensively used in the United States, both because it cannot be so profitably used at home, and because the people of the United States can make a profit by its use in excess of the interest and dividends sent to European capitalists.

Turning now to our lack of ownership in the steamers and sailing-vessels engaged in foreign trade, we may say that under existing laws and circumstances American capital is better employed. Without admitting that our merchant marine could

not be restored, we may class freight money with interest and dividend money-all evidences that this country has not yet accumulated sufficient capital for all its business

wants.

The newness of America, her immense resources, and the honesty, inventive genius, and enterprising character of the people have drawn hither foreign capital, and should continue to draw it. Therefore we may class as a normal factor in foreign exchange the flow of foreign capital this way for investment; and, consequently, we may also class among the normal factors in foreign exchange the flow toward Europe of interest and dividend disbursements, leaving questionable the classification of freight remittances, but bearing in mind. that such remittances are continually being made. Intimately connected, we may note here, are capital and its earnings, and there can be no doubt that the greater the interest and dividend payments to foreigners the larger will be the total of foreign capital invested; and, naturally, the greater the earnings of vessels engaged in Ameri

can foreign trade, the larger will be the sum of such investments.

Looking upon the purchasing of American securities by foreigners as the natural condition of our present attainment in growth, so to speak, we may consider the selling of American securities by foreigners to Americans as quite abnormal. The home-coming of our stocks and bonds should resemble an eddy in a stream, and should not resemble the stream itself. When those stocks and bonds move this way in large volume, something, certainly, is the matter; and, of course, several forces may have worked together to reverse the natural movement of the stream. We may

The

do well to note some of these forces. expectation of the failure of a great house, and the actual failure of the Barings in London, in 1890, by creating a very great demand for money, induced many sales of American securities to Americans, and these sales were like a creditor's demands for money. But a flow of American securities this way, brought about by a shortage of money in London, should be dis