rise and fall, according as the demand rises or falls, or as the supply falls or rises. Thus exchange on London ranges from about $4.835 per English sovereign to about $4.895, its natural par being $4.8665. If we are selling to Europe much more than we are buying from her, so that claims on Europe are very abundant in New York, London exchange will drop to, say, $4.84 or $4.835. If, on the other hand, we are buying much more than we are selling, so that the demand for claims on Europe is very much greater than the supply, the price will go up to, say, $4.89 or $4.895.

These rises and falls have a vital relation to the movement of gold. The going or coming of gold is entirely a matter of price, or rate of exchange. If the rate is as high as $4.895, this means that there is on the market practically no exchange having its origin in sale by us to the rest of the world; so that, if any is wanted, it must be created by sending gold. This rate further means that the exchange dealer can afford to send gold in order that he may create exchange which he can sell at the prevailing price; for, at that price, he will get his money back at a fair profit. Below that point, however, he could not afford to send gold for the purpose, since the cost added to the natural price of the bullion would exceed the price obtained from the exchange. Accordingly, if anything happens when exchange is at $4.895 to make exchange abundant and bring down the price, the exporting of gold for exchange purposes will at once become unprofitable, and, hence, cease.

But, not only does the exporting of gold depend upon the rate of exchange, this is also true of the exporting of goods. The rate which makes it profitable to export gold also makes it more than usually easy to export goods, to induce foreigners to buy goods. Thus, suppose you are a wheat exporter and hope to make a 10,000-bushel sale to a certain Liverpool miller. If you do so you will have ready for sale to your banker a bill of exchange for, say, £1,650. Now if with exchange at par the proceeds of this draft, $8,028.90, would give a fair profit on the deal, it is plain that with exchange at $4.895 they would give you an additional profit of $47.85. Plainly then you could afford to shade the price a little in order to make a sale more likely, i.e., you could offer a price of 80 cents a bushel rather than one of 804 cents. In large transactions of this sort, a difference of 1/4 of a cent, or even % of a cent, often determines for or against a sale. It follows, therefore, that high rate of exchange acts as a stimulus to increase exports.

The consequence of the increase in exports, due to the high rate of exchange, will manifestly put some foreigners in debt to us. It will therefore increase the supply of claims on other countries. But

this increase will tend to lower the rate of exchange till it is less than $4.895. But this is the rate necessary if gold is to be exported. Hence the increase in exports due to the high rate of exchange will tend to stop the export of gold.

The chain of reasoning is now complete. Gold cannot go until exchange reaches a very high point. But a high point for exchange stimulates exports; the increase in exports presses down the rate of exchange; and the lowered rate of exchange stops the outflow of gold.

But other factors are working to the same effect. A persistent net movement of money tends to be stopped by the action of conditions which its own continuance establishes. In other words, a money-drain is self-corrective.

Its first check upon itself is to cause an inflow of floating capital. The process is as follows: First, a money drain from any country --which will of course be a drain from its chief commercial and banking center-tends to make the stock of money in that centre relatively small. This will affect especially the surplus reserve of the banks, since it is from this reserve that money for export will be taken. Second, this depletion of reserve will tend to raise temporarily the rate of discount on short-time loans. Third, the high rate of discount thus established will make the country a desirable market for lenders, and so will tend to draw in the floating capital of neighboring countries. But, finally, as such a movement must in the nature of the case be a rapid one, it will almost necessarily stop the gold drain. In ordinary cases, this process is adequate to stop an excessive drain. But, if it does not prove to be so, a new and slightly different series of reactions follow and usually effect the desired result.

Under modern conditions there are many securities having an international character. The prices of such securities are soon affected by the causes which lead to an inflow of floating capital and so to the inflow of money. That is, when the bank reserves of New York become scanty and the rate of discount rises, it quite probably leads to a fall in the prices of securities. For a large part of the buying of securities is based on borrowed capital; and, therefore, if money is hard to get, the inclination of people to buy the securities is diminished. In consequence the demand falls off, perhaps the supply is increased, and inevitably their prices will fall. But if the prices of securities fall, foreigners will be encouraged to buy them. In turn this buying will give New York a supply of exchange on Europe. As a result the rate of exchange will fall below the gold point, thus making the export of gold no longer profitable. Thereupon the drain will cease.

There is yet another chain of causation which comes into operation, probably a little later than the others. The same high rate of discount, if long continued, leads to a fall in the price of the great export staples, such as cotton and wheat, which are speculated in like securities, and this fall in price leads to increased buying by foreigners, which makes foreign exchange abundant, which in turn, lowers the rate and checks the outflow, of money.

Finally, if the outflow could go on long enough to produce a scarcity of money in the country as a whole there would result a general fall in prices which would stimulate foreign buying all along the line, until the direction of the money movement was completely reversed. As a consequence of the action of these several checks there is never any danger that an export of money will go on until a country is denuded of its precious metal. This is equivalent to saying that international debts are usually paid in goods, or that international trade is reciprocal.

C. THE DEMAND FOR LOCAL PROTECTION

140. Keeping Trade at Home'

"A dollar spent in Auburn gives you another chance at it; but, if it is spent out of town, it's 'Good-bye Mary.'"

"Down with the parcels post. No more diabolical device was ever perfected by the big cities for stripping the small towns and country districts of all their surplus cash. Let the rich mail-order houses wax fat with the dollars that are the property of local merchants."

"Everything bought from the city takes just so much money out of town."

"The summer boarders are a great blessing to our little village; they put into circulation a lot of money which means at least temporary prosperity."

"If I were mayor, and had my way, I would place a fine of one hundred dollars on every man who ordered goods from a mailorder house."

"The individual can get rich only by selling more than he buys. Likewise a community can prosper only by selling to other communities more than it buys from them."

"Brethren, let me call your attention to the fact that Brother Hiram Johnson, who, this week, is opening a new grocery store on

'It seems unnecessary to give a specific reference to the source of each of the excerpts given below. The reader by a little attention to local papers can easily duplicate it. The editor is indebted to Taylor, Principles of Economics, for several of these excerpts.

Main Street, is a member of this church. If you patronize him, you will not only contribute to the prosperity of an excellent grocer, but you will be helping a fellow Christian and Methodist."

"The European war will in a way, too often overlooked, contribute vastly to the prosperity of the Pacific Coast. Americans annually have been spending more than $200,000,000 in foreign travel. No sane man can for a moment doubt that practically every dollar of this is lost to the home circulation. Now it will be spent in travel to the Pacific Coast. California will get the largest share of it. This money will spell prosperity for every one of the state's industries. But, we must remember the duty we owe our state. We can profit by this increase in wealth only if we keep clearly in mind the precept that it must be spent for things produced at home. Let us see to it that the dollars thus given us do not find their way out of the state."

"When I came to Marblehead they had their houses built by country workmen and their clothes made out of town, and supplied themselves with beef and pork from Boston, which drained the town of its money."

"The annual influx of students and other outsiders into our fruit belt to engage in fruit-picking and packing is an abuse that should be stopped at once. These people consume very little, saving their money to take back to Ann Arbor, Madison, Champaign, and other places from which they come. Thus, while making large sums off us, they give little or nothing in support of our industries."

"The county commissioners should be promptly impeached and removed from office for their action of last Monday. We understand that the contract for the building of the new courthouse was let to the Knoxville firm only because their bid was $1,800 under that of our fellow-citizen James R. Robertson. Robertson, as we are all aware, is an expert at this line of work, and was well equipped to do a handsome job. The only excuse which the commissioners give is the $1,800. But, against this must be set down the $32,000 which will be paid to the Knoxville gang. Think of it! Sending $32,000 out of town to save a paltry $1,800."

"The Gazette has always been outspoken in favor of education. Our stand in favor of university, college, and school cannot be questioned. We do not wish to question the wisdom of our fellowcitizens who are sending their children away to school. But we do wish to remind them of a duty which they owe it to the town not to neglect. They should see to it that their sons and daughters are supplied with clothes and all other necessary articles before they leave home for their schools. Our citizens owe nothing to the merchants of the communities in which these colleges are located. But

they do owe a debt to the town which gives them homes. And they should see to it that the money spent for necessary articles is kept here as far as possible."

""Now look here, Doc,' said the dollar to the dentist, 'if you'll only let me stay in this town, and won't send me to Roars, Sawbuck & Co.'s in Chicago for that shaving mug, I'll circulate around and do you lots of good. You buy a big beefsteak with me, and the butcher will buy groceries, and the grocer will buy dry goods, and the dry goods merchant will pay his doctor's bill with me, and the doctor will give me to the farmer for oats with which to feed his horse, and the farmer will buy fresh beef from the butcher, and the butcher will come around to you to get his tooth mended. In the long run you see I will be more useful to you here at home than if you send me away forever.'"

"The recent cold spell, which caused a large number of water pipes to burst, has been a bonanza for business. Few things in the last year have caused so many people to dig down into their jeans and cough up the cartwheels that spell prosperity."

141. Remember ColoradoR

The people of Colorado are going to build a wall around the state and close the gates this year so that not one dollar of the $200,000,000 which will be received from our crops shall go outside the border line. The wall is to be built of a solid unflinching sentiment in favor of spending this $200,000,000 at home and making it work for our own prosperity.

The members of the Denver Chamber of Commerce have taken their coats off in behalf of the Times's movement and will ask every commercial organization in the state to assist. The newspapers of the state see in the movement a chance to keep the wheels of industry humming in every city, town, and village in Colorado, and will join in the campaign.

"Colorado has a $200,000,000 crop yield this year and this $200, 000,000 is going to be spent among the merchants, the tradesmen, the manufacturers, and the workingmen of our own state." The above is the only platform in this campaign in behalf of a prosperous state. Last year we sent some $20,000,000 to eastern mail-order houses alone. Half of the value of our crops went outside of the state to eastern manufacturers and merchants whose only interest in Colorado is to get all the money possible out of its people. It is to keep this money in the state and make it work and keep on working for our own people that this campaign has been organized.

Adapted from a leading article in the Denver Times, of July 31, 1912.