1gDdM7w

70 Economics in One Lessonuntil the American exports have been paid for by an equal amount ofimports.The same situation would exist if the transaction had been conductedin terms of American dollars instead of British pounds. TheBritish importer could not pay the American exporter in dollars unlesssome previous British exporter had built up a credit in dollars here asa result of some previous sale to us. Foreign exchange, in short, is aclearing transaction in which, in America, the dollar debts of foreignersare cancelled against their dollar credits. In England, the poundsterling debts of foreigners are cancelled against their sterling credits.There is no reason to go into the technical details of all this, whichcan be found in any good textbook on foreign exchange. But it shouldbe pointed out that there is nothing inherently mysterious about it (inspite of the mystery in which it is so often wrapped), and that it doesnot differ essentially from what happens in domestic trade. Each of usmust also sell something, even if for most of us it is our own servicesrather than goods, in order to get the purchasing power to buy.Domestic trade is also conducted in the main by crossing off checksand other claims against each other through clearing houses.It is true that under an international gold standard discrepancies inbalances of imports and exports are sometimes settled by shipmentsof gold. But they could just as well be settled by shipments of cotton,steel, whisky, perfume, or any other commodity. The chief differenceis that the demand for gold is almost indefinitely expansible (partlybecause it is thought of and accepted as a residual international“money” rather than as just another commodity), and that nations donot put artificial obstacles in the way of receiving gold as they do inthe way of receiving almost everything else. (On the other hand, oflate years they have taken to putting more obstacles in the way ofexporting gold than in the way of exporting anything else: but that isanother story.)Now the same people who can be clearheaded and sensible whenthe subject is one of domestic trade can be incredibly emotional andmuddleheaded when it becomes one of foreign trade. In the latterfield they can seriously advocate or acquiesce in principles which they