Tuesday, October 27, 2009

RULES OF CHINA AND EUROPE IN TRADING

Zombi continue sharing some important and fundamental issues about trading, commerce and business which are as follows:

The final decision on the standard to be adopted is the fundamental of all reform in currency. Hence it is very necessary to go fully into the points of difference between other countries of the world and China. Let me first point out the difference between Europe and China. In Europe, as I have already mentioned in the previous chapters, it was a choice between gold and silver, without any further encumbrances. The most important point, and one that should not be lost sight of, was that at the time the choice was made there was a great deal of fixity of ratio between the value of the two metals. The two questions that were then being considered were: first, the choice of the metal which would furnish sufficient metallic currency for the purpose of the growing international trade; and, second, the simplification of trade accounts by the adoption of one or other of the metals as the standard of value. Each state in Europe was changing the ratio -within narrow limits - of the values of one or other of the two metals whenever it deemed it necessary; and such a procedure was, of course, not very conducive to the free flow of international commerce. Opinion was divided between two courses; one was the adoption of gold, and the other, the retention of gold and silver as before, without variability in value. The events that led to the final adoption of gold in England I have already explained; and her example was sooner or later followed in all other countries, where there was a large growth in the industrial and manufacturing activity, leading to an enormous increase in the national wealth, wages and prices; there was also a comparatively increased supply of gold when silver production was decreasing. A country which has a bigger national wealth naturally prefers a unit of greater value than one with a smaller wealth, wages and prices. Thus it is no wonder that England fixed upon gold. There must also be sufficient supply of the coin or metal that forms the medium of exchange; at the time when England was growing richer silver production was decreasing; and it was but natural that England should have taken to gold. A little later, even as late as 1886, when the production of gold was showing no signs of increasing, economists were wavering, especially with regard to their faith in gold. But when once again the production of gold increased by leaps and bounds -and the manufactures and industries of not only England but practically all Europe were increasing, in an even larger ratio - the gold standard became a fixity. During recent years again, there was a slight uneasiness, not because of the paucity of gold production, but because of the enormous growth of credit on a very slender basis of gold. While some years previously there was talk of too much gold, there were complaints in 1912 that the production of gold was insufficient to meet the currency demand of the world. What the future may have in store for us we do not know. The war in Europe is likely to lead to problems which might probably bring down gold from the high pedestal it has been on for over twenty years - as the standard of value, of course.

Contrast the conditions in China with those in Europe. There is no comparison between the national wealth of the two countries. There are no manufactures in this country, and besides the country has been for nearly forty years buying more than it sold, and thus accumulating a large adverse trade balance. The country has no wealth with which to improve its industry and manufactures; and it is a well-known fact that the profits of industries and manufactures are greater than those of agriculture, and that such profits alone have enabled Europe to adopt and maintain a gold standard. Moreover, China has not even the freedom to develop into a manufacturing country which the European countries had the good fortune to have. When the several states in Europe adopted machinery they protected the nascent industries by heavy taxation on all such foreign goods entering the country. Even to-day, practically every country in Europe - except England - the United States, and all the British Colonies have the most voluminous schedule of protective taxation. Foreign goods entering China are taxed merely to furnish revenue to the Government, and not with a view to encourage local industry or with a view to enable her to compete with foreign manufactures. The standard of living, especially in view of the almost entire absence of manufactures and the small national wealth, is extremely low; and the ratio between the standard in China and English may be roughly put at one to fifty. Therefore, the basis of a unit must naturally be regulated by the considerations which I have mentioned above.

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