THE FRANCO-GERMAN INDEMNITY OF 1871 275

how does the mechanism of international payments function under
such an extraordinary strain?
Adam Smith’s explanation was hardly satisfactory in his own
day; certainly it cannot be so in ours. True, it had a plausibility
for the 18th century, because then the same individual was likely
to be both an exporter, an importer, and a dealer in foreign
exchange. Differentiation in the conduct of these several phases
of foreign business had barely begun; the “merchant” was likely
to carry on all of them. And hence Adam Smith, casting about
for an explanation, might readily conceive that the merchant,
engaged in varied and interlocking transactions, would turn to the
alternative of sending goods abroad to meet his bills, even tho this
obviously would be a troublesome and risky matter, above all in
times of war. That he should find a greater profit in doing this
than in sending goods rather than specie is obviously inconsistent
with Adam Smith’s own doctrine of the equality of profit in the
employment of different capitals. But before quite ruling out
Adam Smith’s explanation, one would wish to know more of the
way in which things actually went in those days. Bookman tho he
was, he was hungry for facts, and his version of what was taking
place in his time is not likely to be entirely without foundation.
None the less, it hardly tells the whole story even for the 18th
century; and it certainly can tell us very little of what happened
under such exigencies in later days.
Ricardo and his contemporaries were confronted by the same
problem." During the Napoleonic wars great subsidies were made
to the Continental allies of England, and then also it became a
question just how the subsidies reached the beneficiaries and just
how they influenced the movement of specie or that of goods.
But the Ricardian explanation, as sketched a moment ago, also
cannot tell the whole story. The process which the Ricardians
pictured is one which takes time. Here, as in almost all their reasoning,
 they neglected the element of time, and assumed that the

1 For an account of those discussions, see the valuable paper by Professor
N. J. Silberling in the Quarterly Journal of Economics, May, 1924, especially
pp. 416 et seq