206 MODERN MONETARY SYSTEMS
character. It has existed as between two markets in the
same country ; it may also disappear in settlements as be-
tween markets affecting various countries and be replaced
by some other process of clearing which is still more
economical and capable of being carried out at a fixed cost.
The substitution of a process of settlement at a fixed cost
for the process of settlement at a variable cost which
results from present exchange mechanism may, however,
havedifferent economic results according to circumstances.
Between two markets which have a single monetary
circulation entirely common to both, as is the case, for
instance, with settlements between two markets or dis-
tricts in the same country, the fact that the rates of transfer
are low and fixed is obviously convenient; for nothing
should limit transactions except the resources of the in-
dividuals who take part in them. If an inhabitant of
Marseilles has 100,000 francs to spend he 1s able to spend
them as easily on purchases in Paris as on purchases in
Marseilles. He will therefore not be inclined to purchase
more in Paris than he can pay for there.
On the other hand, the situation is different as between
two markets or two countries which have no currency
in common. Take two countries each of which only has
a national and inconvertible paper currency; a mer-
chant at Genoa who has 100,000 paper lire to spend
cannot make purchases at Marseilles with his own
currency and he may have some difficulty in obtaining
the French francs which he requires for this purpose. In
these circumstances, the mechanism of the exchange has
the advantage of enabling him to obtain these francs iz so
far as the exchange of goods between the two countries has
thrown francs on the market and also, it may be said, of
supplying francs az a rate more or less bound up with the
balance of debts and credits between the two countries, and
that it will automatically stimulate or repress purchases
abroad according as the balance is positive or negative. In
the absence of any other method of settlement recourse
must be had to the setting off of debts and credits against
each other; and it may be said that the exchange market
