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$4.8965. The figures $4.8365 and $4.8965 are, therefore, called "the gold points," the former being the importing point, and the latter the exporting point for gold.

It will be shown in a later reading that as the rate of exchange tends to approach the lower point, owing to extensive selling abroad, this in itself stimulates imports, which tend to increase the demand for exchange and hence to lower its price. And, similarly, when the rate tends to approach the higher point, exportation is stimulated, and as a result more bills are thrown on the market, thus bringing down the price. Thus in general the volume of imports and exports does not for a very lengthy period present very serious discrepancies. It may then be safely said that international trade is a very complicated system of barter.

137. The Favorable Balance of Trade

BY THOMAS MUN3

Although a Kingdom may be enriched by gifts received, or by purchases taken from some other Nations, yet these are things uncertain and of small consideration when they happen. The ordinary means therefore to increase our wealth and treasure is by Forraign Trade, wherein wee must ever observe this rule; to sell more to strangers yearly than wee consume of theirs in value. For suppose that when this Kingdom is plentifully served with the Cloth, Lead, Tinn, Iron, Fish, and other native commodities, we doe yearly export the overplus to forraign Countreys to the value of twenty-two hundred thousand pounds by which means we are able beyond the Seas to buy and bring in forraign wares for our use and Consumptions to the value of twenty hundred thousand pounds: By this order duly kept in our trading, we may rest assured that the Kingdom shall be enriched yearly two hundred thousand pounds, which must be brought to us in so much Treasure; because that part of our stock which is not returned to us in wares must necessarily be brought home in treasure.

For in this case it cometh to pass in the stock of a Kingdom, as in the estate of a private man; who is supposed to have one thousand pounds yearly revenue and two thousand pounds ready money in his Chest: If such a man through excess shall spend one thousand five hundred pounds per annum, all his ready money will be gone in four years; and in like time his said money will be doubled

Adapted from England's Treasure by Forraign Trade, or The Ballance of our Forraign Trade Is the Rule of Our Treasure, chap. ii (1664).

if he take a Frugal course to spend but five hundred pounds per annum, which rule never faileth likewise in the Commonwealth.

BY CHARLES W. FAIRBANKS

The history of our foreign trade during the sixteen years following the Cleveland administration shows that our commerce continually expanded under the protective policy. One of the fine things about it was that our exports far exceeded our imports; that is to say, we sold abroad more than we bought abroad, and as a result there was a substantial trade balance in our favor. The excess of our domestic exports over imports in the sixteen years ending March 1, 1913, was $7,348,942,251. The magnitude of this addition to our national wealth may be more fully realized when we reflect that the total net balance to our credit upon our foreign commerce from George Washington's first term to William McKinley's first term was less than $400,000,000.

Our free-trade friends seem to ignore the wisdom of keeping our money at home so far as we reasonably can by buying at home. Whether we send abroad a hundred millions of dollars more or less to pay for commodities produced by foreign labor is a matter of slight importance to them. We who hold to the protective system conceive it to be sound policy to patronize our home producers where possible, and keep the money in our own midst. If it goes abroad, it is, of course, withdrawn from our pockets, but if it remains at home it goes into the circulation of our own trade and our countrymen-laborers and farmers, merchants and manufacturers have a chance to get it sooner or later.

138. The Mystery of the Balance of Trade

BY HARTLEY WITHERS

The statistics published by our Board of Trade show that for 1912, which is a typical year, our net imports, including bullion, amounted to £702,000,000, while our exports, including bullion, reached only £552,000,000. This gives a net excess of imports over exports, including gold shipped both ways, of approximately £150,000,000.

'Adapted from an address entitled "Let Us Now Unite in the Old Faith," delivered before the Indiana Republican State Convention at Indianapolis, April 23, 1914.

Adapted from Money-Changing: An Introduction to Foreign Exchange, 51-63, 78-82. Published by E. P. Dutton & Co. (1913).

Now this huge excess of imports, which is much bigger in the case of England than in that of any other country, is often very terrifying to people who have not thought much about the subject. It is commonly called an adverse balance of trade, a phrase which has an uncomfortable sound, as if there was something chronically rotten in the state of our commerce, and it is sometimes used as a proof that other countries are continually pouring goods into us and taking nothing from us in return, and that this is a state of things which ought immediately to be stopped in the interests of the national welfare. If this were true, it would seem, on consideration, to be rather a comfortable state of affairs. Any individual who could arrange his commercial relations with his fellows on these lines would be likely to wax very fat. To be always consuming more than he produced is just the sort of life that would have been thoroughly agreeable to the Economic Man. With a nation, likewise, it would seem to tend to the enjoyment of plenty with little effort.

But, in fact, these things do not happen. The other countries of the world have not conspired together to kill England with kindness and give us £150,000,000 worth of goods every year for nothing. Goods are never sent anywhere unless there is a reasonable certainty that the country to which they are sent will be able to pay for them. The foreign seller of goods expects to be paid in money of his own country by selling his claim through the machinery of exchange. But if the importing country were always buying more than it sold, the supply of claims on it would be continually greater than the demand for them and the exchanges would be steadily going against it, and it would either have to export gold or export promises to pay as long as it could finance itself on Mr. Micawber's principles.

Now it is certain that we are not exporting gold. Year in and year out we import more gold than we export. It is also certain that we are not on balance exporting promises to pay, either our own or other people's. If we were doing the former, we should be raising loans abroad or exporting or selling our securities abroad, neither of which things we are doing. If we were exporting other people's promises to pay, it would mean that we were selling to foreigners out of our holdings of foreign securities. But this is not happening to any great extent. Nor do rates of exchange move steadily against us, as they must if we were really leading the profligate life of commercial dissipation that a glance at the figures might lead the unwary to infer.

It is thus clear that the big gap between our recorded exports and imports of goods is filled by unrecorded, and so usually called

"invisible," exports of various kinds of services, and that there is no need to be frightened about it. England does about one-half of the carrying trade of the world. It is quite evident that these carrying services do not themselves pass through custom-houses, and hence are "invisible." And it is evident that a large part of our surplus of imports consists of payments for these services which we are performing for foreigners.

In addition to this there is an equally elusive factor in the shape of the import and export of securities and interest on capital. Almost every country in the world is a lender or a borrower. The borrower exports securities, or promises to pay, and takes in return the goods or services it requires. Later on, when interest payments fall due, the lender has coupons to export, and the borrower has to ship goods to meet them. When Russia raises a loan in France it exports its bonds or promises to pay, and sells them to thrifty French investors. Thereafter French investors export coupons every half-year to Russia, representing claims of interest due. Thus the exportation of securities and the subsequent exportation of coupons by the lender both tend to produce the same result, a balance of visible imports.

Consequently we find that this adverse balance or excess of visible imports-is a feature in the trade figures, both of the young and go-ahead countries that are habitual borrowers and are always exporting securities, and of the old established nations that have plenty of accumulated capital to spare and have placed blocks of it abroad, and so always have plenty of coupons to export. In both of these cases there is an invisible export, in one case of securities, in the other of coupons, which usually has to be met by visible imports of goods, which thus create a so-called adverse trade balance. The so-called favorable trade balance, under which a country shows more goods going out than coming in, is chiefly shown by those nations which have reached the stage of being in a position to pay interest on borrowed capital out of their own productions, without having to borrow more from their creditors in order to meet interest. The United States is typical of the last class, Canada and England of the first. The actual import of securities, then, should tend to produce an excess of exports, and an export of coupons to secure a surplus of imports.

But there are other invisible items that get into the total. Every American who goes forth with his Baedeker to widen his mental horizon in England brings with him a supply of notes. These have been bought for gold in New York, and consist of claims on London merchants created by the importation of American goods. Conse

quently his notes pay for the beefsteaks which he, an American, consumes under English skies, and for the invisible culture which he takes back to his native land. The goods which he consumes in England are properly to be regarded as English exports.

Another streamlet which sometimes swells into a respectable torrent is made by the many drops poured in by poor immigrants into new countries, who send home to their kinsmen such small sums as they can spare. In this respect Italy is believed to score heavily. The Italians seem to take with them the home-grown power of living largely on sunshine and good humor, and the sums they send home are an important cause of the power shown by Italy to maintain a so-called adverse trade balance, without the assistance of investments abroad or the profits of a big carrying trade. Ireland is another country that takes toll of the rest of the world through the filial piety of her sons who have gone abroad to seek their fortunes in lands where thews and sinews find a better market than at home.

Another class of emigrant in another way helps the older countries by causing a drain on the country of its origin. This class is formed by the wealthy American heiresses who find English and European husbands and draw year by year large sums from the United States in the shape of dowries, so that this item in the trade balance is usually called the "dowry drain." In this case Europe and England can balance against the excess of imports the exportation of conjugal affection and social prestige.

The presence of these items, which escape customs statistics, shows that after all our exports and our imports balance each other, and that there is no real balance of trade.

139. The Reciprocal Character of International Trade®

BY FRED M. TAYLOR

Let us remember the fundamental fact that settlement between the merchants of different countries is made, not directly, but through the assistance of exchange dealers. That is, the claims of each community on other communities get into the hands of exchange dealers who settle with the exchange dealers of the other communities. This means that there is developed a traffic in such claims; they are bought and sold like flour or iron. Every day the prices of such claims per unit of value are quoted in every important newspaper. Like the prices of other things, the prices of exchange

"Adapted from Some Chapters on Money, 128-134. Copyright by the author. Published by George Wahr (1906).

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