Balance of trade

“ Yet even here this consequence is by no means certain; for this reason, that what turns the balance of trade in favour of a nation is the demand which foreign markets make for her commodities: now this demand, as it raises the value of her coin above her bullion, so it raises the price of her commodities, by increasing foreign competition to acquire them. ”

“ Balance of Trade, the difference between the stated money values of the exports and imports of a country. The balance is erroneously said to be 'in favour' of a country when the value of the exports is in excess of that of the imports, and 'against it' when the imports are in excess of the exports. The phrases date from the days of the mercantile system, the characteristic doctrine of which alleged the desirability of regulating commerce with a view to amassing treasure by exporting produce largely, importing little merchandise in return, and receiving the balance in bullion. ”

“ If a country has as much of everything else as it wants, it will always have as much money as it wants; its stock of money or representative wealth, will always be proportioned to its stock of other and more real wealth; and no mode of carrying on trade with another country, or with all other countries,—in other words, no state, favourable or unfavourable, to use the established expressions, of what is called the balance of trade—can in the least affect the matter. ”

“ The countries not possessing a native supply, could obtain it only by what was called a favourable balance of trade, that is to say, by exporting to a value exceeding that of their imports, and receiving the difference in money. ”

“ The phrase “balance of trade,” then, appears to be an application of a trader’s language in his own business to the larger affairs of nations or rather of the aggregate of individuals in a nation engaged in foreign trade. A trader in his own books sets his sales against his purchases, and the amount by which the former exceed the latter is his trade balance or profit. What is true of the individual, it is assumed, must be true of a nation or of the aggregate of individual traders in a nation engaged in the foreign trade. ”

“ The fact is, that it is only in commodities that one nation can discharge the bulk of its debts to another nation, and that if the world owes us money, and makes us its carrier and its general merchant, we must take payment in commodities. And thus you see, at a stroke we get rid of that bugbear to some people, the thing commonly called the Balance of Trade, and which, as commonly understood, is a fallacious and misleading expression.
There is one country which at the present moment stands in marked contrast to us as regards the balance of her imports and exports. I mean the United States. ”

“ CHAP. XXIII. When a Nation, which has enriched herself by a reciprocal Commerce in Manufactures with other Nations, finds the Balance of Trade turn against her, it is her Interest to put a Stop to it altogether.
Trade having subsisted long in the nation we are now to keep in our eye, I shall suppose that, through length of time, her neighbours have learned to supply one article of their own and other peoples wants cheaper than she can do. What is to be done? No body will buy from her, when they can be supplied from another quarter at a less price. ”

“ Its ultimate object, however, it pretends, is always the same, to enrich the country by an advantageous balance of trade. It discourages the exportation of the materials of manufacture, and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets; and by restraining, in this manner, the exportation of a few commodities, of no great price, it proposes to occasion a much greater and more valuable exportation of others. ”

“ It proves that a balance of trade in imported commodities, excites industry by increasing enjoyments, and by furnishing a surplus for re-exportation; and that it augments wonderfully both national wealth and strength. The abundance of commodities invited by a freedom of commerce, enables the re-exporting merchant to make up cargoes fitted for their destination, more speedily and cheaply, than in ports stripped of variety by commercial restrictions ”

“ We say the more trade there is, and the more the balance of trade seems against us, the more likely are we to obtain large profits, and the profits again are invested in loans to other countries, and in forwarding enterprises for the general benefit of the country. ”

“ But, above all, they will keep a watchful eye over the balance of trade in general, and never suffer that all the foreign commodities together, that are imported in one year, shall exceed in value what of their own growth or manufacture is in the same imported to others. ”

“ If the fact be, that by allowing to foreigners a participation in our machinery, we enable them to produce any of our leading articles of export, at a lower money price than we can sell those articles, it is certain that unless we possess as great an advantage in the production of the machinery itself as we have in the production of other articles by means of machinery, the permitting of its exportation would alter to our disadvantage the division of the benefit of trade. Our exports being diminished, we should have to pay a balance in money. ”

“ For if your merchants are not permitted to re-export the surplus foreign produce to those markets where there is a demand for it, it will remain on their hands and rot in their storehouses. This would also sink the price of your own produce, as there could not be a sufficient demand for it, because your merchants would not receive in return foreign produce. Your trade must, therefore, be diminished nearly in the proportion before stated. I ask gentlemen if this trade is cut off, how your merchants are to get specie to meet the balance in favor of Great Britain of twelve millions of dollars? ”

“ What makes the commerce with any country lucrative, is the balance paid upon the exchange of their commodities.
What regulates the quantity of commodities taken from any country, in the way of trade, is the wants of the country demanding; and what sets the balance even, is the reciprocal wants of the other country. Nations do not give up correspondence with their neighbours, because these do not accept of merchandize in exchange for merchandize, but because they find their advantage in supplying their wants upon easier terms elsewhere. ”

“ By buying silks and wines of France, we give her so much purchasing power in the world's markets, a power which, as her trade returns show—she is a large importer upon balance—she fully exercises. Well, if she spends the money she receives from you in those products of foreign countries which she requires, as we know she does, she thereby, in turn, confers on those countries a corresponding purchasing power, and they, in their turn, lay out the money so received among other nations, and, as we are the principal manufacturers, we get the principal share in the business. ”

“ International shipment of money is always just the amount needed to balance the accounts due. The proposition that in the long run the value of imports must equal the value of exports, while the fundamental truth in the theory of international trade, must be understood in a broad sense. ”

“ Such being the state of our exports under the operation of free trade, let us now look a little to the other side of the balance sheet. The duties levied at the custom-houses constitute, as every one knows, the largest portion of our revenue, and therefore cannot be made the subject of experiment, without extreme risk of defalcation. ”

“ Thus, the weight of my criticism is directed against the inadequacy of the theoretical foundations of the laissez-faire doctrine upon which I was brought up and which for many years I taught;3⁄4against the notion that the rate of interest and the volume of investment are self-adjusting at the optimum level, so that preoccupation with the balance of trade is a waste of time. ”

“ Emphasis is laid instead on the fact that in the last analysis the trade is of goods for goods, not of money for goods, and that a tariff on imports reduces, not only imports, but exports also,—that it merely interrupts temporarily the virtual barter between nations. ”

“ It is, indeed, a general law of prosperous commerce that the real value of exports should by a small, and only a small, balance exceed that of imports, that balance being a permanent addition to the wealth of the nation. The extent of the prosperous commerce of the nation must be regulated by the amount of its exports, and an important addition to the value of these will draw after it a corresponding increase of importations. It has happened in the vicissitudes of the seasons that the harvests of all Europe have in the late summer and autumn fallen short of their usual average. ”

“ The first thought of a wise business man is for his markets, and you as a great trading nation are bound to think of your markets, not only your markets of to-day but of to-morrow and the day after to-morrow.
The Free Trade theory was the birth of a time when our imports were practically all supplemental to our exports, all indispensable to us, and when, on the other hand, the whole of the world was in need of our goods, far beyond our power of supplying it. ”

“ Although then the rise in the price of most of our own commodities, would for a time check exportation generally, and might permanently prevent the exportation of a few commodities, it could not materially interfere with foreign trade, and would not place us under any comparative disadvantage as far as regarded competition in foreign markets. ”

“ On the other hand, there are imports so entirely of foreign origin, and so free from considerations of competition with domestic industry, that a large revenue may be raised upon them in the custom-house, without disturbing the freedom or equity of international trade. ”

“ It is established, that the advantage which two countries derive from trading with each other, results from the more advantageous employment which thence arises, of the labour and capital—for shortness let us say the labour—of both jointly. The circumstances are such, that if each country confines itself to the production of one commodity, there is a greater total return to the labour of both together; and this increase of produce forms the whole of what the two countries taken together gain by the trade. ”

“ The vulgar theory disregards this benefit, and deems the advantage of commerce to reside in the exports: as if not what a country obtains, but what it parts with, by its foreign trade, was supposed to constitute the gain to it. An extended market for its produce—an abundant consumption for its goods—a vent for its surplus—are the phrases by which it has been customary to designate the uses and recommendations of commerce with foreign countries. ”

“ Suppose that a country should be opened to our merchants, disposed to buy from us in abundance, but which can sell to us scarcely anything, as every commodity which it affords could be got cheaper by us from some other quarter. Nevertheless, our trade with this country will enable us to obtain from all other countries their commodities at a lower price. At the first opening of this commerce of mere exportation, we must have received in payment a large quantity of money; for which our customer will have been indemnified by other countries, in exchange for her commodities. ”

“ In the case of England and Germany, as well as many other prosperous countries whose foreign-trade sheets show an excess of imports over exports, this excess represents the profit on trading abroad, and the inflow of returns upon capital invested abroad. ”

“ The first branch of foreign trade, which is the export and import of goods, depends on the money. if one half of the people are imployed, and the whole product and manufacture consumed; more money, by imploying more people, will make an overplus to export: if then the goods [Pg 24] imported ballance the goods exported, a greater addition to the money will imploy yet more people, or the same people before employed to more advantage; which by making a greater, or more valuable export, will make a ballance due. ”

“ Under the first, the country which wants more imports than its exports will pay for, must offer its exports at a cheaper rate, as the sole means of creating a demand for them sufficient to re-establish the equilibrium. When money is used, the country seems to do a thing totally different. She takes the additional imports at the same price as before, and as she exports no equivalent, the balance of payments turns against her; the exchange becomes unfavourable, and the difference has to be paid in money. ”

“ If the magnitudes in the equations of exchange in other countries with which the United States is connected by trade are constant, the ultimate effect on M is to make it less than what it would otherwise have been, by increasing the exports of gold from the United States or reducing the imports. ”

“ An unrestrained intercourse between the States themselves will advance the trade of each, by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished, and will acquire additional motion and vigor from a free circulation of the commodities of every part. ”

“ I declare I am ardently in favor of the greatest possible expansion of our trade, and I am happy to say that, according to official statistics, our foreign commerce, in spite of all hindrances raised against it, is now expanding tremendously, owing to the simple rule that the nation offering the best goods at proportionately the lowest prices will have the markets. ”