CHAPTER II. OUR FOREIGN TRADE.

A glance at our Imports and Exports shows, as we should expect, the special importance to us of foreign trade. In essence, it is an extension of home trade—an exchange of goods; similar in its motive and conduct; similar, too, in its method of payment, for, as gold does not pass, the values of goods either way are put in contra-account, and Exports tend to balance Imports.

IT would be rather short-sighted to gauge the importance to us of foreign trade by the fact that it is perhaps only one tenth or one eighth of our total trade. If the United States were to shut herself up inside a prohibitive wall of tariffs, she would still be almost self-sufficient.¹ But we lie between 50 and 60 degrees north latitude; ours is a very small country at best, with a dense population; and we have, besides, sunk much of our capital and specialised much of our labour in industries which depend on other countries for their material and for their market. It seems, too, as if we were destined by nature to be ocean carriers.

Take one short excerpt of our Imports for the last fiscal year. It comprises, in round figures, £5 millions of Wines, £5 millions of Petroleum, £5¾ millions of Tobacco, £6½ millions of Caoutchouc and Gum, £8 millions of Leather, £8¾ millions of Tea, £11¾ millions of Maize, £14¾ millions of Sugar, £25 millions of Timber, £41¼ millions of Raw Cotton. It is needless to say that we require all these things for immediate consumption and as materials for our industries, and that we must, for the most part, import them.

Another excerpt comprises £6¼ millions of Eggs, £6¼ millions of Cheese, £12 millions of Barley and Oats, £17¼ millions of Bacon and Hams, £20 millions of Wool, £20½ millions of Butter, £27½ millions of Meat living and dead, £36 millions of Wheat and Wheat Flour. These, indeed, are all products which we could raise or make at home, but we could scarcely provide the whole of them without encroaching seriously on the provision of other things.

Take, again, a few of our Exports. There are £5½ millions of Linen Manufactures, £5¾ millions of Ships, £6¼ millions of Apparel and Slops, £17 millions of Machinery, £21¼ millions of Woollen Manufactures and Yarn, £26¼ millions of Coal, £29¼ millions of Iron and Steel, £65 millions of Cotton Manufactures and Yarn. These figures show how much we have specialised in making goods for foreign countries. But a more gratifying feature is that the long list of our exports shows that, in addition to these great staples, we are exporters of “odds and ends”: it indicates a healthy state of things that there is scarcely an industry one could name which does not export something.

Our foreign trade, then, altogether amounts to £877,000,000; made up of £528,000,000 of Imports, and £349,000,000 of Exports (£65,000,000 of these being re-exports). These are values of solid Commodities brought in and taken out over British seas; and—partly as reflex and consequence—of the 32,000,000 gross tons of shipping in the world, we own the half.¹

How is this foreign trade done?

A good deal of the mystery which seems to surround the subject would disappear, if it were realised that it is done freely by individual merchants and manufacturers in the various countries, working for a profit, with no consideration for national interests; and that it would not be done unless there were a profit in it.

A sugar merchant here, for instance, appoints an agent abroad and supplies him with samples and quotations. The agent either sends orders at these quotations, or wires home what price he can get. If the price is below the quotation, the merchant goes down to Greenock, and sees if he can induce some refiner or other to quote lower. But there is no reason that the refiner should sacrifice his profit because the sugar is wanted for a foreign country. And, although the sugar merchant may do so on occasion, it is only from considerations of future profit.

Or, say that the manufacturer is the exporter—as, evidently, he is tending to become. He has not one cost for goods sold at home and another for goods sold abroad. He will sell at cost (including profit) in the one market as in the other. Sometimes, indeed, he will sell under this cost abroad in order to “get in,” but so he does at home. There is nothing preferable in foreign trade unless he gets a better profit by it, or, it may be, gets his cash more easily, or sells in larger bulk. The motive in both cases, then, is the same—profit.

Nor is the method different. A merchant here receives an order from a town in Great Britain, and sends down the goods packed to the railway. By the same post comes an order from New York, and the goods packed are sent down to the harbour. In the latter case, the goods require to be more carefully invoiced and described, and the invoice has sometimes to be sworn to before a Consul as accurate, but this should not be very difficult for an honest man.

Nor yet is the way in which payment is made essentially different. In due time, home goods are paid by a cheque; foreign goods, by a bill of exchange.¹ Indeed, in many cases, when goods are put on board ship, the Bill of Lading is given to a bank here, which does not give it up till cash is paid abroad, the bank meantime giving an advance to the exporter to a large proportion of the value. In either case, the sender gets his payment, in British money, through his own bank, and each transaction ends with a payment. The export of goods, again, from other countries to us takes place in exactly the same way—merchants and manufacturers, there also, sending out goods for a profit, getting paid in their own money, and the transaction ending with the payment.

What we have, then, in international trade is just an extension of home trade. We send goods as naturally to France as we send them across the other channel to Ireland.

If there is one thing more prominent than another as to the means of payment in home trade, it is that Gold does not pass between buyer and seller, debtor and creditor. It might pass; but it never occurs to anyone to take this cumbrous method when an easier and more economic one is within everybody’s reach, and when there is one great class of traders waiting and anxious to make a profit by arranging payments through their books. Why, then, this persistent assumption on the part of some people that, when goods are sold to foreign countries, they are paid for in gold?

As in home trade, they may be paid for in gold. Gold will pay for them, and sometimes it may be more convenient to pay in gold than in anything else:—it is quite clear, for instance, that gold-producing countries pay for much of their imports with gold. But it is just as true that they may be paid for in any other kind of goods.

It takes a little thinking to realise that, in home trade, payments are made by setting debts against debts, and that this is merely another way of saying, “setting goods against goods.” You send me £100 worth of goods, and I, for the moment, am in debt, and send you a record of it in the shape of a promise to pay in three months. On the other hand, I send you £100 worth of goods, and you give me a promise to pay in three months. The promises may be bought and sold and pass into other hands; in any case, they remain in existence as debts for three months. At the end of that time they are brought together and cancel each other.¹ What really has happened, of course, is that the one sending of goods has been put in contra-account against the other. So banking is just a vast complex system of contra-accounting—value of goods represented for the moment by documents put to the debit and credit sides of bankers’ books. Happily, this need not be dwelt on, because, in international trade, the foundation of the contra-account is quite obvious and prominent.

To one standing at Gravesend, and watching the innumerable ships that pass in and out of the Port of London, it must be evident that valuable goods are being brought in and valuable goods are being sent out of the country. All these goods must be paid for. And if there is, in all countries, a special trade set aside for, and doing almost nothing else than, arranging payments between buyers and sellers, debtors and creditors, it is evident that these valuable cargoes will be set against each other. There are bills drawn from the one side and bills drawn from the other; these put the values of the goods into figures, and afford documentary records of the transactions; and these records can be easily set against each other in debtor and creditor account. But, underlying all these records, is the something recorded, and that something is the valuable goods sent either way.

As has been said, all these cargoes could be paid for in gold. It is conceivable that there might be a constant current of gold crossing the seas either way. But, as the chief function of gold is not for consumption but for circulation, it would be a singularly futile and wasteful proceeding to send gold oversea, only to get it sent back again.

Gold does, indeed, pass between nations: every week, the financial journals tell of so much bullion or so many sovereigns sent out or brought in. But this gold current evidently pursues a course of its own, regulated for the most part by the needs of the nations for bank reserves: instead of making payment, it is, perhaps, more often than not, going counter to the course it would take if it were being sent in payment of goods.

If, then, the only object of sending goods abroad is to sell them; if the only object of selling them is to get paid for them; if goods cannot be paid in mere promises; if they are not paid in the universal commodity, gold; and if, as a rule, no man is conscious of not being paid—why, then, we should naturally expect to find that there is a contra-account in goods: that Imports are paid for and balanced by Exports.

¹“When, on Pike’s Peak in Colorado, the thermometer is down to 12° or 13°, and, in the North-west is only a few degrees above freezing point, in New England it will be moderately cool—say 43°; in the Mississippi valley it will be comparatively warm—say 52°; and in Florida it will be at summer heat—75°.”—Lawson, American Industrial Problems, p. 43.

¹The above figures of Imports and Exports, taken from the Statistical Abstract 1903, do not include Bullion and Specie, of which we imported, in 1902, £21,629,000 of gold (£8 millions from South Africa, £3¼ millions from India, £5 millions from Australia), and £9,764,000 of silver (£8 millions from the United States), and exported £15,409,000 of gold and £10,716,000 of silver. Nor do they include, either as imports, exports, or re-exports, excisable foreign merchandise transhipped under Bond, (£13,683,000). To the imports should be added £5,380,000 of diamonds from the Cape, not declared to the Customs. It may be noted that fish of British take, landed in the United Kingdom, are not included among imports. The value of these in 1901 was £9,000,000.

¹Without going into the mysteries of banking, it may suffice to say that the reason why payment for foreign goods is not made by cheque is that each country’s banking system does not extend beyond its own shores.

¹It is strong testimony to the literal “trust” which underlies the credit system that, in the great majority of home transactions, the promise is not put in documentary shape at all; goods are sold on customary terms of credit, and paid on a mere reminder that payment is due. Perhaps there is no better instance of the recognition of a “common interest” and a “general will” among whole peoples than this.