CHAPTER IV. THE EQUIVALENCE OF IMPORTS AND EXPORTS.

The equivalence we should expect is equivalence simply between a country’s total imports from, and its total exports to, the rest of the world. Imports call out a return current of exports, and exports of imports, through the rise or fall of (1) the foreign exchanges, (2) the freights. But payment is made in very roundabout ways; not necessarily in imports from the country to which exports are sent, but from any other country with which there are commercial relations.

WHAT we have found in the phenomena of imports and exports is, first and most important, the Trade Current—a cross-current of exchange—goods sold to other countries calling out return goods from other countries, and vice versa. Omitting smaller services, this would tend to equivalence between imports and exports if the great item of sea carriage could be dispensed with, or if the carrying for all the world were done entirely by an independent maritime nation whose only outside industry it was. But, as it is, when our invisible services are added to our statistical exports, the two sides tend to equivalence.

Into these main cross-currents, however, are constantly injected, from one side or other, feeders which make the total cross-currents in any one year quite unequal. The principal factor of disturbance appears under the third head; a steady stream of goods bringing home the interest and profits of foreign loans and investments. But the lending and investing themselves cause a disturbance. The transfer of capital may appear as a temporary excess of exports: it may appear as a temporary diminution of imports. It is clear, for instance, that, if Australia borrows a million to build railways, the rails, rolling stock, etc., are probably sent from here, and the whole million appears among our exports of goods. But suppose she borrows in order to build reservoirs, what she wants is not English machinery so much as money to pay wages. Here the lending body buys up bills representing goods already sent or being sent to Australia, and remits them to the Australian Government. In the ordinary course of trade, the goods thus sent would have called out a return current of goods (imports) to pay for them; but, as it is, the money is retained in Australia as a loan. It is, in fact, as if the Australian Government laid hands on a million worth of goods intended for export into this country, sold them, and kept the proceeds. Here the loan expresses itself, not as an excess in our exports, but as a diminution in our imports. A similar but converse disturbance occurs in the rarer cases where capital, whether loans or investments, is paid back.

When our Balance of Trade is thus explained, it becomes evident that what we have in the relation between the two sides, is not an equivalence of imports and exports so much as an equivalence of debts and credits—an equation of indebtedness.

It must, however, be carefully noted that the equivalence spoken of is equivalence between the total imports and the total exports of a country—the import and export relations between it and the rest of the world. When, as is often the case, this balance sheet of a nation’s total exports and total imports is understood as implying or suggesting the real equivalence of exports and imports between a particular country and any other particular country, and as demonstrating that there is something far wrong where there is a discrepancy which cannot be explained by “invisible exports,” or other disturbing causes, the conclusion is quite illegitimate. There is no such equivalence except by chance.

There is no doubt that, in still undeveloped countries, if the merchant who brings goods to them will not take in exchange the goods which the home merchants have to offer, the attempt to trade speedily comes to an end; and so it was in earlier times when the exporter and importer were one, or, much later, when agents abroad sent home the proceeds of a consignment in produce. And if we were confined to trading with one nation, that nation would have to take what we offered or we should not sell; if there were exchange at all, there would be equivalence.

But in modern circumstances, when each nation does a foreign trade with many nations, it is entirely different. It would, indeed, be a curious coincidence if one country were to find just the things it wanted to buy for home consumption in another country where it found it profitable to sell what it made, and were to buy there just to the same value as it sold. But does any one now think that commerce is impossible between, say, a nation of teetotallers and a nation of wine growers, because, although the wine growers want the cotton of the teetotallers, the teetotallers will not take wine, and the wine growers have nothing else to sell? Surely if a Canadian friend sends me a barrel of apples and has no fancy for Scotch oatmeal, I may pay him by sending a bag of oatmeal to another friend in Seville and getting him to send on a box of oranges to Canada. So the wine growers import the cotton, sell wine to a wine-drinking nation, give claims on the proceeds to the teetotallers, and, finally, though it may be round a long chain, the claims are liquidated by goods imported from some country which has goods to sell such as the teetotallers want. But in this case there is no equivalence between the imports and exports of the two.

The great improbability of equivalence between any two countries may be easily seen if we give up our abstract way of speaking as if “countries” traded, and realise that it is single individuals in each country who trade. Let us consult the facts of importing and exporting between say, Canada and Great Britain. The Canadian sends his wheat to this country on consignment. There is always a market here for wheat, and it sells at the market price. The proceeds are put to his credit; he gets paid finally in Canadian “money”; and the transaction is finished so far as he is concerned. He may go on increasing his sending of wheat indefinitely; still he sells and gets paid. He knows nothing of any limit in imports. He knows nothing of any payment but in “money.” He is simply a grain exporter. There is no direct connection between his exports and any import. On this side, again, is an exporter of cotton goods. He sends them on consignment to Canada; sells them; gets paid in English money; and this transaction also is finished and stands by itself. There is this difference—that the English exporter has to think more carefully of what he is doing; the market is more limited; the goods must suit a particular purpose or fashion; and he has to pass through a tariff of 23⅓ per cent. But the difference is not essential. Experience tells him that there is a demand at a certain price—the price being determined by competition of Canadian-made cottons and similar goods from the outside world—and, so long as he gets this price, he sends his goods and sells them.

The point—and it is one of real difficulty—is that there is no visible or conscious or arranged connection between the exports of wheat and the imports of cotton as regards Canada, or between the exports of cotton and the imports of wheat as regards England. The exporters and importers have no knowledge of each other’s doings. There is no occasion or motive, thus far, to equivalence of value. May it not be the case, then, that Canada, finding a free market for a universal necessary, may send us hundreds, while we, finding a more contracted market for cotton, may send Canada tens?

The answer is, that there is a real, though unseen, connection between the cross currents. If hundreds are sent from Canada and tens from England, there is an urgent demand for the technical means of payment to Canada, the bills, and an over-supply of the technical means of payment to England. There is something to be gained on the exchange by sending more goods to Canada, and there is something of a handicap in exchange on the sending of goods from Canada. On such inducements, those who make their living by small percentages and large turnover are not slow to accelerate or retard the movement of goods.

There is another connection of a similar nature in freights. If, to put it popularly, ten ships come from Canada and there is return freight for only one from England, shipowners are conten to take a low return freight from England; shipowners command a high freight from Canada; and this calls out sendings in the one case and discourages further sendings in the other.

The point is that it does not matter to the exporter how he makes his profit, so long as he makes it. He will not go on sending goods abroad unless he makes the same profit as at home. But there are three items on which he may gain or lose: the goods themselves, the freight, and the remittance. If the freights come down, or if the exchange be favourable, he can afford to invoice his goods a little cheaper; and, if an extra profit is to be made on freight or exchange, this will tend to increase his sendings.

Where, then, the sendings to and from two countries consist of widely used commodities like wheat and cottons, the sendings on either side will be very sensitive to such inducements, and there will be a tendency to equivalence of imports and exports between these two countries.

But where one country is sending a universal necessary like grain, and the other is sending manufactured articles that meet a small and fluctuating demand, it is hard to believe that the advantages to be gained by exchange or cheap freights will ever call out sufficient sendings to adjust the balance. It seems as if, in the absence of any direct and causal connection between importers and exporters, there might be any amount of margin between the real exports and imports of either country—that is, even when freights both ways, commissions, interest, etc., are fully calculated and allowed for.

But why should we expect equivalence between Canada and Great Britain if there is any significance in the illustration of the wine-growers? If Canada sends us hundreds and we send her only tens, it is as certain that the Canadian is getting paid for his hundreds as that we are getting paid for our tens, but it by no means follows that we are paying the difference by exports, visible or invisible, to Canada. Precisely as in the case of the wine-growers, we may be squaring the transaction by exports, visible or invisible, to some other country.

It is misleading to describe this, as the textbooks do, as “triangular exchange,” as if goods exported from A to B were paid for by a third country, C, with which both countries have commercial relations. The notorious fact is, that the whole world is now such a network of commercial, banking, and debt relations, that every country has become a mere province of the great industrial and commercial commonwealth; and we should no more look for equivalence between the exports and imports of any two countries than we should look for equal sendings of goods between London and Glasgow, or, indeed, should expect a cotton spinner to pay for his coals by sending yarn to the colliery. Every sending of goods from one country to another takes for the moment the form of a debt; these debts are bought and sold as “third commodities,” or cancelled by being set against each other; and the debt relations, created by one country sending goods to another, may be balanced by debts created by sendings of goods between quite other groups of nations. The only equivalence, I repeat, which we ought to look for, is that between the total of a nation’s exports and the total of its imports, or, more scientifically, the equation of its debts and credits.¹

¹On the subject of this chapter, the reader should consult Clare’s A B C of the Foreign Exchanges, or Mr. Ewing Matheson’s pamphlet, The Principles of Foreign Exchange as affecting Preferential Dealing with the Colonies.