CHAPTER V. SOME CONCLUSIONS AND A MORAL.

Conclusion I.: the foregoing explanation disposes of the suggestion that our excess of imports is paid by “selling securities”—which is, in any case, an appeal to the unknown. Conclusion II.: the Balance of Trade in itself never indicates either prosperity or decay. Moral: whatever checks imports, checks exports.

IF what has been said is true, there seem to be two obvious deductions to be drawn, and at least one practical warning to be given.

I. The first is that, if the balance sheet of our foreign trade, as drawn up in Chapter III., be accepted, and the apparent discrepancy between our exports and imports acknowledged to be statistical and not real, there seems no place for the rival explanation that Great Britain is “living on its capital.”

I confess I have some difficulty in understanding this explanation, particularly in face of Sir Robert Giffen’s rejoinder that a nation cannot be living on its capital till it has ceased to save.¹

It assumes that the statistical discrepancy is a real one; or, at least, that the invisible exports, the stream of interest and profits from abroad, the boarding expenses, etc., are much over-stated; and it finds another “invisible export” in the shape of Securities.

John Bull is like a spendthrift farmer, sending out £349 worth of crops to sell, and spending £528 on his household expenses. If one asks, “Is John Bull then running into debt?” there are some who do not hesitate to answer that he is. “A statement was actually brought to me on one occasion,” says Giffen, “showing that the country had become indebted to foreigners in twenty years to the extent of £1,000,000,000, which had never been paid and was all represented by bills, the non-payment of which would bring out, some day, a financial collapse.”¹ Considering that it is not nations which import and run into debt, but individuals, and that our importers have not as yet shown any sign of being in any such parlous state, this ridiculous explanation may be passed by.

The other answer is to the effect that John Bull’s father left him some money in United States Bonds and other good securities, and that this reckless son is taking these out of his safe, and selling them to pay the balance. He is “drawing on his capital,” and everybody knows what that ends in!

But, to follow out the simile, suppose it were discovered that John Bull had other sources of income—say that, in addition to selling his £349 worth of crops, he was getting £90 for doing the carting for his neighbours; that he was doing a little quiet insurance business among them, which brought him in something; that he was boarding a maiden aunt as a “paying guest”; that he got a good many presents from married sons at Christmas; and that, besides, he had, some years before, invested money in a gold mine, which was sending him another £90 in dividends;—why, there would seem every justification for him spending £528 on his household expenses, and for the suspicion that he was probably laying by money besides. And, if it were still found that John Bull was selling out his United States Bonds, would it be reasonable to say that he was doing so because he had to pay his debts?

It may very well be that our people every now and then sell out their securities—wise men often do when they get a good price. It does not seem to me that it is any sign of distress to withdraw capital from foreign investments and employ it at home, or even to build a house with it. Or, assume that it be true—as is often asserted—that, ten years ago, two-thirds of the Pennsylvania Railway Company’s stock were held in Europe, while now two-thirds are held in the United States, what does that prove? I suppose the Americans know their own business; but, if they parted with Caledonians in order to buy Pennsylvanians, it is difficult to see that they are any better off, or we any worse.

If Englishmen do sell their foreign securities, they get value for them. Why is it assumed that capital is a good thing abroad and a bad thing at home? Is it possible that some people yet think that selling a thing for money is parting with a good thing in exchange for a bad; or imagine that, when a man “realises his money,” he goes straight away and drinks it, or throws it into the sea?

There is undoubtedly much movement of national securities as a recognised form of international currency. What the extent of this movement may be, it is impossible to say, seeing that securities go through the post, and that no periodical census of the stock—whether national securities or industrial scrip—held by people of different nations is possible. For one class of prominent securities that is largely sold on any special occasion, there may be hundreds of lesser known securities that are being quietly bought.

All this, then, is an appeal from the known to the unknown—I rather think, to the unknowable. But there is one thing we do know;—that the returns to Income Tax of interest on colonial and foreign securities, coupons, and railways, were £30½ millions in 1881, £54¾ millions in 1891, and £62½ millions in 1901—over 100 per cent, increase in twenty years. With these figures before us, it seems as if we might rest satisfied that we are not selling out our foreign securities at any rate.

II. The second deduction is, that the Balance of Trade tells us almost nothing as to the prosperity or adversity of a nation.

Our own Balance indicates two things. One is that several of our greatest trades, such as Shipping, Banking, and Insurance, are engaged in producing and sending abroad goods that never take any material form, and are not entered in any table of exports. The returns to these trades come to us in imports, and make up an apparent excess of something over £90,000,000, the reason being that the real exports which balance and pay for them are not counted at all. The other is that we have for long been the money lenders of the world, and that we have invested very large sums abroad. This accounts for a permanent excess of imports of some £60,000,000 to £90,000,000.

The presumption, of course, is that these trades are prosperous—the Income Tax returns seem to show that they are—and that the interest and profits represent a fair return to our capital abroad. But, from the Balance of Trade, all we know for certain is the two facts, that we have these large trades, and that we have large investments abroad.

But another country, from choice or necessity, may not number Shipping among its industries, and yet be employing all its labour and capital profitably. And it may not only find a remunerative use for all its savings at home, but may find it cheaper to borrow largely from other countries, getting a better return from the using of the capital borrowed than another country gets by lending it—just as one sometimes finds a very rich man borrowing from a very poor relation. As consequence of this, such a country may have a balance the other way about. No one now-a-days thinks that America is any the less prosperous that, in 1902, she had a Balance of Exports of £100,000,000.

If this be true, it follows that even a positive fall in our exports might indicate nothing but a change in our industries or in our fields of investment—just as, in the converse case, America seems no less prosperous that, this year, her imports show a large increase and her exports a considerable diminution. One is disposed to think that the enormous activity in our Municipal enterprises of late years, and the ease with which such local bodies have borrowed huge sums, would have some effect in putting the drag on our exports. And yet it is by no means certain that Municipal industries may not be as profitable as gold mines.

But if anyone still thinks that an excess of imports is a proof of growing decay, let him consider this. We have statistical records, more or less accurate, of the exports and imports of all the great nations. The total imports of these nations are £2,516,000,000; their total exports are £2,292,000,000. Here is a “debit balance,” a balance of imports over exports of £224,000,000. Either it must be believed that more goods arrive in port than ever set sail, which seems a little curious; or that all the great nations are going downhill at a very rapid rate—for the balance is growing; or the Board of Trade explanation must be taken, that the balance is accounted for by shipping charges;—that is, costs incurred after the goods have left any shore as statistical exports.

The practical warning conveyed by the tendency towards equivalence of exports and imports seems to stare us in the face. It is that anything which checks imports is a check to exports. This follows inevitably from the fact that foreign trade is an exchange of goods and services, goods sent out paying for goods brought in. A tariff not only shuts out foreign goods; it shuts in home goods. If we were to set up absolutely prohibitive tariffs against imports, we should make it impossible to export. For, if the consignee in the foreign country found that, since no goods had been sent to England, he could not buy a bill to cover his remittance, he would send gold. If this were to continue on any large scale, the export of gold from the foreign country would be reflected there in a fall of prices—the prices of imported goods among others. As the only object of exporting goods is to sell them, the low prices realised by our exports would make further exporting on our part unprofitable.

If, again, we were to set up tariffs which did not exclude foreign goods but made them dear, we should diminish the consumption of and so the demand for them, and reduce the amount of the exports which we could send in return. If, in these circumstances, we still exported goods in the former amounts, the consignee in the foreign country would find that there was a premium on the means of remittance, which would make the transaction pro tanto less profitable, and act as a check on our further exports.¹

These things are not less real because they are unseen—hidden by the fact that, in foreign trade, each transaction of exporting and importing stands by itself, and ends with a payment in money. Only those who do not see, or who choose to ignore, any mutual and causal relation between imports and exports, can believe that putting a tariff on imports will have no effect in checking exports. This is the meaning of the homely adage:—“Look after the imports and the exports will look after themselves.” It simply suggests that, if no restrictions are put on imports, there will be competition from all nations to send in what goods they can, and the necessity of paying for them will bring out a return flow of exports to the same value.

¹In 1877 he calculated that the national savings were some £200,000,000 a year. In a letter to the Times of 3rd December, 1903, he puts them down at £264,000,000.

¹Essays in Finance, Second Series, p. 161.

¹This is amply confirmed by experience. When Peel, in 1842, took off or reduced duties on over a hundred articles, the exports rose from £46 millions to £60 millions in 1845. When the Corn Laws were repealed, the exports rose from £60 millions to nearly £100 millions in 1853. In the late tariff wars, exports suffered correspondingly with imports. See Cd. 1938: Commercial, No. I. (1904). “Every time,” says Gide, “that a treaty of commerce or any other cause has considerably increased a country’s imports, its exports have never failed to increase in like proportion. Thus when, in i860, France threw open her ports to foreign products, her imports rose from 2,521,000,000 francs (the average of the previous five years) to 3,231,000,000 francs (the average of the next five years); but her exports likewise rose, between the one period and the other, from 2,813,000,000 francs to 3,449,000,000 francs. Thus the increase in imports was 23 per cent., in exports, 28 per cent.” On the whole question, the chapters on International Trade, in Professor Gide’s Principes d’Économie Politique, as the utterances of a French economist, are particularly interesting and suggestive. The above quotation is from the 3rd edition, p. 261, but, as very considerable changes have been made, the 8th edition (Larose, Paris, 1903) should be studied.