The Pamphlet Collection of Sir Robert Stout: Volume 51
Chapter II. — Exports (Unless in Payment of Debt) Necessitate Imports to the Same Amount
Exports (Unless in Payment of Debt) Necessitate Imports to the Same Amount.
If it is not specie that we receive in return for our exports, or that we send in return for our imports, there is no alternative but to conclude that they pay for each other. In the case of national indemnities, subsidies, loans, interest on loans and foreign investments, these are paid for by the export of goods without any return for them. But as far as commercial dealings go, it is utterly impossible to export goods without importing goods to the same amount, and vice versâ. Of course, this is a mere truism to those who are conversant with the subject, but there is a large number of people who look with dread on large imports, and it is necessary to make it clear to them that large imports mean large exports. If it be, as they deem, an advantage to import as little as possible, it follows as an indispensable consequence that they deem it an advantage to export as little as possible, and to have as little foreign trade as possible; for reduced imports necessarily imply reduced exports, and reduced foreign trade.page 13
But let us suppose it possible for a country to export largely without importing in return any commodity except bullion, and equally possible for it, to compel the retention of the bullion, by prohibiting its re-exportation, would that country be the richer for it? Certainly not. Let us work it out. There could be no increase of real wealth, for the bullion being in over-supply in respect to the commodities which it represents, would fall in value in the exact proportion of such over-supply; in other words the money price of all commodities would rise in that ratio. No one would be the richer for that, for the exchangeable value of all commodities (that is, their relation to each other) would remain precisely the same. If the working man received twice his former wages, he would have to pay double for all he consumed, which would leave him where he was; indeed, the cost of living would rise upon him far more rapidly than he could, by remonstrance or strikes, &c., enforce a rise of wages from his employers. The gold and silver coins being but the counters used to represent the various objects that constitute the wealth of the country, the result of doubling the number of the counters would be, not to increase the wealth of the country, but simply to diminish the purchasing power of the counters, and make two of them necessary to represent the same commodity which was before represented by one.
Meanwhile the money-cost of production would have become so great that the foreigner could no longer afford to purchase the productions of that gold-glutted country, and exportation would cease. Foreign trade would, therefore, be totally suppressed, and the happy country would, like Japan of yore, live within itself, and be independent of the foreigner—a model result of the perfection of protective policy. True that there would be an accumulation of twice as much bullion as before, but as its purchasing power would be diminished by one-half the possessors would be no richer than those men abroad who had but half the quantity. The only way to obtain the full value of the accumulated bullion would be to allow its export, and sell it to the foreigner. But to export bullion means the importing of goods, for what else could be got in exchange for it? And page 14 that means a total abandonment of the gold-accumulating policy. Yet what is to be done? Gold may be piled up in mounds, but if it loses its purchasing power it ceases to be wealth. Bullion is only worth what it will fetch in the commodity-market. It would buy twice as much abroad as it would at home. To utilise it, therefore, it must be sold to the foreigner. Then there would occur the converse of the operations that produced the glut of bullion. There would be large imports and small exports of goods, the protected interests would be ruined, internal commerce would be disorganised for a time, and everything would be unsettled until the superfluous bullion had been worked off, and its quantity reduced to the level of legitimate circulation requirements. But what can be said of a policy that led to such disasters as its reversal alone could remedy?
The supposititious case, however, of a country which let specie flow in but allowed none to flow out, never did actually occur, because no prohibitory measures ever could prevent the precious metals from being transferred from a country where their value is less to those countries where their value is greater. But the hypothesis serves to show that even if such regulations could be enforced, they would be productive, not of advantage, but of evil.
There are countries of which the imports habitually exceed the exports, and others in which the converse is the case. These apparent exceptions to the rule that every import must be balanced by an export are easily explained, and only tend to prove the rule.
In the first place, the balance on either side is not paid or received in specie, the movements of which, as we have seen, are quite insignificant in comparison with the balances in question. For instance, the imports into the United Kingdom exceeded the exports in 1877 by £80,000,000, and in 1878 by £63,000,000. If these enormous balances had had to be paid in specie, they would have swept away not only every coin, but also all the plate, watches, and trinkets, in these islands. For it is calculated that the entire circulation of the country, together with all the precious metals it possesses as articles of ornament or page 15 utility, from a gold tankard to a silver pencil-case, barely amount to the £143,000,000 in question. But far from the country being drained of its gold and silver, there is in it now quite as much as there was two years ago, before these balances arose, and our circulation requirements have not been trenched upon in the slightest degree.
Neither has England obtained these £143,000,000 worth of goods on credit. Merchants do not, in these days, give or take the same long credits as formerly. If the enormous sum in question had to be paid for by England at all, it has been paid long ago. Indeed a certain portion of our imports are paid for long before the goods themselves come to hand. A cargo of wheat from California takes four to five months from the day of the ship's sailing before it reaches England, but it is paid for by drafts on England at sixty days' sight, which, sent forward by rail and steam, mature one or two months before the wheat itself arrives here. No! In whatever way we obtain the possession and use of this immense mass of commodities over and above what we send away, it is certain that the amount is not a debt owing by us. In fact, it is just the contrary; it is sent to us in satisfaction of debts owing to us for interest and dividends on money lent to, and invested in, foreign countries. We shall treat this subject fully later on, meanwhile we will just indulge in one or two remarks.
All wealthy nations which have lent money to other countries must of necessity import more than they export, since the annual income which they derive from those countries is paid to them in goods. In the same way, the poorer nations who have borrowed money from other countries must of necessity export more than they import, since it is in goods that they pay the yearly interest on the money they owe. Indeed, the comparative wealth or poverty of nations may be pretty fairly deduced from the amount by which their imports or exports are permanently in excess of each other. That amount which a nation exports without receiving a return for it in imports, goes to pay a debt that it owes. That amount which a nation imports without sending out a return for it in exports, constitutes page 16 the payment of a debt owing to it. Consequently, instead of a persistent excess of exports being a matter of pride, it is a proclamation of indebtedness to other countries; and on the other hand, to view with regret the increased excess of imports over exports, is to view with regret the increase of national income arising from foreign investments.
In the following pages it is always to be understood that in viewing the relation between imports and exports, allowance is made for that portion of either that is sent or received as payment for loans, war indemnities, subsidies, interest on investments, &c., leaving the question of the commercial interchange of commodities to rest on its own merits.