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The Pamphlet Collection of Sir Robert Stout: Volume 51

Chapter XIX. — The Increased Excess in the Amount of our Imports over that of our Exports

Chapter XIX.

The Increased Excess in the Amount of our Imports over that of our Exports.

That we import foreign goods to an amount largely in excess of that of our exports, and that this excess has, of late years, been far greater than it ever was before, are notorious facts which have attracted general attention. The prevailing notion among a large portion of the community is, that this state of things is an evil, and many persons consider that it betokens the decline of our trade and the diminution of our wealth. "Foreign countries," say they, "resort to every device to curtail and pare down their purchases from us, while we go on purchasing enormously and increasingly from them. It is not our goods but our page 77 money that the foreigner wants in exchange for his goods; and the increasing excess of our purchases over our sales is the measure of our decadence." That this view of the matter is utterly erroneous, and that it is only a reproduction of the old exploded fallacies about the "balance of trade," is susceptible of easy proof. As the shortest way, we propose to establish the following propositions, which lead to precisely opposite conclusions:—
1.This excess of imports does not cause our money to flow out of the country.
2.It is the sign, not of our decay, but of our wealth.
3.All prosperous nations import more than they export, and vice versâ, an excess of exports nearly always indicates an indebted or a declining country.

Before going further into the matter, let us see what have been the actual relative values of our exports and imports for a series of years past. It will be found that they are considerably less divergent from each other than would appear from a primâ facie view of the annual returns of the Board of Trade. As for the imports, we must, for the reasons given at page 47, deduct II per cent, from the official returns, in order to arrive at the actual amount which the foreign seller has to receive from us in payment of his goods.* As for the exports, the official returns do not, as they do in the case of the imports, include the freight, insurance, &c. But two-thirds of the goods we export are, and have been for many years, conveyed to their destination in British ships. The total tonnage that in 1878 cleared with cargoes from British ports to foreign countries was 17,544,000 tons. Of this tonnage the proportion of British was 12,050,000 tons, of foreign of all nations 5,494,000. In at least the same proportion, the insurance on the cargoes

page 78
Free Trade Imports, Since 1861 (In Millions Of Pounds). Year. Gross Imports. 11 per cent. off for Freight, &c. Real Imports. Exports. 11 per cent, added on two-thirds. Real Exports. Excess of Imports. Excess of Exports. £ £ £ £ £ £ £ 1861 217 24 193 160 12 172 21 ... 1862 226 25 201 166 12 178 23 ... 1863 249 27 222 197 14 211 11 ... 1864 275 30 245 213 16 229 16 ... 1865 271 30 241 219 16 235 6 ... 1866 295 32 263 239 18 257 6 ... 1867 275 30 245 226 17 243 2 ... 1868 295 32 263 228 17 245 18 ... 1869 295 32 263 237 18 255 8 ... 1870 303 33 270 244 18 262 8 ... 1871 331 36 295 285 21 306 ... 11 1872 355 39 316 315 23 338 ... 22 1873 371 44 330 311 23 334 ... 4 1874 370 41 329 298 22 320 9 ... 1875 374 41 333 282 21 303 30 ... 1876 375 41 334 257 19 276 58 ... 1877 394 43 351 252 19 271 80 ... 1878 366 40 326 245 18 263 63 ... £359 £37

Table of the Real Excess of Imports over Exports, or of Exports Over

page 79

was affected in London. Two-thirds, therefore, of the 11 per cent, freight and charges which the foreign consignees of our exports have to pay, are paid to British shipowners and underwriters, and must be added to the official returns of exports in order to arrive at the real amount, which the foreign buyer has to remit to us in payment of our goods.

Accordingly in the table (page 78) of our imports and exports for each year since 1861, we have made the deductions and additions called for by the above considerations, and have thus elicited the real differences that have occurred between what we have had to pay for our imports, and what we have had to receive for our exports for the last eighteen years.

From this table we collect that, with the exception of 1871, 1872, and 1873, we have regularly for many years imported more than we exported, and that the excess of imports during the entire series of eighteen years has, on balance, been £322,000,000, of which £231,000,000 represents the excess on the last four years alone, viz., 1875, 1876, 1877, and 1878.

Now the question is, did we, or did we not, pay for this £322,000,000 excess of importations in specie? Or for what part of it did we pay in specie? Or, finally, did we pay in specie for any part of it whatever? There is no difficulty at all in solving this question, for we have an exact record of all the specie and bullion we received from, and sent to, foreign countries during the period referred to. We open those valuable returns of the Board of Trade, which substitute for idle rhetoric the arbitrament of cold, stern, immutable figures, and we find as follows:— page 80
Table of Exports and Imports of Gold and Silver Bullion and Specie from and into the United Kingdom for the Following Years (in Thousands of Pounds).
Year. Exports. Imports.
£ £
1861 20,811 18,747
1862 29,326 31,656
1863 26,544 30,031
1864 23,132 27,728
1865 15,092 21,462
1866 22,639 34,287
1867 14,324 28,821
1868 20,220 24,853
1869 16,377 20,501
1870 18,920 29,456
1871 33,760 38,140
J 872 30,336 29,608
1873 28,899 33,599
1874 22,584 30,379
1875 27,628 33,265
1876 29,464 37,054
1877 39,798 37,163
1878 26,687 32,421
446,541 539,171

Showing an excess of imports of £92,630,000.

These figures are decisive. Far from our having sent out any specie whatever in payment for the £322,000,000 excess of imports during the eighteen years referred to, we actually received from abroad during that period an excess of specie amounting to £92,630,000! This sum gives an average of £5,000,000 per annum, which is about what it is calculated that we require annually to supply the demand for art purposes, to replace wear and tear, and to meet increased circulation requirements.

Let us look at it in another way. During the four years 1871, 1872, 1873, and 1874, we exported more than we im- page 81 ported by £28,000,000; during the four years 1875, 1876, 1877, and 1878, we imported more than we exported by £231,000,000. Now if international balances were paid in specie, it would follow that we must have received from abroad gold in far larger quantities than usual during the first of those two periods; and sent away large quantities of gold during the second. But what do we find to be the fact? If anyone will make a calculation from the figures in the table just given, he will see that during the first period, the balance of specie received over the specie sent was £16,147,000, while during the second it was £16,326,000. That is to say, during the four years that we exported largely, we received £180,000 less specie from abroad than we did during the four years that we imported £231,000,000 in excess of our exports. Is it possible to show more clearly and conclusively that we do not pay in specie for the excess of our imports over our exports?

In fact, as we have shown before, no large international payments are ever made in specie. The stock of it in each country (except at places of production) is totally inadequate to such a purpose. When in 1871 to 1873 we undertook to send large sums abroad as loans to foreign countries, they went not in specie, but in the shape of increased exports. France, after 1871, had an enormous indemnity to pay to Germany. What part of it was paid in specie? The merest fraction. In the Economist of March 15th, 1873, there appeared a statement to the following effect:—that the French Government had just completed a payment to Germany of £94,600,000, and that the various items of which the payment consisted were as follows:—
French gold and silver £6,400,000
Hank-notes, French and German 8,200,000
Bills of Exchange on Belgium and Holland 16,000,000
Bills of Exchange Germany 40,000,000
Bills of Exchange England 24,000,000
page 82

The Economist adds that the £80,000,000 on Holland, Germany, and England represent the excess of commodities which France has furnished in order to meet the ransom; and that, meanwhile, the bullion in the bank of France has been maintained at £30,000,000. Thus the circulation requirements of France were not interfered with by this enormous payment, and even then £6,000,000 of gold and silver paid were probably the produce of the hoards which had been accumulating in the old stockings and under the hearthstones of the frugal and industrious French peasantry, and which had not before been in circulation.

We dwell the more on this topic because it is a very common notion that the balances due from nation to nation are paid in specie, and it is this radical error chiefly that leads protectionists to aim at selling as largely as possible and buying as sparingly as possible, in the delusive hope of getting the difference in specie. The futility of such an aim is at once apparent, when it is clearly seen that specie is not the medium through which the balance between exports and imports is adjusted, or through which heavy payments, from whatever cause, are made by one country to another.

We undertook next to show that our large excess of imports over exports is "the sign, not of our decay, but of our wealth."

That England has, or rather that individual Englishmen (using that term generically for the inhabitants of the United Kingdom) have yearly to receive from almost every foreign country large sums of money for interest, dividends, &c., 011 loans, shares, and other investments, everybody is aware, but what the aggregate amount is that has thus to be annually transmitted to this country, is a mere matter of conjecture, and has been variously estimated at any sum between £30,000,000 and £70,000,000 sterling. Mr. E. Seyd in 1876 estimated the indebtedness of other countries to this at £1,100,000,000 with an annual interest of £40,000,000 to £50,000,000. Professor Fawcett, in his recent work on "Free Trade and Protection," says that "it has been calculated by competent authorities that the balance annually due page 83 to England as interest on capital invested in India and America alone is about £30,000,000," which seems high, considering that it refers to only two countries. We have taken considerable pains to collect all available data on which to found a conclusion, but even these still leave a considerable margin for mere conjecture. If anyone will consult Wetenhall's official "London Daily Stock and Share List," he will see a classified enumeration of the various foreign securities in sterling money for which London is the central, and, in some cases, the only market. Besides these, there are a vast number of others which are in foreign currency, and of which the chief, markets are abroad. After analysing these, calculating the yearly return yielded by each, and estimating as closely as possible the portion thereof which has annually to be remitted to England, including the amount which India has to send each year in payment of that portion of her government expenditure that is defrayed here, we find the total to reach the sum of £55,700,000. On the next page is a detailed statement of the various classes of securities of which the total is made up.

It therefore appears that we are the recipients of an income from abroad of about £56,000,000 per annum, in addition to which, if we take into account the repayment of some small part of some few loans which take place every year, the profits remitted here on British capital invested in private undertakings never heard of on the Stock Exchange, and those sent from numerous branch houses abroad to the parent firms here, we shall probably find that the amount which has to be remitted each year to England from abroad does not fall far short, of £60,000,000.

It is that large amount which, being transmitted to us in the shape of goods, constitutes the excess of our imports over our exports, and as long as our debtors continue to fulfil their engagements, so long (and long may it be !) shall we continue to witness the same excess of imports. Indeed, it would have been considerably larger but for the cessation of dividend payments by defaulting states. We have for half a century past been a lending nation, and therefore have always been receiving an income from abroad in return for

page 84
Total,. To Be Annually Remitted To London. Colonial Government Securities ................................................................................... £4,628 90% £4,165 Foreign Stocks, Bonds, &c., of which the dividends have all to be remitted to London (not including the bad debts, such as Spanish, South American, Turkish, &c.)*.................................... ... ... 10,680 Foreign Stocks, Bonds, &c., dividends payable abroad ........................................................................ 117,000 15% 17,550 Indian Railway Debentures, Bonds and stocks, all ................................................................ ... ... 506 Railways in British Possessions, chiefly India ........................................................................ 4,874 90% 4,387 Foreign Railways, financed and dividends paid in London........................................................ 1,149 80% 919 Railway Obligations, Mortgages, &c........................................................................ 1,542 85% 1,311 American Bonds and Shares—sterling—payable in £ sterling ................................................ 3,473 35% 2,952 ,payable in American currency ................................................................ 6,700 20% 1,340 Colonial and Foreign Mines ................................................................ 298 70% 208 Gas, Water, and Miscellaneous ................................................................ 1,991 85% 1,692 £45,710 Sum that has annually to be remitted by India for a portion of her Government Expenditure defrayed here—average .......................................... 10,000 £55,71O In addition to the above, there are a number of private industrial and other enterprises abroad, in which British capital is engaged, and from which it derives a revenue, which are not represented or dealt in on the London Stock Exchange. * We insert the whole of this amount because, although the Stocks are not all* held by Englishmen, it has all to be remitted to London, where it is distributed to the investors, whether British or foreign.

Annual Interest and Dividends on Foreign Investments, &C., in Thousands of Pounds.

page 85

British investments (though by no means to the same extent as now), but a reference to the table at page 78 will show that since 1863 and up to 1874 the excess of imports, in spite of the income in question, was but small; and indeed, in the years 1871, 1872, and 1873, it was the exports that were in excess of the imports. Of these fluctuations the reason is obvious. From 1863 to 1870, we were steadily investing money in foreign loans, &c., and thus absorbing in fresh investments part of the sums that we were receiving for interest, &c., on our previous ones, and accordingly during those years there was but a small excess of imports. But during the years 1871, 1872, and 1873, we suddenly and largely increased our foreign investments; we contracted foreign loans with indiscriminate eagerness, and lavished our money abroad with almost blind profusion. Hence exports received an extraordinary stimulus and an unprecedented development. The money which the British capitalist lent was largely laid out with the British manufacturer, mine-owner, shipbuilder, &c. Wages rose, traders made more and spent more, and the pulse beat quicker throughout the whole commercial body. Thus not only were the sums absorbed that we were receiving as returns for our previous investments, but more was required, to provide for which we had to export in excess of our imports, as pointed out at page 56. However, this mania for lending money to foreign countries rather suddenly came to a stop in 1875, partly because our surplus capital had been pretty well exhausted for a time, but chiefly because several of the countries to which we had lent money declared their inability to pay their dividends, and a well-founded apprehension arose that the example would be followed by others. These defaults caused heavy losses to British investors, and made them so cautious, that from that time up to this, very little money has been lent to foreign countries. The consequences of this change were immediately visible. Our income from foreign investments, which we have shown to be nearly £60,000,000, not being neutralised by any outflow for loans as it was during the preceding years, and being of course sent to us in goods, there was a proportionate increase in the excess of our page 86 imports. According to the preceding calculations, that excess ought to be equal to the amount of our investment income, viz., £60,000,000 per annum. On reference to the table at page 78, it will be seen that the excess of imports for the four years 1875, 1876, 1877, and 1878, amounted to £231,000,000, which gives an average of £58,000,000 per annum—a closeness of approximation between results arrived at through two different processes, which strongly confirms the accuracy of both.

The effect of our abstention during the last four years from foreign investments has manifested itself in two directions : 1. A great collapse in the export trade which the loan system had stimulated to an abnormal extent The British capitalist lends much less money abroad to be laid out with the British manufacturer, mine-owner, &c. Wages have fallen, traders have made less and spent less, and the pulse beats more feebly throughout the whole commercial body. 2. A large accumulation in England of capital that seeks, but cannot yet find, profitable and safe employment. Our large income from abroad, instead of being squandered in loans to foreign nations, is retained in the country, and is daily adding to the mass of money that is lying unused. The rate of interest has sunk as low as it has ever been known, consols are rising, and seem likely to reach par, and it is estimated that the amount now lodged on deposit at the various banks throughout the United Kingdom is upwards of £600,000,000—an amount far exceeding all precedent.

That excess of imports proves the wealth of a country and excess of exports its indebtedness to foreigners, is a fact that necessarily results from the foregoing considerations, and has been the subject of some remarks at p. 15. But we shall give here a few illustrations of its truth. On a reference to the table at p. 48, it will be seen that, besides England, imports are in excess of exports in Germany, Belgium, the Netherlands, Denmark, Sweden, and Norway, all wealthy or improving countries with debts that are moderate compared with their foreign trade. The case of Norway is a peculiar one. It is the large mercantile navy of that little state that page 87 brings them in so rich a tribute from the foreigner every year. In 1878 there entered with cargoes at British ports, 1,734,000 tons of Norwegian shipping, by far the largest of any foreign country; Germany coming next with 1,048,000, and the United States lagging a long way behind with 542,000. On the other hand, we find that the countries in which the exports exceed the imports are the United States, Spain, Turkey, Austria, Brazil, India, and Peru, all of them indebted states with large foreign debts as compared with their foreign trade. As to France, she has not yet wholly recovered from the financial and commercial disturbance occasioned by the German indemnity, but she is rapidly assuming her place among the over-importing countries, as all wealthy and progressive nations must do.

* It is true that only two-thirds of our imports are brought in British bottoms, and that one-third of the 11 per cent, in question is paid to foreign shipowners, but we have left this as a set-off against the amount of freight which our immense mercantile navy earns from the foreigners (and remits to England) on intermediate voyages between one foreign port and another. This amount is greater than that which we leave to stand against it.