goods shipped abroad is by bills of exchange. Money is sent to pay the balance. That the system of exchange is necessary may be gathered from the fact that no country has sufficient money to pay for its imports and at the same time retain money enough at home to carry on its own domestic trade.

In the following table, showing the value of the imports and the stock of gold actually possessed by the countries, it will be seen that England, France, and Germany would not have sufficient money to pay for their imports, if actual money had to be paid out for them. Hence the evident advantage of exchange.

Balance of Trade. When the exports of a country exceed its imports, the balance of trade is said to be favorable to that country. It was the custom of the believers in the old mercantile system, and it is the custom of not a few to-day, to estimate the prosperity of a country by the balance of trade. They would have it that if the exports exceed the imports, the country is prosperous; if the reverse holds, the country is in danger, since it must export gold to pay its trade balances.

Since 1877, the balance of trade has been in favor of the United States, with the exception of three years, 1888, 1889, and 1893. If we look at some other countries, we find the balance of trade to be against them. Thus, in 1911, we find the following facts for England, France, and Germany:

From the above table one would expect that these countries were far from prosperous, and that they would have to send out much gold to pay for the balances of their foreign trade. But, in summing up the standing of a country, there are other items which must be taken into account. We must judge of the financial state of a country by the Balance of Accounts and not merely by the Balance of Trade.

In the balance

Items entering into the Balance of Accounts. of accounts there are four principal items, besides exports and imports, which raise the credit side of a country's accounts:

(1) Investment of Capital in Foreign Countries. - Foreign investments are made in government bonds, railroad bonds and stocks, farms, industrial and commercial enterprises. Englishmen have acquired land in the United States, equal, it is said, in area to the whole of Ireland. About six billions of foreign capital is invested in the United States. Thus the United States pays in interest to foreign countries about $240,000,000 a year. (Cf. Nat. Mon. Com., Doc. 579, p. 172.)

(2) Cost of Transportation paid to foreign shipowners-freight and insurance.

The claims of England against other nations on account of transportation amount to about $440,000,000 a year.

The United States pays foreign nations for transportation and insurance over $200,000,000 a year. For ocean mail service alone, it paid foreign vessels, British German, French, Japanese, and others, in 1905, $899,164 and in 1908, $1,228,032.

France pays foreign nations for transportation about $70,000,000 a year.

The following table shows the value of our imports and do

The following table shows the tonnage of the merchant marine of the principal countries of the world in 1912:

(Lloyd's Register for 1912-1913. In Report Commissioner Navigation, 1912, p. 97.)

The merchant marine of the United States was as follows:

(3) The Sums spent by Travelers in Foreign Countries. It is estimated that in France alone foreigners spend $132,000,000 yearly. Americans spend $50,000,000 abroad annually.

(4) Bankers' Commissions. - London is the bank of the world. The commercial paper and the bills of exchange of all nations may be handled by the banks of London, and the yearly commissions of London bankers for this feature of banking amount to immense sums.

From these various items it follows that a country the imports of which far exceed its exports, as in the case of England, may still be the creditor of the countries trading with it, and will

not need to send out gold to pay its trade balances. As a matter of fact, England sends but little gold abroad.

Because of the four items mentioned above, the United States has in the past forty years been frequently obliged to export gold to balance accounts, although our exports of commodities have nearly always exceeded our imports. (Nat. Mon. Com., Doc. 579, p. 176.)

Correlation between Imports and Exports.

Another fact

that must be taken into account in this connection is that exports and imports influence each other. It is given as a law that exportation provokes and determines importation, and the converse is also true, that importation provokes and determines exportation.

If we take, for example, two countries, A and B, and suppose that the exports of A to B exceed the imports and other items of the balance of accounts, the final excess must be paid by B to A in gold. The sending out of gold from B will reduce the amount of money in B, and, as a consequence, there will be a stringency in money and a fall of prices in B.

The fall of prices in B will prevent A from sending its exports to B to the same extent as before; A will limit its exports to B, and will seek other countries, C, D, and E, where the prices will not be so low.

On the other hand, the inflow of money to A will cause a greater amount of money in A, and prices in A will rise. B will increase its exports to A, because of the good market it finds there. Thus, the exports of A and B will seek an equilibrium. This example illustrates an important principle in international trade.

The example may be summarized as follows:

4. Exports to B diminish.

Imports from A diminish.

In the meantime, because of the flow of money into A,

5. Amount of money greater.

Prices higher. Good market.

6. Imports from B increase.

7. Exports and Imports equal.

Definitions.

toms duties.

Exports to A increase.

Imports and Exports equal.

III. CUSTOMS DUTIES

International trade may be affected by cus

These include Export duties and Import duties.

Export Duties are duties imposed on products of the home country, whether in the raw state or as finished goods, which are shipped abroad to foreign countries. Duties on exports are very rarely imposed.

Import Duties are duties imposed on products of other countries entering the home country. Import duties are frequently resorted to.

Import duties are of two kinds, Specific and Ad valorem. A specific duty is so much on the bulk of the product, e.g., 25 cents per pound, 30 cents per gallon. An ad valorem duty is a tax of a certain per cent of the value of the imported product. (For a discussion of the relative merits of specific and ad valorem duties, see Customs Tariffs," Senate Document No. 547, pp.

52, 92, et al.)

Tariff. The list of import duties on various products is called a Tariff. The tariff of the United States is divided into schedules, as follows:

A. Chemicals, Oils, and Paints.

B. Earths, Earthenware, and Glassware.

C. Metals and Manufactures of Metals.

D. Wood and Manufactures of Wood.

E. Sugar, Molasses, and Manufactures of Sugar and Molasses.

F. Tobacco and Manufactures of Tobacco.

G. Agricultural Products and Provisions.

H. Spirits, Wines, and other Beverages.

I. Cotton Manufactures.