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TRADE IS NECESSARILY RECIPROCAL.
One of the most widespread and persistent of popular errors with respect to economic matters is the notion that buying things outside one's own community diminishes the total demand for home products. This error, along with several others of importance, has its origin in a failure to comprehend the principle which heads this reading. Trade is necessarily reciprocal. We can not sell to the rest of the world, unless we buy from them; for neither would they be able otherwise to pay for their purchases from us, nor, what is the same thing looked at from the opposite point of view, would we be able to get our pay for what we had sold. This principle is effectively brought out in the following from McCulloch.
*But admitting . . . that the total abolition of the protective system were to force a few thousand work-people to withdraw from their present occupations, it would necessarily, at the same time, open equivalent new ones for their reception. Such a measure could not diminish the aggregate demand for labor. Suppose that under a system of low duties, or of perfectly free trade, we imported the whole or a part of the silks and linens now manufactured at home: it is clear, inasmuch as neither the French nor Germans would send us their commodities gratis, that we should have to give them an equal amount of British commodities in exchange; so that such of our artificers as had been engaged in the silk and linen manufactures, and were thrown out of them, would, in future, obtain employment in the
* McCulloch-The Principles of Political Economy, fourth edition (1849). Part I, Chapter V.
production of the articles that must be exported as equivalents to the foreigner. A country in which commerce has been restricted may, by giving it additional freedom, partially change the species of labor in demand, and make it be employed more productively; but it cannot lessen its quantity. Should the imports of such country this year amount to five or ten millions more than they did last year, it will have to provide for their payment, either directly or indirectly, by an equal increase in the exports of its peculiar products. And, therefore, if exportation be desirable and the most ardent admirers of the restrictive system admit it to be such-importation must be so also, for the two are indissolubly connected; and to separate them, even in imagination, implies a total ignorance of the most obvious principles. All commerce, whether carried on between individuals of the same or of different countries, is founded on a fair principle of reciprocity. Buying and selling are in it what action and reaction are in physics, equal and contrary. Those who will not buy from others, render it impossible for others to buy from them. Every sale infers an equal purchase, and every purchase an equal sale. Hence, to prohibit buying is exactly the same thing, in effect, as to prohibit selling. In whatever degree, therefore, an unfettered trade may lead us to receive supplies from other countries, in the same degree it will render them our customers, will promote our manufactures, and extend our trade. To suppose that commerce may be too free, is to suppose that the channel into which labor is turned may be too productive, that the objects of demand may be too much multiplied, and their price too much reduced it is like supposing that agriculture may be too much improved and the crops rendered too luxuriant!
The principles now established, demonstrate the groundless nature of the complaints so frequently made, of the prevalence of a taste for foreign commodities. We get nothing from abroad except as an equivalent for something else; and the individual who uses only Polish wheat, Saxon cloth, and French silks and wine, gives, by occasioning the exportation of an equal amount of British produce, precisely the same encouragement to industry here, that he
would give were he to consume nothing not directly produced amongst us. The Portuguese do not send us a single bottle of port, without our sending to them, or to those to whom they are indebted, its worth in cottons, hardware, or some sort of produce; so that whether we use the wine, or its equivalent, is, except as a matter of taste, of no importance whatever.
What has now been stated goes far to settle the disputed question in regard to the influence of absentee expenditure. If an English gentleman, living at home, and using none but foreign articles, gives the same encouragement to industry that he would do were he to use none but British articles, he must, it is obvious, do the same should he go abroad. Whatever he may get from the foreigner, when at Paris or Brussels, must be paid for, directly or indirectly, in British articles, quite in the same way as when he is resident in London. Nor is it easy to imagine any grounds for pronouncing his expenditure in the latter more benefi-cial to this country than in the former.*
* We do not mean, by any thing now stated, nor did we ever mean, by anything we have stated on other occasions, to maintain that absenteeism may not be, in several respects, injurious. It would be easy, indeed, to show that England and Scotland have been largely benefited by the residence of the great landed proprietors on their estates. No one can doubt that they have been highly instrumental in introducing the manners and in diffusing a taste for the conveniences and enjoyments of a more refined society; and that the improved communications between different places, the expensive and commodious farm-buildings, and the plantations with which the country is sheltered and ornamented, are to be, in a great degree, ascribed to their residence. The question really
at issue refers merely to the spending of revenue, and has nothing to do with the improvement of estates; and, notwithstanding all the clamour that has been raised on the subject, we have yet to learn that absenteeism is, in this respect, in any degree injurious.
THE REAL BALANCE OF TRADE.
A matter to which the general public is wont to attach a very high degree of importance is the so-called balance of trade, by which is meant the difference between the total of goods, not including money, imported by a nation and the total expended by the same nation. Now, it is quite certain that the significance of this matter is much exaggerated by the public; still it is doubtless of considerable importance in connection with various economic problems. Properly enough, therefore, it receives considerable attention from students of these problems. Now, one of the first things to be learned about this balance of trade is that what is commonly understood to be the balance, i. e., the balance of recorded exports and imports, is very far from being the real balance. A nation may seem to be exporting goods in excess of what it imports by a thousand millions, when in reality its exports and imports are almost exactly equal. In general the explanation of this is to be found in the fact that recorded exports and imports are not the only ones. In addition to them there are sold to, or bought from, other countries a large number of commodities or services which could not, or anyhow do not, appear on any official record In the case of imports, these unrecorded goods are partly (1) commodities brought in without the knowledge of customs authorities, partly (2) goods or services bought and consumed by home citizens temporarily resident in foreign countries, and partly (3) services received from foreign countries which are consumed in the home country; e. g., the carrying of goods, the use of foreign capital, the ser
vices of foreign bankers and brokers. Just such unrecorded goods may, of course, be present on the export side. The real, true, balance of trade obviously includes these unrecorded sales and purchases as well as the recorded ones. And, while we can never have sufficient data to compute this true balance with precision, we can, and must, take into account these unrecorded goods when we try to interpret the apparent or reported balance.
The following passage from Gide will serve to explain and illustrate the matter under discussion, though he prefers to use the expression "the balance of debits and credits" for what I have called "the real balance of trade"
*The term balance of trade designates the relation between imports and exports. Statistics show that the imports and exports of a country are rarely equal. The balance of trade is either in favor of exports or of imports; that is to say, a nation exports more than it imports, or imports more than it exports. The latter case is the more frequent. The United States, however, since 1893 has always imported less than it exported; we have, in other words, had what is called a "favorable balance of trade." During the last five fiscal years of our foreign commerce the value of merchandise exported and imported was, in round figures, as follows:
* From Gide's Principles of Political Economy. Copyright
1891 and 1903, by D. C. Heath & Co.
By permission. Second
American Ed., Book III, Chapter IV.