These figures indicate that during a period of only five years the United States has sold to foreign countries $2,833,000,000 worth of goods more than it has bought from them; this is equivalent to an average annual excess of exports over imports amounting to more than $566,000,000. Must we therefore conclude that foreign nations are every year obliged to pay us, on an average, more than half a billion dollars in money? This is scarcely probable, for the amount of money circulating in this country has not increased perceptibly. A good test of the validity of the assumption that foreign nations pay us this enormous amount annually is furnished by the statistics of gold and silver imports and exports. (We have already learned that in international trade paper money is of no avail, and that international engagements must be met in gold and silver.) The official statistics for gold and silver exports and imports during the last five fiscal years show, in round numbers, the following totals:

The excess of imports over exports during this period was $58,000,000, or an annual average of little more than $11,000,000. Thus it would appear that we are annually selling an excess of $566,000,000 worth of merchandise to foreign nations, and receiving $11,000,000 in gold and silver in payment for this excess. Such a conclusion is manifestly absurd. Evidently, drawing conclusions with regard to the prosperity of a nation after a mere glance at its "balance of trade" is not quite so simple a matter as is sometimes supposed.

Let us now consider France as an example of the opposite state of affairs. Here are the figures for her special

commerce during the five years from 1897 to 1901, in round

Thus in a period of only five years France purchased abroad $565,000,000 worth of goods more than she sold, which amounts to an annual excess of imports over exports of $113,000,000. Must we conclude from these figures that France is annually obliged to pay this amount of money to foreign countries? The most superficial observation demonstrates that the amount of money in circulation there has not diminished. It has even increased. The statistics regarding the exports and imports of gold and silver for the same period as that considered above are as follows:

The supply of gold and silver money in France, therefore, has increased during this period by $134,000,000, i. e., nearly $27,000,000 annually.

If we consider the case of England, the statistics are still more surprising. The annual excess of imports over exports averages $1,200,000,000. In other words, one year of foreign commerce at this rate would suffice to drain the country twice of all its metallic money; for the United Kingdom has but $600,000,000 in coin of all kinds. Yet this money is by no means drained from the country by

foreign trade. On the contrary, here, as in France, the imports of precious metals surpass the exports.

What, then, is the key to the enigma? Simply this: In order to ascertain whether the foreign trade of a country is in equilibrium, we must consider not only the balance of its imports and its exports, as the public is accustomed to doing, but the balance of its credits and its debits. Now the balance of credits and debits (or the balance of accounts) is not the same as the balance of trade. To be sure, exportation is one way, and the chief way, of making foreign countries our debtors. Yet there are other ways of doing this. Similarly, though imports constitute our principal debt to foreign nations they are not the sole source of our indebtedness to them. What, then, are these international claims or debts, distinct and different from exports and imports, which have aptly been termed invisible exports and imports? They are numerous, but three of them stand out prominently in importance:

(1) The cost of transportation of exported goods, i. e.. freight and insurance. If the exporting country has charge of the transportation of its goods, it has a claim on other countries that certainly will not be counted among its exports, inasmuch as the claim arises only after commodities have left the home port and are on the way to their destination. On this account, England has large claims against other nations, estimated at more than $440,000,000 per annum; for England not only carries all her own exports, but also transports a large share of the goods of other countries ; and she certainly does not perform this service gratuitously. The United States, on the other hand, pays foreign nations for transportation and insurance, more than $200,000,000 annually. France pays annually to foreign nations about $70,000,000 for the same service, since she transports in her own vessels only half her exports and one-third of her imports.

(2) The interest on capital invested abroad. Rich countries, and, as a rule, old countries, invest abroad a large part of their savings, and for this reason receive each year large amounts of money or of commodities from foreign nations. These receipts usually take the form of stock cou

pons, shares, debentures, farm rents, and profits in industrial and commercial enterprises. The tribute that England in this manner receives each year from foreign countries and from her own colonies is estimated at $400,000,000. India and the Australian colonies, for instance, have negotiated in England almost the sum total of their loans. How numerous, moreover, are the enterprises throughout the world that are in the hands of English financiers or promoters! Englishmen are said to have acquired land in the United States having a total area equal to that of Ireland. France, too, has numerous claims on foreign nations, chiefly in Europe; they are estimated at more than $4,000,000,ooo, and represent an annual revenue of $230,000,000. Probably $3,000,000,000 of foreign capital is invested in the United States, and this amount is increased in prosperous years. Thus the United States owes about $120,000,000 annually for interest on foreign capital.

In this respect, Spain, Turkey, Egypt, India, and the South American republics appear as debtors. But it should be observed that whenever these countries issue a loan, and so long as this loan is not fully subscribed, they become for the time creditors of the countries which take up the loan and which therefore send them funds.

(3) The expenses incurred by foreigners living in the country. As the money spent by these foreign visitors or residents generally is not the product of their labor within the country but is drawn from their estates or from capital invested at home, all countries which are resorted to by wealthy foreigners are constantly receiving large sums of money from abroad. When brought into the country in the pockets of visitors or sent them through the mails, this money does not figure in the statistics of imports. From this point of view France, Italy, and Switzerland are creditors of England, the United States, and Russia for considerable amounts. The latest French census, for example, indicates that there are in France 66,000 foreigners, living. mostly on independent incomes; the number of those that stay but a short time is certainly much larger than this. Now suppose that each of these foreign residents spends $2,000 a year (certainly a low estimate for people who are there

for amusement); this would mean an annual tribute of $132,000,000 paid by those who are staying for longer periods. This sum comes from the respective home countries of these foreigners and pays, so to speak, the bill for their boarding expenses in France.

It is estimated that Americans spend about $50,000,000 in foreign travel each year, and that tourists spend $40,000,000 annually in Switzerland.

These are the principal items to be considered in this connection. They are more than sufficient to restore the equilibrium of international trade and solve the enigma referred to above. If, for example, in the case of France, we find her debit account to consist of $900,000,000 for goods imported, $72,000,000 for the transportation of goods carried under foreign flags, and $100,000,000 (let us say) for French citizens travelling abroad, or for French property held by foreigners, the sum total of debits would be about $1,070,000,000. If, on the other hand, we credit her with exports to the value of $800,000,000, plus $220,000,ooo as interest on French capital invested abroad, and $132,000,000 spent by foreigners living in France, the sum total of credits is about $1,150,000,000. Thus France has a good balance in her favor. A similar calculation would show a similar state of affairs in England and, in fact, for most of the older European creditor nations which appear to have an "unfavorable balance of trade."

We must therefore conclude that the foreign trade of a country is in equilibrium not when exports and imports are equal in value (which never happens), but when its credits and its debits are equal.

HOW THE BALANCE OF ACCOUNTS IS MAINTAINED.

We must abandon the old and absurd idea, often expressed by well-known newspapers, that a country which imports more than it exports is rapidly approaching ruin. The problem, however, is merely somewhat altered by substituting the more important "balance of accounts" for the "balance of trade." With this change the problem reads: Is there risk of ruin when a country is obliged,-all things considered,—to pay foreign nations more than it receives from them?