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Ethics of Democracy

Part 5, Politico-Economic Principles
Chap. 5, Our Foreign Trade


The basic principle of Economics, of the art of ordering the social relations of mankind, may then be summed up in the one word Justice.

- Lewis H. Berens, in "Toward the Light"



Are there no slaves to-day? While we sit here at play,
Have we no brothers in adversity?

None sorry nor oppressed, who without hope or rest
Must toil and have no pleasure in their toil?

These are your slaves and mine. Where is the right divine
Of idlers to encumber God's good soil?

There is no man alive, however he may strive,
Allowed to own the work of his own hands.

Landlords and water lords at all the roads and fords,
Taking their toll, imposing their commands.

- Bliss Carman

Not ermine clad, nor clothed in state,
Their title deeds not yet made plain;

But waking early, toiling late,
The heirs of all the earth remain.

Some day, by laws as fixed and fair
As guide the planets in their sweep,

The children of each outcast heir
The harvest fruits of time shall reap.

Some day without a trumpet's call,
This news shall o'er the earth be blown:

The heritage comes back to all;
The myriad monarchs take their own.

- Thomas Wentworth Higginson

Grimly the same spirit looks into the law of Property, and accuses men of driving a trade in the great boundless Providence which had given the air, the water, and the land to men to use and not to fence in and monopolize. ("The Times.") I cannot occupy the bleakest crag of the White Hills or the Allegheny Range, but some man or corporation steps up to me to show me that it is his. ("The Conservative.") Touch any wood, or field, or house lot on your peril; but you may come and work in ours for us, and we will give you a piece of bread. ("The Conservative.") Of course, whilst another man has no land, my title to mine, your title to yours, is at once vitiated. ("Man the Reformer.")

- Ralph Waldo Emerson



Properly speaking, the land belongs to these two: To the Almighty God; and to all his Children of Men that have ever worked well on it, or that shall ever work well on it. No generation of men can or could, with never such solemnity and effort, sell Land on any other principle: it is not the property of any generation.

- Thomas Carlyle, in "Past and Present," Book III, Chapter VIII.



To any plain understanding the right of property is very simple. It is the right of man to possess, enjoy, and transfer, the substance and use of whatever he has himself created. This title is good against the world; and it is the sole and only title by which a valid right of absolute private property can possibly vest. But no man can plead any such title to a right of property in the substance of the soil.

- James Fintan Lalor, in "The Irish Felon," July 8, 1848.


It is easy to persuade the masses that the good things of this
world are unjustly divided - especially when it happens to be the
exact truth.

- Froude's "Caesar."


To affirm that a man can rightfully claim exclusive ownership in his own labor when embodied in material things, is to deny that any one can rightfully claim exclusive ownership in land. -("Progress and Poverty," Book VII, Ch. I.) So far from the recognition of private property in land being necessary to the proper use of land, the contrary is the case. Treating land as private property stands in the way of its proper use. Were land treated as public property it would be used and improved as soon as there was need for its use or improvement, but being treated as private property, the individual owner is permitted to prevent others from using or improving what he cannot or will not use or improve himself. -(Same, Book VIII, Ch. I.) We should satisfy the law of justice, we should meet all economic requirements, by at one stroke abolishing all private titles, declaring all land public property, and letting it out to the highest bidders in lots to suit, under such conditions as would sacredly guard the private right to improvements.... But such a plan, though perfectly feasible, does not seem to me the best. Or rather I propose to accomplish the same thing in a simpler, easier, and quieter way, than that of formally confiscating all the land and formally letting it out to the highest bidders.... We already take some rent in taxation. We have only to make some changes in our modes of taxation to take it all. What I, therefore, propose... is - to appropriate rent by taxation.... Now, inasmuch as the taxation of rent, or land values, must necessarily be increased just as we abolish other taxes, we may put the proposition into practical form by proposing - to abolish all taxation save that upon land values. (Same, Book VIII, Ch. II.)

- Henry George


Hither, ye blind, from your futile banding!
Know the rights and the rights are won.

Wrong shall die with the understanding,
One truth clear, and the work is done.

Nature is higher than Progress or Knowledge
Whose need is ninety enslaved for ten.

My word shall stand against mart and college:
The planet belongs to its living men!

- "Liberty," by John Boyle O'Reilly

Saving Communities

Bringing prosperity through freedom,
equality, local autonomy and respect for the commons.

The Ethics of Democracy

by Louis F. Post

Part 5, Politico-Economic Principles
Chapter 5, Our Foreign Trade


FOREIGN markets are commonly supposed to be commercial necessities. More or less intelligently it is assumed that without that outlet domestic markets would be glutted, to the ruin of home business and the impoverishment of home labor through over-production. Why they should be so popular as an outlet is not clear. The ill effects of over-production, if there are any, might be avoided as effectually by burning our surplus or dumping it into the ocean as by thrusting it upon alien peoples. Probably, however, the preference comes from a vague feeling that foreign markets, while absorbing our surplus wealth, yield some sort of return. Be that as it may, a notion that over-production at home can be prevented only by opening markets abroad, has in one way and another long influenced the foreign policies of commercial nations.

It explains the "open door" policy in China, which England has made peculiarly her own: she asserts the right of sending her surplus goods to China upon the same terms as to entry which the most favored nation enjoys. It is the meaning, paradoxical as that may seem, of opposition to the "open door": the object of the nations that oppose the policy is a monopoly of Chinese markets for their own surplus goods. It throws light upon the commercial aspects of the colonial policy of this country: upon the theory that exports follow the flag, our colonies are expected to absorb our surplus.

In none of these instances does the question of buying in foreign markets cut any figure. No nation appears to want to buy. All want to sell. Emphasis is placed altogether not upon opportunities for getting goods, but upon opportunities for getting rid of them. So dominant is that theory of commerce that in common speech, and to an astonishing degree in common thought, exporting is classed as the only profitable part of international trade. No nation strives to import; all strive to export.

A little unbiased consideration will show this notion to be absurd. No country can get rich by merely sending things away without either return or expectation of return. As a permanent condition, excessive importing and not excessive exporting - the getting of wealth and not the getting rid of wealth - would be the profitable experience. If we are never to pay for our excessive imports, then the more we have of them the richer we shall be. Isn't that obvious? On the other hand, if we are never to be paid for our excessive exports, then the greater they are the poorer we shall become. Isn't that also obvious?

Profitable trading really consists neither in exporting alone nor in importing alone, but in both exporting and importing. As Henry George explains in the chapter on "Exports and Imports" of his famous and wonderfully lucid book on "Protection or Free Trade," exports and imports, "so far as they are induced by trade, are correlative," each being "the cause and complement of the other"; and "so far from its being the mark of a profitable commerce that the value of a nation's exports exceeds her imports, the reverse of this is true."

But contrary to George's rational view, it is the common belief, as already noted - a belief generated by the assumption that a country must get rid of its surplus or suffer the "impoverishment of over-production" - that every energy of a nation should be directed toward obstructing importation and accelerating exportation. Importing is mistakenly regarded as augmenting the supply of commodities at home, where there is already a surplus, and consequently as tending to frustrate the prime object of exportation; whereas exporting in and of itself is curiously supposed to increase the national wealth.

Statistics of excessive exports, therefore, are commonly taken - not merely by uneducated and inexperienced dupes, but also by professional and business men - as conclusive proof of national prosperity. For instance, one of the leading newspapers of the middle West may be quoted as saying in all editorial seriousness that as "the nation is now able to export a large proportion of its manufactures," it is "thus annually increasing the total wealth of the people by many millions of dollars." The same queer inversion of ideas appeared not long ago in one of the national political platforms, which congratulated the country upon having increased its excess of exports enormously - not its exports but its excess of exports. The people were actually asked to believe that the country had prospered vastly more than ever before, because it had in a brief period rolled up an immensely greater excess in value of goods sent away over goods received back than it had rolled up during all its previous history.

So transparently absurd is this conception of profit in foreign trade that its advocates explain that they do not mean that excessive exports are not paid for, but only that they are not paid for in merchandise. What they urge is that excessive exports of merchandise are paid for with gold and silver. Even the late President McKinley made this explanation. In a speech at Mount Horeb, Wisconsin, October 16, 1899,* he definitely asserted of the enormous merchandise balance of exports then accumulated: "We send more of our goods abroad and buy less abroad than formerly, and the balance of trade is, therefore, in our favor, and comes to us in pure gold." But this explanation is completely discredited by treasury statistics. According to the official treasury statistics,** the total excess of American merchandise exports from the foundation of the government to June 30, 1900, was $2,046,588,012. And instead of having been paid for in gold and silver by excessive imports of those metals, that excess of merchandise exports appears by the same statistics*** to have been increased during the same period by $1,461,597,093 of excessive exports of gold and silver, making the total excess of exports to June 30, 1900, run up to $3,508,185,105. During the subsequent three years, as shown by the monthly Treasury sheet of imports and exports for June, 1903, this total of excessive exports was increased by $1,537,363,442 excess of merchandise, and instead of being reduced by any excessive imports of gold and silver it was actually augmented by excessive exports of those metals by the amount of $53,270,817. Of gold alone the same reports indicate that we have sent out of the country much more than we have got back. Tabulating the Treasury figures, we get the following result;
September 30, 1790, to June 30, 1900:
Excess of merchandise exports . . . $2,046,588,012
Excess of gold and silver exports. . . .1,461,597,093

June 30, 1900, to June 30, 1903:
Excess of merchandise exports . . . $1,537,363,442
Excess of gold and silver exports. . . . . . 53,270,817

Total excess of exports of all kinds - merchandise, gold and silver - from the foundation of the government to June 30, 1903 . . . . $5,098,819,364

It is quite impossible to discover in those official figures the slightest indication of any payment which this country has received for the enormous aggregate of excessive exports it has rolled up since 1790 and is still augmenting. They certainly have not been paid for with silver and gold. On the contrary, not only have we sent out of the country more merchandise than we have got back, but we have also sent out more silver and gold than we have got back.

The false idea that exports are paid for with gold, would have no standing in common thought if the mechanism of foreign trading were better apprehended. Neither would the common mind be so easily confused with arguments for restricting imports, for encouraging exports, for protecting home markets, or for "invading" foreign markets.

Foreign trade, like domestic trade, is a complex process of swapping. It consists, not in selling alone, any more than in buying alone, but in both selling and buying. To illustrate, let us consider a supposititious but essentially truthful example of wheat exportation.

Richard Roe, a grain merchant of Duluth, has by domestic trading acquired control of a quantity of American wheat, in the purchase of which he has drawn checks upon a Duluth bank, and delivered them to the different persons who have sold wheat to him.

Negotiations result in a contract with a firm of grain dealers in Hamburg, wherein they agree to buy and he agrees to sell one ship load of wheat at a stipulated price. Under this contract Mr. Roe is to charter vessels to carry the wheat through the lakes and canals to Montreal, where an ocean vessel, chartered by the Hamburg grain dealers, is to receive and carry it to Hamburg. Mr. Roe is to be at liberty to draw upon the Hamburg grain dealers for the contract price of the wheat, as soon as it shall have been received by the ocean vessel at Montreal.

While Mr. Roe is negotiating for lake vessels, let us turn momentarily aside to inquire how he has redeemed his checks at the Duluth bank. A customer of the bank, in good standing, he has explained to its officers his intention of buying wheat for shipment, and solicited credit at the bank to facilitate his operations. Upon the faith of his own financial responsibility, or of bonds or other valuable paper, or warehouse receipts for wheat, which he deposits as security with the bank from time to time, or of all these together, the bank grants Mr. Roe's request and makes him a loan. The amount of the loan is not paid to Mr. Roe in gold nor in any other money form. It is credited by the bank to his account, subject to draft by his checks. And as his checks, paid out for wheat, come into this bank from other banks, they are charged against his credit. Little money and no gold has been used by Mr. Roe in purchasing his wheat, his payments having been made in checks; and if all his checks were followed up through the hands of the different persons and banks into which they came before reaching the Duluth bank, it would be found that the Duluth bank had used little or no gold or other money either. The whole business has been carried on by means of notes, drafts, checks and other commercial paper, which in the last analysis are nothing but instructions to bank bookkeepers for the shifting of debits and credits upon bank ledgers. And just as the business has been done thus far, not with the use of gold, but by means of bookkeeping, so, as we shall see, it will be continued and completed.

We may now follow Mr. Roe's proceedings in shipping his wheat for export to Hamburg and obtaining payment under his contract. Upon loading the wheat upon vessels at Duluth, Mr. Roe insures it with a marine insurance company, the company thereby becoming responsible for the safe arrival of the cargo at Hamburg, provided it is properly carried, transshipped, etc. Besides insuring the cargo, he obtains from the masters of the vessels at Duluth bills of lading certifying to the receipt of the wheat on board and contracting to deliver it to the ocean vessel at Montreal. Having done this, he is in position to arrange for collecting payment for the cargo from his Hamburg consignees, which he does through a bank.

It may be that Mr. Roe's Duluth bank does not engage in foreign business. But that gives him no concern, for he is in good credit - or if he is not, his Duluth bank can put him in that position - with some bank in Chicago which does business all over the world. To the Chicago bank, therefore, he goes with his bills of lading, his insurance policies, and his contract with the Hamburg grain dealers, and asks that bank, upon the security of these documents, to honor his draft upon the Hamburg grain dealers for the contract price of the wheat. The Chicago bank examines into the transaction, and satisfying itself that Mr. Roe will be entitled under the contract to payment for the wheat as soon as it is transshipped at Montreal, agrees to accommodate him. He thereupon draws against the Hamburg grain dealers in favor of the Chicago bank for the sum of money stipulated in the contract as the price of the wheat. That is, he makes a written order to the grain dealers, commanding them to pay that sum to the Chicago bank or its order. Mr. Roe also conveys to the Chicago bank, by other documents, all his interest in the transaction, so that the bank now owns the bills of lading, insurance policies, contracts, etc. In consideration thereof it discounts Mr. Roe's draft upon the Hamburg grain dealers, giving to him a check or gold or other money, as he requires.

Mr. Roe will take a check. He wouldn't travel to Duluth with a bag of gold, when the only object of carrying it could be accomplished so much more easily and safely by means of the check. Taking a check, then, from the Chicago bank, he turns it over to the Duluth bank, and thereupon receives credit there, by way of offset to the obligations he incurred when he originally bought the wheat. If those obligations were only for the wheat now disposed of, he will have a surplus credit, which will be his profit on the transaction.

Even if Mr. Roe had been given gold by the Chicago bank, and had carried it to Duluth, that would have made no difference as far as the point under consideration is concerned - the point that American exports are not paid for with European gold. For the gold paid him by the Chicago bank would not have been European gold; it would have been American gold.

Thus far, then, no European gold has been received for the wheat. And as Mr. Roe and all from whom he has bought are settled with and paid, no European gold will ever come to any of them on account of that wheat deal.

Should European gold come to anybody in this country on that account, it must come to the Chicago bank, or to some one claiming under it. Let us, then, follow the further operations of that bank in the matter.

Having possession of Mr. Roe's insurance policies, his contract, his bills of lading and his draft upon the Hamburg grain dealers, the Chicago bank forwards those documents or such of them as are necessary, together with appropriate instructions, to its correspondent in Montreal, who thereupon obtains from the master of the ocean vessel, upon the transshipment of the wheat at that port, the final bill of lading which gives financial vitality to Mr. Roe's draft upon the Hamburg grain dealers. The draft and that final bill of lading are then forwarded to the Chicago bank's correspondent at Hamburg, who secures an acceptance or formal acknowledgment of the validity of the draft by the grain dealers. There is, consequently, now in the Hamburg money market a valid order for a shipment of gold from Hamburg to the United States - gold to the value, let us say for convenience of illustration, of $50,000. But no one in Hamburg will really ship that gold to America.

As the transaction now stands, so far as the individuals concerned in it are affected, the firm of Hamburg grain dealers owes $50,000 to the Hamburg bank with which the Chicago bank corresponds, and the Hamburg bank owes that sum to the Chicago bank.

The Hamburg grain dealers will settle their indebtedness by paying the amount of it to the Hamburg bank. They will probably enable themselves to do this by borrowing bank credit precisely as Mr. Roe did at Duluth, and so make the matter one of bank bookkeeping, instead of a money transaction. But if they should pay the whole or any part in gold, let it be observed that the gold would not thereby get out of Hamburg. They would merely pay Hamburg gold to a Hamburg bank, just as the Chicago bank might have paid Chicago gold to Mr. Roe. No gold has yet come into the United States, and none has yet even left Hamburg in consequence of the wheat export transaction we are considering. The transaction has simply been reduced to a $50,000 indebtedness from a Hamburg bank to a Chicago bank.

But how can that indebtedness be discharged without a shipment of $50,000 worth of gold from Europe to America? The answer is simple. It can be done by further bookkeeping. Not only is that the way in which the indebtedness can be discharged, but that is the way in which it is most likely to be discharged, and the way in which by far the largest proportion of indebtedness of that kind always is discharged in actual practice. The method will appear as we proceed.

While Mr. Roe was purchasing American wheat for export to Europe, men in Europe, or Asia, or Africa, or South America, were purchasing foreign products for export to the United States. Their methods were much the same as Mr. Roe's. Or, if they used more coin and fewer checks than he did, it was used in the countries where the purchases were made. No shipment of gold to the United States was involved. And in disposing of their products thus acquired, these foreign Richard Roes followed very much the course of Richard Roe of Duluth, with his wheat. They especially imitated him in acquiring the contract right to draw upon their American consignees; and, having done so, in transferring that right to a bank.

In this way, let us suppose for the sake of simple illustration, one or more drafts amounting to $50,000 have come into the hands of a St. Louis bank from a bank in Geneva, its Geneva correspondent - drafts drawn against merchants in St. Louis for goods shipped to them from Switzerland, as Mr. Roe's goods were shipped from Duluth to Hamburg.

The St. Louis bank collects this sum from the St. Louis merchants who owe it. They doubtless pay in checks; but even if they paid in gold it would be American gold. No foreign gold can be regarded as having yet reached our shores in connection with any of these supposititious transactions. Having collected the amount of the Geneva drafts from the St. Louis merchants, the St. Louis bank owes its Geneva correspondent $50,000. This equals the amount which, as we have already seen, the Hamburg bank owes the Chicago bank; and being equal, the two debts cancel each other. No gold passes. The discharge of each debt becomes a mere matter of bank bookkeeping.

This international bank bookkeeping is very similar to that between the banks of any city through their clearing house. In principle it is identical. The European clearing house, so to speak, is London; the American clearing house, in the same sense, is New York. An indebtedness d'je from any bank in Europe to any bank in America is likely to be settled through New York bankers. So an indebtedness due from any bank in America to any bank in Europe is likely to be settled through London bankers. These cities are the two points to which trade balances tend to flow for settlement. That is what gives them the character of clearing houses.

If, then, we suppose that the Geneva bank owed nothing to the St. Louis bank, to offset the latter's indebtedness, the St. Louis bank in question would send, directly or indirectly, to some New York bank for a draft for $50,000 upon London. And if the Hamburg bank owed nothing to the Chicago bank, it would send, directly or indirectly, to some London bank for a draft for $50,000 upon New York. The motive would in each case be that drafts could be bought for less than it would cost to ship gold across the ocean.

Having received their respective drafts, the St. Louis bank would mail its London drafts to its correspondent in Geneva, and the Hamburg bank would mail its New York draft to the Chicago bank. They in turn would transmit their drafts through banks to the respective London and New York bankers upon whom the drafts had been drawn, and with money or bank credit would be paid their dues.

This would end Mr. Roe's wheat transaction with reference to the Chicago and Hamburg banks, as completely as it had been ended already with reference to Mr. Roe himself. It would also as completely end the matter of the St. Louis consignment of Swiss goods with reference to the St. Louis and the Geneva banks. The settlement would now lie between two London banks and two New York banks. And, still, let it be noted, no gold has crossed the ocean either way.

The two New York and the two London banks, with whom the final settlement rests, are affected in the matter in this wise: The Wall Street Bank of New York, which, let us say, has sold the London draft mentioned above, did so because the Strand Bank, against which it drew, owed it at least $50,000. The transaction is the same in principle as when a bank depositor pays out a check against his bank account. On the other hand, the Threadneedle Bank, of London, which has sold the New York draft, did so because the Broadway Bank, against which it drew, owed it at least $50,000. This transaction, also, is the same in principle as that of a check drawn by a bank depositor against his account.

When the London draft finally reaches the Strand Bank, in London, it is there charged in the ledger against the account of the Wall Street Bank, of New York. Likewise, when the New York draft finally reaches the Broadway Bank, in New York, it is there charged in the ledger against the account of the Threadneedle Bank, of London. And that ends the whole matter, so far as Europe and the United States are concerned. European banks may yet have accounts to settle among themselves, and American banks among themselves; but neither country has anything more to do with the other regarding Richard Roe's shipment of wheat from Duluth. All the international accounts have been balanced off in bank ledgers; and the wheat has been paid for with Swiss merchandise, and not with European gold.

It is in that way that by far the largest proportion of all goods exported from this country are paid for. Gold plays an infinitesimally small part in the phenomena of foreign trade.

The American Treasury statistics show, as noted above, that the excess of merchandise exported from this country from the foundation of the government to June 30, 1903, was $3,583,951,454. This is called a "favorable balance," because it is assumed that it has been or will be paid off with foreign gold. But not a penny of it has been so paid. On the contrary, during the same period our excess of exports of gold and silver amounted to $1,514,867,910. Thus foreigners have received from us, since the foundation of the government, in gold, silver and merchandise, $5,098,819,364, for which, so far as the statistics show, they have never paid us anything.

It appears, then, that the supposititious trading transactions used here to exemplify the process of foreign commerce, vary from the actual facts of our foreign trade in this, that the supposititious transactions exactly balance each other, whereas in our actual trading transactions we appear to have sent away, in 114 years, in gold and silver as well as merchandise, thousands of millions more than we have ever received back or can ever expect to receive back. How can that difference bring comfort to the "favorable balance of trade" theorist? Who would take him seriously if he insisted that the wealth of the country has been augmented by that enormous excess of outgo?

The transactions supposed in our illustration assume a normal and healthy condition of foreign trade. For in the normal and healthy condition, exports are offset by imports. Gold never crosses the ocean, in normal conditions, except for use as a commodity, like iron or copper. When it crosses merely for the purpose of paying balances the condition of trade is unwholesome.

But gold does frequently cross the ocean for the purpose of paying balances, sometimes one way and sometimes the other. This happens when drafts cost more than it would cost to ship an equal value in gold, a condition which is determined by what is known as the "price of exchange" on London.

When drafts on London can be bought in New York for the bullion value of English sovereigns say $4.86 to the 1 then exchange may be said to be normal. Debts and credits between New York and London are thereby indicated to be about equal. If the price remained at that point, no gold would pass either way, except as merchandise in response to demand for use in the arts. Exports and imports of merchandise would then mutually offset each other, as in our illustration, where Roe's wheat is exactly paid for by the Swiss merchandise.

But when drafts on London are so scarce in New York that they cost more than $4.86 per 1, that means that American claims against Europe are growing less than European claims against America, and if the price rises say to $4.88, gold begins to flow from America to Europe in payment of American obligations. The reason is that this high price for exchange is dearer than the expense of gold shipments.

Conversely, when drafts on London are so plentiful in New York that they can be bought for less than $4.86 per 1, that means that American claims against Europe are growing larger than European claims against America. If the price falls say to $4.83 3/4, gold begins to flow from Europe to America in payment of European obligations. The reason is that at this low price for exchange it is more profitable to incur the expense of importing gold than to bear the heavy discount on drafts.

Thus the ebb and flow of gold is regulated by the rise and fall of London exchange in the New York money market, a rise approximately to $4.88 per 1 producing a flow of gold from New York, and a fall approximately to $4.83 3/4 producing a flow to New York. Exchange vibrates between these two points, seldom if ever rising above $4.88 or falling below $4.83 3/4.

Foreign trade, therefore, comes nearer to the ideal the nearer it approaches the condition of our illustration, in which Roe's wheat was exactly paid for with Swiss goods. Like all other trade, it is mere barter, plain swapping, in which bank bookkeeping and not gold coin plays the important part; and to give more than we get is obviously to lose in the swap.

But this country has given, according to its Treasury statistics, enormously more than it has got. Nor has it been paid for the excess with either gold or silver: both metals are considered in the excess. Neither has the excess of exports gone to pay for former imports: all imports also are considered in the computation of the excess. It could not have been invested, either, in foreign stocks, bonds, or land: the flow of such investments is on the whole from Europe to this country, not from this country to Europe.**** It cannot be subject to sight draft: sight drafts have ruled so high as to preclude that inference. And it has not been invested in bankers' short loans to any considerable amount.***** Virtually the whole sum appears to have been as complete a loss as if the wealth it expresses had been chucked upon a bonfire or tossed into the sea. But how can it have been lost?

Let us consider. If it were possible to secure exact statistics of exports and imports, and trade were in reality what the term implies, untrammeled swapping, we should find imports exceeding exports in value in every country. The excess in each country would represent that country's profit. Thus: An English product worth $75 in London, let us say, but $100 in New York, would "swap even" for an American product worth $75 in New York but $100 in London. Each country would gain $25 by the swap. And it would be found that each had an excess of imports to that amount. This excess would represent the value of the greater desirability of the article of each country in the markets of the other. That illustrates the ideal condition, from which all reasoning on the subject must proceed. That is the equilibrium of foreign trading.

Suppose, now, that the statistics showed that whereas Great Britain maintains a steady excess of imports (which is the fact), implying that her foreign trade is profitable, the United States exhibits a steady excess of exports (which also is the fact), implying that her foreign trade is unprofitable, what explanation should we make? Why not turn to Great Britain and ask how it is that she flourishes upon excessive imports? The answer might help us to understand what becomes of our exports.

Why is it, then, that Great Britain has a towering import balance? Commercial profits do not wholly account for it; for commercial profits are mutual, and Great Britain's profits are one-sided. Is it not because wealth from other countries is sent to Great Britain to pay dividends on the stock, interest on the bonds, and rent for the land of those countries which are owned in Great Britain? Is it not for the same reason, to put the matter in another form, that ancient Rome grew rich upon the excessive imports from her tributary provinces? or that a modern village prospers upon the excessive imports of the produce of neighboring farms, in payment of rents to retired farmers? Is it not because receivers of foreign tribute live in Great Britain, while the payers of this tribute live in other countries? That is the unavoidable conclusion. Upon their foreign holdings British capitalists receive dividends, interest, and rent in a perennial stream of imports, in exchange for which no wealth leaves Great Britain. Those imports are profits upon past transactions, and to that extent it is with the British all import and no export. Of course, their excessive imports tend to make the country not poor, but rich. They add to the aggregate of British wealth.

But do not ignore the other side of the story. This stream of excessive imports into Great Britain is a stream of excessive exports out of other countries. And as its flow into Great Britain tends to enrich that country by giving it wealth without taking wealth from it, so its flow out of the other countries must tend to impoverish them by taking wealth away without bringing wealth back. If Great Britain is enriched by excessive imports, the other countries cannot be enriched by their corresponding excessive exports, and our own country is no exception.

We are now prepared to understand the true meaning of our enormous excess of exports. To the extent that they really are excessive they represent tribute to the capitalists of other countries. But the excess is not all genuine. In some degree it is produced by defective statistics. Undervaluations to escape tariff duties make the value of our imports appear less than it is. On the other hand, the invoicing by American exporters of their shipments at list prices when in fact those prices are heavily discounted, makes the value of our exports appear to be greater than it is. These overvaluations of exports are largely made by protected trusts, which invoice their exports at the prices charged to American consumers, but actually sell them at lower prices to foreign consumers. By this contraction of import values and expansion of export values, the excess of exports is inflated, though to what extent it is impossible to estimate. It is certain, however, that the actual excess of exports is nevertheless very large.

In some degree, also, our excessive exports are accounted for by ocean freights. Since foreigners do most of the ocean carrying both ways, they earn most of the freight upon both imports and exports; and as they are foreigners living abroad, the excess must be paid for in exports. By their service as carriers they really add to the value of our imports; but as freights do not figure in the statistics of imports, which are valued at their cost abroad, this country does not appear by the statistics, though the fact is otherwise, to get any additional wealth in exchange for exports for freight payments. By this means also our statistical excess of exports is inflated.

Then there are the expenses of American tourists abroad. Though this expenditure pleases the tourists, or they would not make it, it drains the country of its aggregate wealth. Such exportations do not directly nor indirectly augment American wealth, any more than an excursion from a country village to a city augments the wealth of the village, or the visit of a farmer's family to a circus augments the wealth on his farm. It is the country to which the tourists' wealth is taken that is enriched, not the one from which it goes.

So, too, with remittances from foreigners in this country to their friends at home. These gifts afford pleasure, no doubt, to the remitters; but there is less wealth in this country by the amount of the gifts. Both countries cannot be commercially enriched by the same gift, and as the receiving country unquestionably is enriched by it, the remitting country must be correspondingly impoverished.

But although exports for freights, and gifts, and tourists' expenses do take wealth out of the country in exchange for which no tangible wealth comes back (unless we consider as to freights that they are offset by the value they add to the imports over and above what the statistics of imports show), yet none of these items can be regarded strictly as tribute.

There are items, however, that enter into our excessive exports which are distinctly tribute and nothing else.

Perhaps all dividends on stock and all interest on bonds exported to foreign stock and bondholders ought not to be so considered. Although these items take wealth out of the country without bringing any back, it may be urged with plausibility as to some of them that they represent earnings of previously invested capital. But it should not be forgotten that our exports since the foundation of the government have been so vastly greater than our imports for the same period as to challenge that argument at the threshold. We appear, by the statistics, not to have received any great amount of capital at any time in excess of our current exports. Such capital as foreigners have let us have must have been for the most part what we ourselves produced for their benefit - capital that never went out of the country.

But the plea that some of our apparently unpaid-for exports are made up of earnings of foreign capital has no possible application to items of interest on government bonds. Neither does it apply to interest on most State and municipal bonds; nor to a large percentage of dividends declared by railroad, mining, and other monopoly corporations; nor yet to so much of real estate rents as are paid for the use of land as distinguished from the use of its improvements. Interest on government bonds is not interest produced by the investment; it is a tax levied by the law-making power to reward lenders of capital burned up in powder long ago. We may honorably owe it, but its payment does not in any sense represent an increase in the wealth of our people earned by the capital invested. It is not produced by the capital. Much of the interest on State and municipal bonds is also a mere tax. The same thing is essentially true of all that part of the dividends of monopoly-owning corporations which constitutes exactions under their monopoly franchises as distinguished from the earnings of their plants. And the rent of land as distinguished from the rent of its improvements is in the same category. All the wealth that goes abroad for such payments is tribute.

Most distinctly so is the rent of land. A Lord Scully, for instance, buys large stretches of farming territory in this country for a few dollars an acre. The payment for it is either an offset against previous exports or is an actual import into this country. But after a few years his tenants in this country pay more in rent for that land every year than the absentee landlord gave for the fee. That point being reached, American exports on that account become a continuing and constantly increasing drain. Nothing comes back for them. They are as truly tribute as are Irish rents to English landlords. Indeed, they are the same thing. It is of such payments that our swelling export balance is largely composed.

* Reported by the Chicago Tribune of October 17, 1899.

** Monthly Summary for June, 1900, pages 3424, 3425.

*** Same Summary, same pages.

**** See editorial in Chicago Record-Herald of August 31, 1903, commenting upon a magazine paper by W. H. Allen. The Record- Herald says that Mr. Allen "has made up a table of the sales and purchases of shares by foreigners on the New York Stock Exchange as reported weekly in the New York Times and New York Evening Post, and he finds that for the four years, 1898-1901, the net excess of purchases over sales was 3,797,000 shares, while in 1902 alone did the sales exceed the purchases, and then by only 427,000 shares. The net showing for the five years is, therefore, that purchases were in the lead by 3,370,000 shares. As to direct sales and purchases outside the Stock Exchange, Mr. Allen finds, though by less exact methods, a similar tendency."

***** In the same editorial the Chicago Record-Herald describes Mr. Allen as presenting facts to show "that instead of our lending money abroad we have been most of the time heavy borrowers, and from this he infers further that we cannot have had funds idle for permanent investments in foreign countries on any large scale."



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