Digression on the Balance of Trade

Digression on the Balance of Trade

The ‘balance of trade’ is the comparison a nation makes between the value of its exports to, and that of its imports from, foreign countries,

• If it has exported more than it has imported, then it has to receive the difference in gold and silver
• The balance of trade is then said to be in its favour.
• When the case is reversed, the balance is said to be against it.

The exclusive system proceeds upon these maxims:

1. The commerce of a nation is advantageous, in proportion as its exports exceed its imports, and as there is a larger cash balance receivable in specie, or in the precious metals= watch-cases, spoons, forks, dishes, coffee-pots; or rolled out into leaves for the embellishment of picture frames, bookbinding, and the like; in which case, they form part of that portion of the capital of the community, which yields no interest, but is devoted to the production of utility or pleasure.

It is doubtless an advantage to the nation, that the material, whereof this portion of its capital consists, should be cheap and abundant. The enjoyment they afford in these various ways is then obtained at a lower rate, and is more widely diffused.

There are many establishments on a moderate scale, which, but for the discovery of America, would have been unable to make the show of plate that is now seen upon their tables. But this advantage must not be over-rated;

There are other utilities of a much higher order. The window-glass, that keeps out the inclemency of the weather, is of much more importance to our comfort, than any species of plate whatsoever; yet no one has ever thought of encouraging its import or production by special favour or exemptions.

2. Through duties, prohibitions, and bounties, the government can make that balance more in favour of, or less against, the nation.

These two maxims must be analysed minutely in the first place; then, let us see what is the course of practice.

When a merchant sends goods abroad, he causes them to be there sold, and receives, by the hands of his foreign correspondents, the price of his goods, in the money of the country. If he expects to make a profit upon the return cargo, he causes that price to be laid out in foreign produce, and remitted home to him.

The operation is with little variation the same, when he begins at the other end; that is to say, by mak- ing purchases abroad, which he pays for by remitting domestic products thither. These operations are not always executed on account of the same merchant.

It sometimes happens that the trader, who undertakes the outward, will not undertake the homeward adventure.

In that case he draws bills payable after date, or upon sight, upon his correspondents, by whom the goods have been sold; these bills he sells or negotiates, to somebody, who sends them to the place they are drawn upon, where they are made use of in the purchase of fresh goods, which the last mentioned person imports himself. 150

The other utility of the precious metals is, to act as the material of money, that is to say, of that portion of the national capital, which is employed in facilitating the interchange of existing values between one individual and another.

For this purpose, is it any advantage that the material selected should be abundant and cheap?

Is a nation, that is more amply provided with that material, richer than one which is more scantily supplied?

In both cases, one value is exported, another value is imported in return; but we have not to stop to inquire, if any part of the value either exported or imported consisted of the precious metals.

It may reasonably be assumed, that merchants, when left the free choice of what goods they will speculate in, will prefer those that offer the largest profit; that is to say, those which will bear the greatest value when they arrive at the place of destination. For example, a French merchant has consigned brandies to England, knd has to receive from England for such his consignment, £1000 sterling= he naturally sits down to calculate the difference between what he will receive, if he import his £1000 in the shape of the precious metals, and what he will receive, if he irpport that sum in the shape of cotton manufactures. 151

The total business of national exchange and circulation, requires a given quantity of the commodity, money, of some amount or other.

There is in France a daily sale of so much wheat, cattle, fuel, property movable and immovable, which sale requires the daily intervention of a given value in the form of money, because every commodity is first converted into money, as a step towards its further conversion into other objects of desire. Now, whatever be the relative abundance or scarcity of the article money, since a given quantum is requisite for the business of circulation, the money must of course advance in value, as it declines in quantity, and decline in value as it advances in quantity.

Suppose the money of France to amount now to 3000 millions of francs, 152 and that by some event, no matter what, it be reduced to 1500 millions; the.1500 millions will be quite as valuable as the 3000 millions.

The demands of circulation require the agency of an actual value of 3000 millions; that is to say, a value equivalent to 2000 millions of pounds of sugar, (taking sugar at 30 sous per lb.) or to 180 millions of hectolitres of wheat (taking wheat at 20 fr. the hectolitre). Whatever be the weight or bulk of the material, whereof it is made, the total value of the national money will still remain at that point; though in the latter case, that material will be twice as valu-

If the merchant find it more advantageous to get his returns in goods than in specie, and if it be admitted, that he knows his own interest better than anybody else, the sole point left for discussion is, whether returns in specie, though less advantageous to the merchant, may not be better for the nation, than returns of any other article= whether, in short, it be desirable in a national point of view, that the precious metals should abound, in preference to any other commodity.

What are the functions of the precious metals in the community?

If shaped into trinkets or plate, they serve for personal ornament, for the splendour of our domestic establishments, or for a variety of domestic purposes; they are converted into

able as in the former. An ounce of silver will buy 8 instead of 4 lbs. of sugar, and so of all other commodities; and the 1500 millions of coin will be equivalent to the former 3000.

But the nation will be neither richer nor poorer than before. A man who goes to market with a less quantity of coin, will be able to buy with it the same quantity of commodities.

A nation that has chosen gold for the material of its money, is equally rich with one that has made choice of silver, though the volume of its money be much less.

Should silver become fifteen times as scarce as at present, that is to say, as scarce as gold now is, an ounce of silver would perform the same functions, in the character of money, as an ounce of gold now does; and we should be equally rich in money.

Or, should it fall to a par with copper, we should not be a lot the richer in the article of money; we should merely be encumbered with a more bulky medium of circulation. But this superiority of money, in the interchange between individuals, does not extend to that between nation and nation.

In the latter, money, and, a fortiori, bullion, lose all the advantage of their peculiar character, as money, and are dealt with as mere commodities. The merchant, who has remittances to make from abroad, looks at nothing but the gain to be made on those remittances, and treats the precious metals as a commodity he can dispose of with more or less benefit.

In his eyes, an exchange more or less is no object; for it is his business to negotiate exchanges, so as to get a profit upon them.

An ordinary person might prefer to receive money instead of goods, because it is an article, whose value he is better acquainted with= but a merchant, who is apprised of the prices current in most of the markets of the world, knows how to appreciate the value he receives in return, whatever shape it may appear under.

On the score, then, of the other utilities of the precious metals, and on that score only, their abundance makes a nation richer, because it extends the sphere of those utilities, and diffuses their use. In the character of money, that abundance no wise contributes to national enrichment; 153 but the habits of the vulgar lead them to pronounce an individual rich, in proportion to the quantity of money he is possessed of; and this notion has been extended to national wealth, which is made up of the aggregate of individuals’ wealth.