| IS A BALANCE OF TRADE IN FAVOR OF EXPORTS FAVORABLE? |
By CHARLES A. GILCHRIST
BERKELEY, CALIF.
IMAGINE a country or any geographical area, the inhabitants of which trade freely with the rest of the world, but who in all other respects are sufficient unto themselves. That is to say, we suppose the inhabitants not to travel abroad and outsiders not to travel within, and that none of the resources of the country are owned without and that no outside resources are owned within. It is then evident that the imports of the country must be equal to the exports in point of value, that is, the imports are paid for with the exports. And of the actual international trade of the day we may say: "Other things being equal, any change in imports begets an equal change in exports."
Our inquiry divides itself conveniently into three parts. First we will examine this statement as it stands and see how the mechanism of modern trade tends to maintain a balance between imports and exports. We will then examine the gold question. Is it favorable that a country's imports should contain more gold than her exports? The third part of the discussion will consider those less visible factors in international trade which prevent the equality of imports and exports.
The truth of the statement we are first to examine is apparent on a priors grounds—value will be given only for value received. But the intermediate steps in the complicated mechanism of trade that brings it about are not so apparent. How, for example, can a new duty restricting imports into the United States also operate to restrict our exports? Supposing, for simplicity, that we are dealing only with Great Britain. Since we now take less from England. English merchants will have less paper demanding gold on the London exchange. A tendency for gold to flow from England to America is set up by the over-supply there, and manifests itself in the ability of American brokers to secure the metal at a discount. When this discount passes a point just sufficient to cover freight, insurance and interest during transit, gold will be shipped to America. Now the amount of gold for which a thing will exchange is its price—the dollar being by law the exchange value of 23.22 grains of gold. This influx of gold to a country with free gold coinage, and not coming into response to any other demand, will swell the currency and, conversely, prices in general will rise. Assuming that
