Democratic Sentinel, Volume 14, Number 47, Rensselaer, Jasper County, 12 December 1890 — TARIFF LETTERS TO FARMER BROWN. [ARTICLE]

TARIFF LETTERS TO FARMER BROWN.

NO. IX. The Balance ot Trade Theory. Dear Farmer Brown: I have been neglecting you; but I will now resume my letters, and continue them for some time, for there is still much to say on the tariff question. I wish in this and a few following letters to speak of the erroneous ideas on which the protectionists rest their system of economic belief. lam not one of those who think that the great mass of protectionists are consciously trying to palm off a humbug upon the people; I believe that most of them are sincere in holding that protection is necessary to the prosperity of the country. It is not possible for vast numbers of people to act together as a party on a basis of conscious hypocrisy. Humanity ia not capable of such fraud. The first* error of the protectionist system is what is called the “balance of trade theory. ” They mean by this term that our sales in foreign countries must be equal to what we buy there, and that if they are not so great we are trading at a loss. Mr. Blaine had this balance of trade theory in his mind when he told us last summer that our exports to Brazil were only $9,000,000 worth, while our imports from Brazil were $60,000,000 worth, and he added: “In the republic of Brazil we lost $51,000,000.” A most astounding conclusion for an intelligent man to reach! What, then, is the error on which this notion rests? The error is in assuming that the trade of a nation is to be treated as a unit, just as if a nation were a big farm. In running your farm you know very well that you are doing a losing business when you buy more than you sell. In that case you are going in debt. But it by no means follows that a nation is going in debt when its imports exceed its exports. As a matter of fact, the imports of England far exceed its imports every year, the excess of imports over exports for the first ten months of the present year being $340,000,000; but it by no means follows that England is going in debt, or that her money is leaving the country. On the contrary, other countries are heavily in debt to England and are sending it every year a vast stream of wool, cotton, grain, provisions, etc., to pay the mere interest on that indebtedness. At the other extreme in this matter of exports and imports, are the poorest commercial nations on earth, like Spain and Egypt, whose exports are always far greater than their imports. This simply means that Spain and Egypt are heavily in debt to other countries, and are therefore compelled to send out a stream of goods far greater than what it receives, in order to pay the interest and principal of their debt. The ideal which the protectionist sets up for the United States is found in the commerce of such poor countries as Spain and Egypt; and, in fact, our exports are much greater than our imports, the difference going largely to pay interest to British investors and freights to British ship-owners. The trade between two nations is always to be looked upon as the total of thousands of separate transactions between individual merchants. These are shrewd business men who calculate profits closely. Would an American merchant continue to trade with a foreign merchant if he found such trade unprofitable? Blaine lamented our loss of $51,000,000 in Brazil in one year; and yet our merchants go right on trading with Brazil, not yet having discovered that loss. Are they fools? I trow not. Our largest purchases in Brazil are coffee and ciude rubber, which our merchants certainly find it profitable to buy. The balance of trade theory rests upon a mistaken conception of the nature of money. The balance of trade must be kept in our favor, says the protectionist, meaning thereby that our sales in foreign markets must exceed our purchases, so that money may “flow into the country” to balance the account. But money is not a thing to be desired for its own sake. We cannot wear it or eat it. It is valuable solely because it can be exchanged for things which we do wear and eat. If instead of money we bring back from Europe the very things which we need to wear or eat, is not the same end reached in the long run as if we had taken money entirely in payment for our exports? More than that, if the money will buy more in Europe than it will here, do we not clearly gain by turning the money into goods on the other side and importing the goods? Do we not lose by bringing our money home, where it will buy less than it will abroad? Furthermore, to increase the amount of money in a country does not necessarily cause a greater measure of prosperity; it may, in fact, produce the contrary result. No country, perhaps, ever had a greater amount of money per capita than France during the French revolution a hundred years ago; yet no great nation ever suffered keener want for food and clothing. In proportion as you increase money above the actual needs of exchange you make money itself cheap; in other words, you make commodities dear —and nothing isgained. Moreover, the great development of the banking system of this country has made the need- for money relatively less than it was years ago. Ninety-nine per cent, of the heavier money transactions in the United States is done by means of checks, and the extension of banks into small towns and their multiplication in our cities has brought it to pass that a vast proportion of the smaller transactions are executed in the same way. It is a fact that no civilized country, with the possible exception of England, needs less money per capita to-day than the 1 United States. . The Valance of trade theory rests

1 upon the further error that selling Is I more profitable than raying. Blaine examines our trade with Brazil, finds ■ our sales to be $9,000,000, our purchases i $60,000,000, and the difference of $51.i 000,000, he says, was lost. He assumes that when we sold we gained, and when ■we bought we lost But is not that as- ' sumption amazingly shallow? When I you sell corn at less than it cost you to I produce it, there is a loss, is there not? When by a good trade you buy a horse at less than the market price, you consider that you have gained, do you not? Every purchase you consider on its own merits, and so with your sales, and you are certain that you are just as likely to make a gain in buying as in selling. One more very important fact must be noticed in regard to the balance of trade theory. When the exports and imports are summed up at the end of the year, it must not be forgotten that the exports are stated in American prices and the imports in foreign prices. Our total exports for 1889, including gold and silver coin and bullion, were $839,000,000, and the like total of imports was $774,000,000. To illustrate the point I wish to make, lat us take our exports of flour andour imports of tin plate. We exported 5,271,000 barrels of flour to England in 1889, which went into the treasury reports at the American price, an average of $4.85 per barrel, or 2.43 cents per pound; and we imported from England 734,207,000 pounds of tin plates, which went into the treasury reports at the English price, an average of 2.88 cents per pound. Now the point I wish to make is this: the moment our flour touched Liverpool it was worth more than the New York price of 2.43 cents per pound. When the flour was there sold at a profit the money was put, we will suppose, into the plates; but the moment the tin plates reached New York they were worth more than the Liverpool price of 2.88 cents per pound. Last year we exchanged flour for tin plates with the English at the rate of about seven pounds of flour for six pounds of tin plates, but did not want the flour; the English wanted the flour, but did not want the tin plates; accordingly we exchanged the one for the other with profit to ourselves by a process of what Blaine calls “friendly barter. ” In this way it is of the very nature of foreign trade that the exports of a given commodity should bring in another commodity worth more than the commodity exported. The greater the value of the commodities we get in exchange the more profitable is the trade for us, but the Republicans actually profess alarm when our imports are greater than our exports. One word in conclusion: Our foreign trade is of the utmost importance to you as a farmer. The more tin-plates, woolen goods and other commodities we buy in England the greater will be the demand for your wheat, flour, corn and pork to send to England in payment. “The foreign market for another bushel of wheat or another barrel of pork” is what you want; and the more we extend that market by taking off the duties on foreign goods the greater will be your prosperity. Yours truly,

RICHARD KNOX.