The Balance of Trade

Translation: Arthur Goddard

Available languages: Czech, French, English


Our opponents have adopted a tactic that puts us in a most embarrassing position. When we expound our doctrine, they accept it in the most respectful manner possible. When we attack their principles, they abandon them with the best grace in the world. They ask only that our doctrine, which they accept as true, be relegated to books, and that their principles, which they admit to be faulty, constitute the rule in the realm of practical affairs. Grant them the management of tariffs, and they will leave to you the domain of theory.


"Surely," said M. Gaulthier de Rumilly on a recent occasion, "none of us wants to revive the old theories of the balance of trade." Very well; but, M. Gaulthier, it is not enough just to give error a passing slap on the wrist; you must also avoid arguing, immediately afterward and for two whole hours, as if that error were truth. 7.2
Let me speak of M. Lestiboudois. Here we have a man who reasons consistently and argues logically. There is nothing in his conclusions that is not to be found in his premises; he does not demand to do in practice anything that he does not justify in theory. Whether the principle that he takes as his initial premise is true may be open to question, but at least he does base his reasoning on a principle. He believes and loudly proclaims that if France gives ten in order to receive fifteen, it loses five; and it is quite plain that he would draft laws accordingly. 7.3
He says: "The important thing is that the amount of our imports keeps on increasing all the time and exceeds the amount of our exports, which is to say that every year France buys more foreign products and sells fewer domestic products. The figures prove it. What do we see? In 1842, imports exceeded exports by 200 millions These facts seem to me to prove, in the clearest way, that domestic industry is not sufficiently protected, that we depend for our supplies on foreign industry, and that the competition of our rivals is crushing our own industry. The present law seems to me to recognize the fact that it is not true, as economists have declared, that when we buy, we necessarily sell a corresponding quantity of merchandise. It is evident that we can buy, not with our customary products, not with our income, not with the fruits of current labor, but with our capital, with products that have been accumulated by saving, with those that are needed for production—that is to say, we can consume and dissipate the proceeds of previous savings, we can impoverish and ruin ourselves, and entirely use up our national capital. This is exactly what we are doing. Every year we give away 200 million francs to foreigners." 7.4
Here, at least, is a man who makes his views clear. There is no hypocrisy in this language. The principle of the balance of trade is openly avowed. France imports 200 millions more than it exports. Thus, France loses 200 millions yearly. And what is the remedy? To restrict imports. The conclusion is unexceptionable. 7.5
It is therefore M. Lestiboudois who will have to bear the brunt of our attack; for how can one argue with M. Gaulthier? If you say to him, "The principle of the balance of trade is false," he will reply to you, "That is just what I said from the start." If you tell him, "But the principle of the balance of trade is true," he will tell you, "That is what I have established in my conclusion." 7.6
The economist school will doubtless censure me for arguing with M. Lestiboudois. They will say that combatting the principle of the balance of trade is like tilting at windmills. 7.7
But we must be careful, for the principle of the balance of trade is not as old, sick, or dead as M. Gaulthier would have us believe; for the whole Chamber, including M. Gaulthier himself, has espoused, in its votes, the theory of M. Lestiboudois. 7.8
However, in order not to weary the reader, I shall not probe very deeply into this theory. I shall content myself with submitting it to the test of facts. 7.9
We are constantly being told that our free-trade principles are valid only in theory. But, tell me, gentlemen, do you think that the account books of businessmen are valid in practice? It seems to me that if there is anything in the world that has the authority of practice when the question concerns profits and losses, it is commercial accounting. Are we to suppose that all the businessmen in the world have been in agreement for centuries to keep their books in such a way that they would show profits as losses and losses as profits? Instead, I should prefer to believe that M. Lestiboudois is a poor economist. 7.10
Now, after one of my friends, a businessman, had carried out two transactions that had had very different results, I was curious to compare the accounting methods of the bank with those of the customhouse, as interpreted by M. Lestiboudois, with the approval of our six hundred lawmakers. 7.11
M. T. despatched a ship from Le Havre to the United States, with a cargo of French goods, chiefly those known as specialties of Parisian fashion, totaling 200,000 francs. This was the amount declared at the customhouse. When the cargo arrived at New Orleans, it had to pay a shipping charge of ten per cent and a tariff of thirty per cent, which brought the total to 280,000 francs. It was sold at a profit of twenty per cent, or 40,000 francs, for a total price of 320,000 francs, which the consignee converted into cotton. This cotton had to pay ten per cent more, for transportation, insurance, commissions, etc.; so that, when the new cargo arrived at Le Havre, its cost amounted to 352,000 francs, and that was the figure entered into the accounts of the customhouse. Finally, M. T. again realized, on this return trip, twenty per cent profit, or 70,400 francs; in other words, the cotton sold for 422,400 francs. 7.12
If M. Lestiboudois requires it, I shall send him some figures taken from the books of M. T. There he will see, in the credit column of the profit-and-loss account—that is to say, as profit—two entries, one for 40,000 francs and the other for 70,400 francs; and M. T. is fully satisfied that in this respect his accounting is not in error. 7.13
And yet, what do the figures in the account books of the customhouse tell M. Lestiboudois regarding this transaction? They tell him that France has exported 200,000 francs, and that it has imported 352,000 francs; whence the honorable deputy concludes "that it has consumed and dissipated the proceeds of previous savings, that it has impoverished and is on the way to ruining itself, that it has given away 152,000 francs of its capital to foreigners." 7.14
Some time afterward, M. T. despatched another ship with a similar cargo, worth 200,000 francs, of produces of our domestic industry. But the unfortunate vessel sank while leaving the harbor, and there was nothing else for M. T. to do but to inscribe in his books two brief entries phrased thus: 7.15
Sundry goods due to X: 200,000 francs for the purchase of various commodities carried by ship N. 7.16
Profits and losses due to sundry goods: 200,000 francs for ultimate total loss of the cargo. 7.17
Meanwhile, the customhouse on its part was entering 200,000 francs into its export ledger; and as it will never have anything to enter into the opposite import ledger on this account, it follows that M. Lestiboudois and the Chamber will view this shipwreck as a clear net profit of 200,000 francs for France. 7.18
There is still a further conclusion to be drawn from all this, namely, that, according to the theory of the balance of trade, France has a quite simple means of doubling her capital at any moment. It suffices merely to pass its products through the customhouse, and then throw them into the sea. In that case the exports will equal the amount of her capital; imports will be nonexistent and even impossible, and we shall gain all that the ocean has swallowed up. 7.19
"You're just joking," the protectionists will say. "We couldn't possibly have been saying anything so absurd." Indeed you have, and, what is more, you are acting upon these absurd ideas and imposing them on your fellow citizens, at least as far as you can. 7.20
The truth is that we should reverse the principle of the balance of trade and calculate the national profit from foreign trade in terms of the excess of imports over exports. This excess, minus expenses, constitutes the real profit. But this theory, which is the correct one, leads directly to the principle of free trade. I present this theory to you, gentlemen, just as I do all the others that have been the subjects of the preceding chapters. Exaggerate it as much as you wish; it has nothing to fear from that test. Assume, if it amuses you, that foreigners flood our shores with all kinds of useful goods, without asking anything from us; even if our imports are infinite and our exports nothing, I defy you to prove to me that we should be the poorer for it. 7.21