The sun., 1898-12-12
The Balance of Trade Fallacy.

Whenever the total value Of country's
exports, as shown by its Custom House
statistics. exceeds that OF its imports, or
the reverse, the resulting difference is
called trade balance. II the exports e1-
ceed the imports, the balance Of trade is
said to be In favor Of the exporting coun-
try; and II the imports exceed the exports,
the balance is said to be against it. Since,
when two individuals trade with one an
other, the one who buys more than he sells
has balance against him, for which he
must pay, and the one who sells more than
he buys has balance in his favor which he
Is entitled to receive, great many people
conclude that the case is the same with two
nations. Hence, they look upon favorable
national balance OF trade as a sure sign Of
national prosperity, and upon an adverse
balance as a national misfortune.
This view Of the matter has recently
found expression in the rejoicing mani
&ested at the enormous balance OF trade In
favor OF this country. amounting to over
81, 100. 100000, as shown by the statistics
Of the last four years. In an article re-
Gently published In THE Sun our brilliant
fellow citizen, Mr.. JAMES r. KEENE, ex.
patiated at length upon this balance, and
drew from 1t the most fattering prognostI-
cations. To some extent, his enthusiasm
was justified. The imports Of gold during
the period mentioned, and the large amount
Of foreign bills Of exchange which we hold,
and for which we can draw gold at any mo-
ment, prove that a considerable portion Of
the balance we have created in our favor is
real. but that the whole of it Is equally real,
by no means follows.
Even the balances resulting from the
dealings OF two individuals with one an
other do not necessarily imply gain by
the one In whose favor balance results.
He may have sold the goods on commission,
and have to account for the proceeds to
their owners. or, he may have bought them
with borrowed money, which he has to re-
turn, or, they may have cost him more
than he sold them for, and he may have
thus incurred q loss. On the other hand,
the trader against whom the balance has
apparently arisen, may have an equal bal
Ance In his favor for debts previously
created, or, he may have offsets for services
rendered, or for claims against those who
owe his creditor. Until all the facts of the
case are known, 1t is impossible to say
which one Of the two comes out ahead. It
,s the same with nations. Their exports and
imports CT merchandise do not represent
the true results Of their trade, and are sub
Sect 10 much explanation.
On small scale, the popular balance OF
trade fallacy is strlkingly exposed by the
condition OF the island OF Porto Rico. AS
eistant Secretary OF the Treasury WANDER
LIP, In his recent report OF the result OF the
observations which he was sent to make Of
the ecurrency and finances Of the island, gives
this interesting information:
"ons of tho American commanders represents TO
me that condition that must be taken into account
b the ownership Of most Of the plantations. They
are nearly all owned ~ BpsniArds-A great many of
them By SpAniards residing In Spain. This has re-
suited instead Of appArshs balance OF trade con-
Kderably In favor OF the island. In real balance
against the islOnd The great sugar plantations,
owned by people residing In spain. have year after
year raised crop Of sugar At extremely low labor
cost The sugar has been sold abroad ap practically
tbe whole return for has remained abroad creating
no demand for exchange against the island About
the only THING that has been imported 10 little Calico
and while the trade returns show large excess Of
exports the value OF these exports returns
ANY form to the island"
The reverse OF what is here said OF Porto
Eico may be said, and more emphaticalIy,
OF Great Britain. For years and years past
the imports Of Great Britain have exceeded
ber exports by an average of E12o, coo, 600
Or $6oo,ooo,o yearly, 50 that II an ad-