The Return to Protection

We cannot object to the import of “naturally cheap” goods. But the double monopoly of Trusts, dumping their surplus, presents new features, the most serious being that the dumping is intermittent. But (1) it has compensations, not so much in cheap goods as in cheap material for many of our industries—a Nemesis which the dumping countries are beginning to notice. And (2) its extent as yet seems exaggerated; “dumping” is often blamed for inability to compete when “inefficiency” would be a better word.

WE do not and cannot object to the importation of cheap goods as cheap goods. Our fruit growers may find it hard when the weather is more friendly to France than to us, and the imports of French fruit prevent them raising their prices to compensate for a short crop at home; but this is an incident in Free Trade. We have not refused cheap wheat, although it meant ruin for many agricultural interests. Nor shall we object to Belgian iron or American steel if the reason of their coming in is that they are more cheaply produced in Belgium and America than they are here. Show us, in short, that cheap goods mean “naturally cheap goods,” whether the cause of cheapness lies in better natural resources, in better labour, or in better organisation, and we shall accept them—just as we should never have signed a Sugar Convention if it had been the case that beet was, by nature and not by subsidy, a cheaper sugar than cane.

It would, indeed, be rather unreasonable if, after having for years pinned our faith to a policy based on the international division of labour, and deluged foreign markets with cheaper goods than they could make for themselves, we should now object to the import of their naturally cheap goods. As a fact, England went far beyond “natural cheapness.” We very often sent our goods to other countries at a loss—either a loss of profit or an absolute loss. I have known articles sent to India year after year at half the home price, in order to accustom the natives to the goods, with the view of ultimately raising the price to a paying level. In this we did nothing more internationally than we do nationally. If any home manufacturer wants to introduce his goods, the “natural way” and the first thing he does, is to sell them cheaper than other people. If a man wants to “get in” to the London market, he will sell his goods there under the price at which he sells them in Glasgow, so long as he is not afraid of their being brought back and underselling himself. And it was generally safer to undersell abroad, for goods would not usually pay the carriage back. We could not, then, in reason, complain if foreign producers treated us in the same way.

But, a few years ago, there appeared, in several countries, the phenomenon known as the Trust or Kartell. This phenomenon altered things very considerably, and made a good many of the old arguments against Protection not quite up-to-date.1

Twenty years ago, Fawcett could say: “The amount of manufactured goods which is sent from America to England is so extremely small that it could make scarcely any difference if this particular part of the trade between the two countries were to cease altogether.” And again: “No single case can be brought forward in which English trade suffers, to any appreciable extent, by foreign products underselling in our own markets the same articles of English manufacture.”2 This could scarcely be said now.

A Trust, in itself, is quite unexceptionable. It is simply the amalgamation of a great number of businesses, to get the well-known economies of large production. The one great firm does all the business that was done formerly by the smaller firms then in competition; only it reduces costs in a dozen ways.3 The danger of Trusts, of course, is that they become monopolies, and use their economies not to reduce prices, but to make excessive profits. But a Trust, under a Protective system, is a double monopoly. In virtue of Protection, it gets rid of competition from outside, and, in virtue of being a Trust, it has got rid of competition at home. There is thus every encouragement and motive to keep its prices high and its profits high. But the largest Trust can do so only up to a certain point. It is, after all, no more than a producing unit. There is a limit to the consumption of everything produced: there comes a point in production where any further output can be got rid of only by reducing price.

Take, merely for purposes of illustration, Motor Cars. When the price is, say, £800, only a comparatively few people will buy motor cars. Suppose the price should come down to £500, it will probably not much increase the demand. If, however, it came down, say, to £250, the demand might easily double. Suppose, then, a Trust has started this manufacture: its interest is to make cars as cheaply as possible, and, the larger the trade, the more cheaply it can produce. But there is this limit I speak of. If it produces more than will be taken off its hands at £800, it will not be able to sell appreciably more unless it reduces the price to £250. So what happens is, that it makes more cars than it can sell at the high figure in the protected country; but sells abroad the surplus it cannot sell at home without bringing down the price. Thus it may pay quite well to sell the surplus cars abroad at or under cost, while it sells the limited number at home at the high price: the gain being in the cheap cost consequent on making the larger quantity. This is the phenomenon to which the term “Dumping” seems now to be confined: where a protective system enables makers to charge an artificially high price and obtain artificially high profits in the home market, and to sell their products abroad at or under cost.4

This is freely called “Unfair Competition.” It is a special grievance of a free-trade country. It looks like an abuse of our hospitality. The protected country, on the one hand, forbids our entry to its market, and, on the other, comes into our market, and undersells our makers in virtue of the tax it is enabled to levy on its own countrymen. It is not that such countries compete with us in neutral markets; it is that they invade us in our own market under the encouragement of a kind of bounty.

Dumping, then, depends on two things—on Protection and on the Trust. Without Protection, the Trust, as an economic producer, would be formidable enough, but it might be met by similar economic combinations on our side. And, without the Trust, Protection would scarcely allow the manufacturer to dump, as there would generally be enough competition at home to prevent monopoly prices and profits. It is this combination of evils that we have to reckon with.

Dumping is a very serious thing for the home manufacturers whom it affects. I am not convinced that we should welcome it from any point of view. I have heard it said:—“If anybody would dump me my breakfast every morning for nothing, I should only feel grateful.” This seems to me rather short-sighted. Timeo Danaos et dona ferentes.

If we knew that, for all time, some kind foreigner would send us our pig iron and steel sheets 50 per cent. under our price, we should know what to expect, and no one in this country would make pig iron or sheet steel. But what we know is, that this dumped supply will be intermittent, and that it will remain cheap only so long as we continue making the same goods. Its uncertainty is its evil. When other countries are prosperous, little comes in, and our makers get a decent price; when those countries are depressed, in come the dumped goods, and wipe out the profits. I can scarcely believe that this intermittent underselling is a good thing for us. It is not a spur to invention and economy. I hesitate, indeed, to call it “unfair competition.” But it is not competition that can be counted on and prepared for. No watching and economy of costs will meet it. At any moment, a manufacturer may be put on short time, because a good line is snatched from his fingers by a foreign firm which wishes to get rid of its surplus.

But, as the dumping is intermittent,5 employers do not sacrifice their fixed capital and change their trade. They hang on, hoping that it will stop. They go on short time—which means waste of fixed capital, waste of organisation, waste of labour. Similarly, workers do not change into other trades. They put up with the short time, hoping that it will be short. And short time is wasted time. Our manufacturers may deserve well of the community. They may have done all that men can do: kept profits low and prices low. It does not seem healthy that, for no fault of theirs, they should now and then be thrown idle. If there had been makers of manna among the Israelites, who had specialised and sunk their fortunes and energies in supplying their fellows with the morning bread, I think they would have had something of a grievance even against high Heaven that sent it for nothing.

On the other side, however, there is a good deal to be said.

I. Dumping has compensations. One remembers the argument used against doing anything to check the Sugar Bounties; not only that we enjoyed cheap sugar for home consumption, but that, on cheap sugar, was based a new group of industries—Jam, Confectionery, Biscuits, Condensed Milk, and others—employing larger numbers than Sugar Refining ever employed.6 So now the argument is, not so much that the consumer gets cheap goods, as that other producers get cheap raw material. The steel maker cannot be expected to rejoice in dumping, but the shipbuilder, the galvaniser, and the tinplate worker openly do.

There is an almost ludicrous Nemesis in the compensation. America makes her own tin plates excessively dear, and spoils her own trade in canned goods. At the same time she dumps cheap steel into South Wales. Our tinplate manufacturers, in consequence, send out cheap tin plates to Germany, Russia, Australia, and Canada, and give them a hold on the canned fruit and meat trade which otherwise America might have kept from them. It reminds one of a besieging army smuggling ammunition and food into the beleaguered town.

The Board of Trade Blue Book, quoting our Consul-General at Hamburg, says that there are four surveyors from Lloyd’s Registry stationed at Düsseldorf to superintend and standardise the shafts and other heavy iron forgings which are being sold to English shipbuilders at cheaper prices than they are to German. So Germany, at great expense, is doing all she knows to establish a shipbuilding and shipping trade, while her own manufacturers are giving us the materials for underselling her. It is playing our game as effectually as if Germany sent her best football players to play for us against a German team!7

In face of this Nemesis, then, even if we consider that the compensations do not outweigh the injury, it would be well to have a little patience. It is not unnoticed in Germany at least. Even protectionist Chambers of Commerce are complaining, in so many words, that “cheap German exports of materials make it possible for firms abroad to offer serious competition in Germany.” Suppose we found that our Clyde steamers were being built in Germany because our Lanarkshire steel makers were supplying that country with plates cheaper than they would supply to Glasgow, we should, I think, have something to say. But this is what is happening with the Rhine steamers. “The building of boats,” says the Board of Trade Blue Book, “for the Rhine river navigation has passed over almost entirely to Holland, because the works in the Rhenish Westphalian district, producing heavy plates, deliver in Holland at lower prices than in the interior of Germany.” Evidence, in fact, is accumulating that this selling of material below cost to the industries of a rival country is pulling down with one hand what is being built up with the other.

II. The amount and value of the goods dumped is not, as yet, very serious.

It cannot have escaped notice that the word Dumping is being applied very loosely; that everything coming in from abroad cheap is said to be “dumped,” from aliens to French plays. It is not correct, according to our definition, to speak of Belgian joists, girders, rails, and plate glass as dumped; nor yet of the light-blown glass and chemical apparatus from Germany: if we say that such imports are dumped, we must admit that we ourselves deserve the name of the “champion dumpers” of the world.8 It would be well, then, to remember the statement of the Board of Trade in 1902, as regards the imports from the United States and Germany, in a Memorandum on Comparative Statistics: “The increases have been comparatively small in amount, and there is nothing which can in any way be described as an inroad on our home market.”

It is, of course, from our iron and steel industries that we hear most complaints about dumping. Germany exports to us pig iron, blooms, angle iron, girders, rails, rolled wire, rolled tubes, wire nails. America exports pig iron, iron pipes, bars, bedstead angles, steel, ship plates, rails, boring machines. Most of these are products of Kartells and Trusts; but, considering the cheapness of coal and transport, and the difficulty of getting comparative prices—German bars, for instance, have often been of inferior quality—it is impossible to say what, and how much of them, are, properly speaking, “dumped.”

The total value of the iron and steel trade of Great Britain, Mr. Hugh Bell tells us, is something between £150 and £160 millions. Of this very large total, £15¾ millions come as imports; the remainder is home produced. Of this £15¾ millions, £8 millions come from Germany, Holland, and Belgium. “Is this paltry quantity,” he asks, “going to destroy the whole of our great industry? In the year in which they sent us the £8 millions, we sent them £6¾ millions of similar articles. In the same year, we sent America upwards of £10 millions of iron and steel. I should be interested in knowing,” he continues relentlessly, “the names of firms whose liquidation has been due to foreign dumping. I know of none, but I do know of many who would have had the greatest difficulty in weathering the bad trade of the last three years had cheap foreign steel been denied them.”

It almost seems that the iron and steel makers who most complain of dumping are crying out before they are much hurt. Like many, perhaps most, manufacturers, they would welcome Protection, restriction of competition, and high prices; and one may expect to hear them saying that the future contains terrible possibilities.9 But when official returns tell us that, in 1891-2, the gross income returned to Income Tax as “Profits of Iron Works,” was under £3,000,000; in 1900-1, was nearly 5½ millions; and, in 1901-2, was £6,000,000, one is tempted to say that the iron and steel trade is a very majestic ruin.

There are, undoubtedly, a good many concerns which are heavily hit. But when so many others are doing well, one suspects that the causes of this may be found nearer home. It has been said of textile factories in America that no firm can compete which is not content and able to put in new plant every ten years: perhaps, in view of modern improvements and changes of process, the unwillingness to make rapid and expensive changes may explain the general statement that “our iron trade is in a bad way.” South Wales certainly needed a lesson. Its mills were, many of them, ill-situated, in valleys far away from the sea and dependent on single railways; and many were “family affairs,” “seething in corruption and bristling with abuses,” as the Ebbw Vale Company itself was eleven years ago. The future course of this industry must be in the direction of consolidation, amalgamation, and economy. We can only meet gigantic Trusts like the American Steel Corporation by combinations at least large enough to secure the same efficiency—and, remembering that, beyond a certain point, size is a weakness and not a strength, this should be quite possible. Certainly, regret it or not as we may, the day of the small iron and steel maker is as much past as the day of the small miller.

Two facts should not be forgotten. The first is that, except where it is the “selling off” of practically bankrupt stock, as has been the case with Germany for the last two years, dumping is possible only where it is a small proportion of the total output that is thus sacrificed. “You can afford to sell 10 per cent. of your make at a loss if you thereby reduce the cost of your whole production by an amount greater than the loss on the 10 per cent. But this proposition cannot be true if you are consuming 10 per cent. and dumping 90 per cent., and the advantage of dumping disappears long before you have got anything like these figures.”10

The second is that, where there is any considerable elasticity of demand, it would generally be more profitable for the Trust to reduce its prices and sell all its output at home, than to sell a smaller quantity at home at a high price and sacrifice the surplus abroad. There are comparatively few things for which the demand would not increase in greater proportion than the reduction of price.

These two considerations seem to suggest that, annoying and depressing as it is, dumping can scarcely be considered an established trade policy of other countries.11

12The Continental Kartells are looser forms of combination than the Trust. The constituent firms, retaining their separate organisations, sell to a central agency, the output and the price being both fixed. The methods in which Kartells are formed and worked are not always similar, but the principle is generally the same—the regulation of prices, by curtailment of home production and so of home competition. The way in which this system affects other countries is most clearly seen in the Austrian Iron Kartell. Here each constituent member is limited in the amount which it is allowed to produce, but “in the contract of limitation are not reckoned products which are exported, either by being sold directly into the foreign country, or through being sold to manufacturing establishments (e.g. manufacturers of wagons or locomotives), and by them used for export.” Thus large production and cheap production are secured; and, even if the maker makes nothing on what he exports, he gains an extra profit on what he sells to or through his Kartell. See the exhaustive memorandum in the Board of Trade Blue Book, p. 297.

13Free Trade and Protection, pp. 75, 83,

14On the whole question, see my paper on “Industrial Trusts” in the Journal of the Society of Arts, Jan. 16, 1903.

15The expression “at or under cost” may very well be objected to. Total Cost in a producing unit includes, roughly, Fixed Charges and Running Expenses. A manufacturer, unless he is selling in agreement with others at a fixed price list extending over all markets, very seldom distributes his fixed charges proportionally; he adds to some goods, or in some markets, more of the fixed and less of the running expenses, and he may, indeed, lay the whole of the fixed charges on certain goods, or certain markets, selling in the others at what is usually called Prime Cost. So, if a manufacturer sells some goods at high prices and others at low, it may be questioned if he is selling “under cost,” so long as, in the price of his total output, he covers all his cost, fixed and running, and has his profit over.

16See, for instance, the statement in the Board of Trade Blue Book, page 326: “The details given in the appendix show that, while the manufacturers of this country were free from the competition of American iron and steel in 1899, the first months of 1900 saw the United States begin an invasion of the British market, which was carried on with remarkable energy until the early part of the following year, after which this campaign came to an end.” But the United States Steel Corporation has just now announced its intention of selling steel rails abroad at $20 per ton, while its price at home is $28.

17A good deal has been made in controversy of the threatened destruction of our “primary” and “staple” industries. “Free imports have destroyed sugar refining,” said Mr. Chamberlain, “one of the great staple industries of the country, which it ought always to have remained. . . . Sugar has gone; let us not weep for it: jam and pickles remain.” The sarcasm takes a good deal for granted. It may be questioned whether sugar refining was ever more than a local industry, and whether it was one which we could expect to keep. It may be questioned whether a few large staples are a healthier basis of prosperity than a great many smaller ones—particularly as regards exports. It may be questioned whether any peculiar sacredness attaches to a “primary” industry which begins with raw material as compared with an “inferior subsidiary” one which begins with partly manufactured material. And it may be questioned, in the present case, whether sugar refining ever employed as much capital and labour as the group represented by “jam and pickles” does.

18At the annual meeting of the Palmer Shipbuilding and Iron Company in 1903, the chairman, announcing a large increase in their exports to Germany and the United States, said that, for the past three years, the firm had purchased in Germany steel castings and forgings at 30 per cent. below English prices, built them into ships and machines, and sent them back to Germany.

19I have heard an east coast farmer say that he was suffering from the dumping of German potatoes. Considering that he was a seller of that highly-favoured monopoly article, the Dunbar red-soil potato, the complaint seemed to me rather suggestive.

20It would not be fair to quote any single case unless the facts had been examined in the fierce light of the public press. But the following, which was discussed for weeks, may be taken as an instance. Mr. Joseph Brailsford, the Chairman of the Ebbw Vale Steel, Iron, and Coal Company, wrote an alarmist letter to Mr. Chamberlain, which Mr. Chamberlain sent to the Times on 31st November, 1903. In this letter, he said: “It is only a matter of a few months before the English steel makers will be crushed out of existence, and the English market will be at the German’s mercy.” He was promptly reminded that, in the years when dumping was unknown, before 1892, his firm had paid practically no dividend; that, in the eleven years since, it had paid 4½ per cent., and in the present year, 5 per cent.—which, he had said, considering that their stock stood at £3 in 1892, and at £7 now, was equal to 15 per cent. to the great majority of the shareholders. Mr. Brailsford replied that his Company made its profits by coal mining as well as by iron and steel making, and that it was only the steel that was hurt by dumping. Then his own words were brought up against him: that, in coal, the improvement in gross profits was £49,000, while, in steel, the improvement was £84,000. Further reference to his Chairman’s speech of June, 1903, showed that, in 1892, “the concern was insolvent”—“on the verge of bankruptcy”—its “machinery and rolling stock fallen into disrepair”—its steel plant “entirely obsolete.” Since 1892, when the new management came into power, the net profits, which for ten years before had shown an average of £500 a year, had jumped to £50,000 a year for the last eleven years—to say nothing of a trifle of £250,000 laid aside out of net profits, during these eleven years, to reserve and improvement account. The assets had doubled; the yearly output had increased by 40,000 tons; wages for the last year had increased by £2000. And, finally, he recommended an expenditure of £150,000 on new plant.

When a responsible gentleman says that the steel industry in England will be crushed out of existence within a year, and yet recommends a new expenditure of £150,000, it reminds one of nothing so much as the action of the late Mr. Baxter, who prophesied that the world was coming to an end within twelve months, and took a new lease of his house for twenty years!

The instance points a moral. There is not the slightest doubt that great employers like Mr. Brailsford and Sir Thomas Wright-son—who said the same kind of things before, and met with a similar rejoinder, that in five years his concern had paid dividends to the amount of three-quarters of its capital—are perfectly honourable men. They think their case so clear that they do not hesitate to put it before the nation and to ask Protection. The case is examined from all sides, and the verdict is, at least, Not-Proven. But if these same gentlemen had been living under a government which was very willing to lend its ear to those who cried out before they were much hurt, and could have put their case, thus persuasively and strongly, before their representatives and before members of the Cabinet who had not the means of checking their statements by cross-examination or public discussion, is it not in the highest degree probable that they would have got Protection?

21Mr. Hugh Bell, in Spectator, 1st November, 1903,

22“Some of us may easily be misled into supposing that a Cartel or Syndicate is created for the express purpose of dumping. No doubt the severe economic depression of Germany during the years 1900-2 (caused by over production) forced the syndicates into their export policy for the purpose of relieving the congested home market. But that was an incident, like the blood-letting of an apoplectic patient. The real object of German Cartels is to proportion production to the market demand, and so to avoid overproduction. In other words, the Cartels exist to do away with the necessity for dumping, so far as human foresight can do it. The dumping is not calculation, it is mis-calculation.”—C. H. Oldham, in current issue of the Journal of the Statistical Inquiry Society of Ireland. Mr. Oldham calls attention to the latest development of the Kartell system, the syndication of syndicates, in the Steel Works Association now being formed for the whole of Germany, and already signed by all but two of the great groups. “What has brought about this Association seems to have been the necessity of doing away with the dumping policy of the syndicates controlling raw materials (coal, coke, pig iron, and half finished steel products) by which German home manufacturers of finished iron and steel goods have been placed at a disadvantage as compared with foreign firms in the exploitation of the mineral resources of Germany.”

• 1“When, on Pike’s Peak in Colorado, the thermometer is down to 12° or 13°, and, in the North-west is only a few degrees above freezing point, in New England it will be moderately cool—say 43°; in the Mississippi valley it will be comparatively warm—say 52°; and in Florida it will be at summer heat—75°.”—Lawson, American Industrial Problems, p. 43.
• 2The above figures of Imports and Exports, taken from the Statistical Abstract 1903, do not include Bullion and Specie, of which we imported, in 1902, £21,629,000 of gold (£8 millions from South Africa, £3¼ millions from India, £5 millions from Australia), and £9,764,000 of silver (£8 millions from the United States), and exported £15,409,000 of gold and £10,716,000 of silver. Nor do they include, either as imports, exports, or re-exports, excisable foreign merchandise transhipped under Bond, (£13,683,000). To the imports should be added £5,380,000 of diamonds from the Cape, not declared to the Customs. It may be noted that fish of British take, landed in the United Kingdom, are not included among imports. The value of these in 1901 was £9,000,000.
• 3Without going into the mysteries of banking, it may suffice to say that the reason why payment for foreign goods is not made by cheque is that each country’s banking system does not extend beyond its own shores.
• 4It is strong testimony to the literal “trust” which underlies the credit system that, in the great majority of home transactions, the promise is not put in documentary shape at all; goods are sold on customary terms of credit, and paid on a mere reminder that payment is due. Perhaps there is no better instance of the recognition of a “common interest” and a “general will” among whole peoples than this.
• 5Giffen’s calculation was first made in 1882 (Essays in Finance, Second Series, p. 132), and was revised in 1898 (Royal Statistical Society’s Journal, 1899, p. 11). His method was to take the British gross tonnage earnings at £15 and £5, for steamers and sailers respectively, at the former date, and at £12 and £4 at the latter. The Board of Trade, on the other hand, took the total exports and imports of the principal countries of the world, which are, of course, the same goods valued at points of departure and arrival; accepted the £224,000,000 difference in their value (see p. 41) as representing freights and insurance; halved this sum to represent our share of the carrying tonnage of the world; deducted 9 per cent. for colonial ships, and further deducted £12½ millions for coals and stores purchased abroad, harbour and other dues; and arrived at the figure of £89½ millions.
• 6The importance of Shipping as a British export industry may be realised by remembering that £90,000,000 is just about the value of our cotton and woollen exports combined.
• 7“Unfortunately, there are no official figures with regard to the investments of foreigners in this country, though they are certainly very much smaller in the aggregate than British investments abroad. America is the only foreign country, so far as known, whichh as made important investments in the United Kingdom in recent years,” Board of Trade Blue Book, p. 102. On this whole subject, the admirable article in the Blue Book should be referred to.
• 8Royal Statistical Society’s Journal, March, 1899. Giffen’s calculation, however, includes Pensions, etc., from India and other countries to civil servants living here, of which the Board of Trade says nothing.
• 9At the risk of being tedious, I may repeat here that such boarding expenses involve sending of goods to pay for any balance there may be between countries. All the traveller knows, of course, is that he takes with him, say, circular notes, and, on presenting these, gets money of the country handed over to him. But, suppose that English tourists, in the course of a year, have cashed £100,000 of circular notes in Rome, and that Italian travellers have cashed £50,000 of their circular notes in London, the Italian and English bankers have simply honoured each other’s promises. England is now in debt to Italy to the amount of £100,000, and Italy is in debt to England to the amount of £50,000. The two sets of promises are set against each other, but there remains a sum of value of £50,000 due to Italian bankers. How is this to be paid? If the London bankers send drafts on London, this only gives the Italian bankers a claim on gold in London—promises to pay gold there. Even a Bank of England note is, after all, only a promise to pay gold on presentation of the note at the Bank. Some time or other, unless London is to run deeper and deeper in debt to Italy, the accounts must be squared. But, as has been demonstrated, it is usually more convenient to send Bills of Exchange than gold—that is, to give claims on goods sent to Italy in the ordinary course of business—in which case the real payment of the balance is in goods.
• 10It should be noted, in comparing exports of past years with present figures, that new ships, sold from this country, were not included among our exports before the year 1899, and are properly excluded in comparisons with years before that date.
• 11Compare the calculation of the French balance by Professor Gide: “As regards France, if, on the one hand, we put to her debit 4500 million francs of imports, 360 millions for carriage of that part of her merchandise which sails under a foreign flag, some hundreds of millions (say 500) for Frenchmen travelling abroad, or against French property held by foreigners—in all, 5400 million francs: and if, on the other hand, we put to her credit 4000 million francs of exports, 1100 millions as interest on capital lent or invested abroad, 600 millions for expenses of foreigners living in France—in all 5770 million francs; we see that not only is the required equivalence restored, but that there should remain a considerable surplus to her credit.”—Principes d’Economie Politique, 8th edition (1903), p. 283. See also Giffen’s remarks on the Balance of other countries: Royal Statistical Society’s Journal, March, 1899, p. 12.
• 12IT would be rather short-sighted to gauge the importance to us of foreign trade by the fact that it is perhaps only one tenth or one eighth of our total trade. If the United States were to shut herself up inside a prohibitive wall of tariffs, she would still be almost self-sufficient. But we lie between 50 and 60 degrees north latitude; ours is a very small country at best, with a dense population; and we have, besides, sunk much of our capital and specialised much of our labour in industries which depend on other countries for their material and for their market. It seems, too, as if we were destined by nature to be ocean carriers.
• 13Our foreign trade, then, altogether amounts to £877,000,000; made up of £528,000,000 of Imports, and £349,000,000 of Exports (£65,000,000 of these being re-exports). These are values of solid Commodities brought in and taken out over British seas; and—partly as reflex and consequence—of the 32,000,000 gross tons of shipping in the world, we own the half.
• 14Nor yet is the way in which payment is made essentially different. In due time, home goods are paid by a cheque; foreign goods, by a bill of exchange. Indeed, in many cases, when goods are put on board ship, the Bill of Lading is given to a bank here, which does not give it up till cash is paid abroad, the bank meantime giving an advance to the exporter to a large proportion of the value. In either case, the sender gets his payment, in British money, through his own bank, and each transaction ends with a payment. The export of goods, again, from other countries to us takes place in exactly the same way—merchants and manufacturers, there also, sending out goods for a profit, getting paid in their own money, and the transaction ending with the payment.
• 15It takes a little thinking to realise that, in home trade, payments are made by setting debts against debts, and that this is merely another way of saying, “setting goods against goods.” You send me £100 worth of goods, and I, for the moment, am in debt, and send you a record of it in the shape of a promise to pay in three months. On the other hand, I send you £100 worth of goods, and you give me a promise to pay in three months. The promises may be bought and sold and pass into other hands; in any case, they remain in existence as debts for three months. At the end of that time they are brought together and cancel each other. What really has happened, of course, is that the one sending of goods has been put in contra-account against the other. So banking is just a vast complex system of contra-accounting—value of goods represented for the moment by documents put to the debit and credit sides of bankers’ books. Happily, this need not be dwelt on, because, in international trade, the foundation of the contra-account is quite obvious and prominent.
• 16It may be expected, then, that a nation which owns half the world’s shipping, and carries for foreigners as well as for British merchants, will be paid a very large sum for this service. The amount was estimated by Giffen, in 1898, as £90,000,000. An independent calculation, on quite different lines, was put forward by the Board of Trade in 1903, and makes it £89½ millions.
• 17This is the first item which explains our apparent Balance of Imports. Our exports are really £90,000,000 more than the statistical exports shown by the official returns.
• 18The corresponding returns which pay income tax in our country amount to £62½ millions, but this includes only the interest on foreign and colonial securities, coupons, and railways. To this must be added the dividends on miscellaneous industrial undertakings abroad. After all deductions on account of other countries which have lent and invested capital with us, we may accept the Board of Trade conclusion that “£62½ millions is a minimum figure, which is probably largely exceeded.” In 1898, Sir Robert Giffen estimated it at £90 millions, and probably more.
• 19The corresponding returns which pay income tax in our country amount to £62½ millions, but this includes only the interest on foreign and colonial securities, coupons, and railways. To this must be added the dividends on miscellaneous industrial undertakings abroad. After all deductions on account of other countries which have lent and invested capital with us, we may accept the Board of Trade conclusion that “£62½ millions is a minimum figure, which is probably largely exceeded.” In 1898, Sir Robert Giffen estimated it at £90 millions, and probably more.
• 20IV. There is another class of Imports which stands on the same line with the returns from capital invested abroad. It has been happily called “Boarding Expenses”—values sent from one country to another, not to sell or invest, but to consume. This is not a small item. Italy has been credited with £14,000,000, and Switzerland with £8,000,000 spent by sightseers. Americans are said to spend some £20,000,000 a year in foreign travel. How much of such boarding expenses comes to this country, it is impossible to say, but it must be very large. London is the centre of the world, where everybody who can afford it goes once in a lifetime at any rate. Our own Highland hotels get a considerable share. This category includes remittances sent home to families and schools in England by Civil Servants and military men abroad, furlough expenses, and the like; and under it, perhaps, fall professional earnings of Englishmen temporarily abroad, such as the gains of theatrical and concert companies on tour. These all represent imports against which there is no corresponding export. It must, however, be remembered that large sums are sent abroad by us to other countries for similar purposes, and, as Englishmen travel perhaps more than any other nation, the imports on this account may not very greatly overbalance the exports.
• 21(a) The price of old ships sold on the high seas. It is well known that we are continually selling our ships and replacing them with new ones, and these ships do not appear as exports.
• 22The probability, in fact, is that our real Balance of Trade is the other way about from what it is usually considered to be; that it is a Balance of Exports. The excess may be accounted for by the fact that a good deal of interest and profit never comes home, but is invested as capital in the countries where it is made.