INTERNATIONAL EXCHANGE
International exchange is not really different from the domestic exchanges which go on within a nation. The foreigner who has some product of his own to exchange against a product of ours deals as a private man with other private men, and if you could see all the exchanges of the world going on you would not distinguish between the character of an exchange, say, between Devonshire and London and one between London and the Argentine. The Devonshire man grows wheat, which he sells perhaps in a London market, and buys manufactured products which a merchant in London provides. The farmer in the Argentine does much the same thing, sells wheat and receives in exchange what manufactures he needs, precisely as though he were living in Devonshire instead of abroad. He does not trade with “England,” but with a particular merchant or company in England.
But there are certain points about international trade which one must get clear unless one is to make mistakes in the political problems arising out of it.
In the first place, international trade is always subject to a certain interference which domestic trade does not suffer. All countries have a tariff, that is a set of taxes upon a great number of the articles coming in from abroad. Even those countries which, as England did until quite lately, believe in leaving their citizens on equal terms with foreign competitors and have gone in for complete free trade, examine all goods at the port of entry or at special points on the frontier, both in order to raise revenue and to keep out undesirable goods, such as certain drugs; nor does any country allow all things to come in unexamined, lest forbidden things should come in unobserved. Moreover, it is important to measure the nature and volume of a nation’s foreign trade, and this cannot be done without stopping things at the ports or frontiers and examining them.
In general, international trade differs from domestic trade first of all in this—that it always has to pass through an examination at the frontiers through which it enters. It also differs from domestic trade in that it has to use another currency. Even when all countries have a gold currency, there are certain small fluctuations in the exchange values of the different currencies. For instance: before the war the English pound was worth in gold about 25¼ French francs, but you hardly ever had this “Parity” (as it is called) exact. The franc would fluctuate slightly against the sovereign—sometimes above, sometimes below “Parity” by a penny, or even sometimes more than a penny, one way or the other. With many countries whose currency was not in a good condition the fluctuations would be more violent, and of course since the war, now that so many nations no longer have a gold currency at all, but a fictitious paper currency, the value of one currency against another fluctuates wildly. Within a year you could get only 50 francs for an English sovereign and then a little later as much as 80 francs.
Within one country exchanges can be simply conducted by counting all values in the currency of the country; but international trade, involving the use of two or more currencies, cannot be so simple.
There is also a third point in international trade which must be understood, and which proceeds from the very fact that international exchanges do not essentially differ from the exchanges which take place within the same country, and that is the fact that exchanges are not simple contracts between two parties, but follow a whole chain of contracts, covering a great number of parties.
We saw, in the first part of this book, that exchange even within one country, was not simple barter but multiple exchange.
In domestic exchange a farmer sells his wheat to a broker, but does not purchase a lorry from the same buyer: he receives money from the buyer, and with that money buys a lorry, say, a month later. But what has really happened is a whole chain of exchanges in between the wheat and the lorry—a miller has bought the wheat from the broker, a baker the flour from the miller, and so on until towards the end of the chain a caster has sold castings to a motor maker who has assembled them and sold the lorry to the farmer.
It is the same with international exchanges; as we saw in the earlier part of this book. There is an international chain of exchanges.
The total number of units engaged in this international chain may be as large as you like; there may be ten or fifty or a hundred links before it is complete. But the universal principle holds that imports and exports usually balance. Whatever you import from abroad into a country you must, as a general rule, pay for by exporting an equivalent set of values created within your own country. But there are certain exceptions to this rule which are sometimes lost sight of.
In the first place, the imports and the exports need not all be what are called “visible” imports and exports. Many of them may be, and some always are, “invisible.” The most obvious example of these are “freights,” that is, sums paid for the carriage of goods between one country and another. Thus, in the old days before the war you would find England importing more than she exported, and one of the principal reasons for the difference was that the imports were mostly brought in English ships. Thus if a man in the Argentine were sending 50 tons of wheat to England worth £500, England, after a long chain of trade with many countries, including the Argentine, would be exporting values against this £500 worth of wheat, which would be worth, say, not £500, but only £450. The difference of £50 was made up by the cost of bringing the wheat from the Argentine to England in an English ship. In other words, £50 worth of the total £500 worth of wheat stood for the sum which the man in the Argentine had to pay to the English sailors to bring his wheat over the sea.
Further, a wealthy or strong country very often levied tribute upon a poorer or weaker one, and this tribute might take several forms. There was the tribute of interest upon loans. If English bankers had lent to people in Egypt a million pounds with interest at forty thousand pounds a year Egyptian production would have to export to England, either directly or roundabout through the chain of trade, forty thousand pounds’ worth of goods, against which England had not to send out anything.
Another form of tribute—though a small one—is that paid in pensions. A man having worked all his life in the Civil Service in India (for instance) would retire upon a yearly pension of a thousand pounds a year; but this pension was levied upon the taxpayers of India, and if the man came to live in England and spent his pension there—as nearly all of them did—it meant that India had to export a thousand pounds’ worth of goods every year to England, against which England sent nothing back.
In the same way the shareholder in some works or firms situated in a foreign country would, if he lived in England, cause an import to come in equivalent to his dividends or profits, and against that England would send out nothing.
But the point to remember is, that the mere volume of trade (that is, the total of things imported and of things exported) is no indication of the wealth or prosperity of the country importing and exporting.
A country may be very wealthy, although it is doing hardly any international trade, because it may be producing within its own boundaries a great deal of wealth of a kind sufficient to nearly all, or all, its needs. Again, of international trade (and it is exceedingly important to remember this, because most people go wrong on it) nothing increases the wealth of a country except the imports.
It ought to be quite clear, especially in the case of an island like Great Britain, that it loses what it sends out and gains what it brings in. Yet people get muddled about even this very simple proposition, because the individual trader thinks of his transactions as an individual sale. He does not consider the nature of trade as a whole. The individual trader, for instance, who makes locomotives and exports them, gets paid, let us say, £10,000 for each locomotive. In point of fact this means that in the long run he or someone else in England will exercise £10,000 worth of demand for foreign goods. But the individual trader does not usually think of that; he thinks only of his own transactions, and he would be very much surprised if he were told that his sending the locomotive abroad was, regarded in itself, and apart from the import which it assumed, a loss to the country of £10,000 worth of wealth.
You often hear people in political arguments talking as though the falling off of exports from a country were a bad thing and the increase of imports also a bad thing. It cannot be so in the long run. The excess of imports over exports is the national profit on the whole of its foreign transactions, and any country which is exporting regularly more than it imports is paying tribute to foreigners abroad, while every country which regularly imports more than it exports is receiving tribute.
Of course, if you consider only a short period of time, the falling off of exports may be a bad sign; for it may mean that the corresponding imports will not be gathered. If in this country we saw our exports regularly falling year by year we should be right to take alarm, for this would almost certainly mean that a corresponding falling off in imports would sooner or later take place also, and that therefore our total wealth would be diminished. But considered over a sufficient space of time, it is obvious that the excess of imports over exports is a gain and that the excess of exports over imports is a loss.
One last thing to remember about international trade is that the very different importance of foreign trade to different countries makes the foreign politics of nations differ equally. A country which can supply itself with all it needs is free to risk its foreign trade for some other issue. A country importing its necessities cannot risk the loss of such trade, for it is a matter of life and death. The United States is in the first position. It has within its own boundaries not only all the minerals it needs, but also all the petrol and all the raw material for making cloth, and all the leather for boots, and all the rest of it. But a country like England is in quite a different position. We only grow half the meat we need and about one-fifth of the corn. Therefore it is absolutely necessary for us to have a foreign trade. If all the foreign trade of the United States were to be destroyed to-morrow, the United States, though somewhat poorer, would still be very rich and able to carry on without the help of anyone else. But if our foreign trade were destroyed there would be a terrible famine and most of us would die.
Nations differ very much in this respect, but of all nations Great Britain is that which is most vitally interested in maintaining a great foreign trade, and next after Great Britain Belgium is similarly interested, for Belgium also needs to import four-fifths of its bread-stuffs. Almost every country except the United States must have some foreign trade if it is to live normally. For instance: France, though largely a self-sufficing country, has no petrol. It has to buy its petrol abroad and must export goods to pay for that import. Nor has it quite enough coal for its needs, and, before the war, it had not nearly enough iron. Italy has no coal, no petrol and no iron to speak of—not nearly enough for its needs. And so it is with pretty well every nation in Europe. But of all nations our own and Belgium—our own particularly—are in the most need of maintaining a large foreign trade.
This affects all our policy, it is the root of both the greatness and peril of England. It also tends to make English people judge the wealth of foreigners by the volume of their trade, and that is a great error.