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   Chapter 6 BALANCE OF TRADE.

What Is Free Trade? By Frédérick Bastiat Characters: 25496

Updated: 2017-12-06 00:03


Our adversaries have adopted a system of tactics, which embarrasses us not a little. Do we prove our doctrine? They admit the truth of it in the most respectful manner. Do we attack their principles? They abandon them with the best possible grace. They only ask that our doctrine, which they acknowledge to be true, should be confined to books; and that their principles, which they allow to be false, should be established in practice. If we will give up to them the regulation of our tariffs, they will leave us triumphant in the domain of literature.

It is constantly alleged in opposition to our principles, that they are good only in theory. But, gentlemen, do you believe that merchants' books are good in practice? It does appear to me, if there is anything which can have a practical authority, when the object is to prove profit and loss, that this must be commercial accounts. We cannot suppose that all the merchants of the world, for centuries back, should have so little understood their own affairs, as to have kept their books in such a manner as to represent gains as losses, and losses as gains. Truly it would be easier to believe that our legislators are bad political economists. A merchant, one of my friends, having had two business transactions, with very different results, I have been curious to compare on this subject the accounts of the counter with those of the custom-house, interpreted by our legislators.

Mr. T dispatched from New Orleans a vessel freighted for France with cotton valued at $200,000. Such was the amount entered at the custom-house. The cargo, on its arrival at Havre, had paid ten per cent. expenses, and was liable to thirty per cent. duties, which raised its value to $280,000. It was sold at twenty per cent. profit on its original value, which equalled $40,000, and the price of sale was $320,000, which the consignee converted into merchandise, principally Parisian goods. These goods, again, had to pay for transportation to the sea-board, insurance, commissions, &c., ten per cent.; so that when the return cargo arrived at New Orleans, its value had risen to $352,000, and it was thus entered at the custom-house. Finally, Mr. T realized again on this return cargo twenty per cent. profits, amounting to $70,400. The goods thus sold for the sum of $422,400.

If our legislators require it, I will send them an extract from the books of Mr. T. They will there see, credited to the account of profit and loss, that is to say, set down as gained, two sums; the one of $40,000, the other of $70,400, and Mr. T feels perfectly certain that, as regards these, there is no mistake in his accounts.

Now what conclusion do our Congressmen draw from the sums entered into the custom-house, in this operation? They thence learn that the United States have exported $200,000, and imported $352,000; from whence they conclude "that she has spent, dissipated, the profits of her previous savings; that she is impoverishing herself and progressing to her ruin; and that she has squandered on a foreign nation $152,000 of her capital."

Some time after this transaction, Mr. T dispatched another vessel, again freighted with national produce, to the amount of $200,000. But the vessel foundered in leaving the port, and Mr. T had only further to inscribe upon his books two little items, thus worded:

"Sundries due to X, $200,000, for purchase of divers articles dispatched by vessel N."

"Profit and loss due, to sundries, $200,000, for final and total loss of cargo."

In the meantime the custom-house inscribed $200,000 upon its list of exportations, and as there can of course be nothing to balance this entry on the list of importations, it hence follows that our enlightened members of Congress must see in this wreck a clear profit to the United States of $200,000.

We may draw hence yet another conclusion, viz.: that according to the Balance of Trade theory, the United States has an exceedingly simple manner of constantly doubling her capital. It is only necessary, to accomplish this, that she should, after entering into the custom-house her articles for exportation, cause them to be thrown into the sea. By this course, her exportations can speedily be made to equal her capital; importations will be nothing, and our gain will be, all which the ocean will have swallowed up.

You are joking, the protectionists will reply. You know that it is impossible that we should utter such absurdities. Nevertheless, I answer, you do utter them, and what is more, you give them life, you exercise them practically upon your fellow-citizens, as much, at least, as is in your power to do.

But lest even Mr. T's books may not be deemed of sufficient weight to counterbalance the convictions of the Horace Greeley school of prohibition, I shall proceed to furnish a table exhibiting various classes of commercial transactions, embracing most of the classes usually effected by importing and exporting houses, all of which may result in undoubted profits to the parties engaged in them, and to the country at large, and yet which, as they appear in the annual Commerce and Navigation Reports issued by the government, would be made to prove by Mr. Greeley that the result has in each case been a loss to the country. The sums are all stated in gold:

A, represents one hundred merchants, who shipped to London beef, boots and shoes, butter, cheese, cotton, hams and bacon, flour, Indian corn, lard, lumber, machinery, oils, pork, staves, tallow, tobacco and cigars, worth in New York, in the aggregate, ten millions of dollars, gold, but worth in London plus the cost of transportation, &c., eleven millions of dollars, gold, in bond. After being sold in London, the proceeds (eleven millions) were invested in British goods, worth eleven millions in London, but worth twelve millions in bond in New York, and plus the cost of transportation, &c. After having these goods sold in New York, a net profit of two millions was the result of the whole transaction, a profit both to the merchants and the country; yet, according to the Commerce and Navigation Returns, the exports were ten millions, and the imports eleven millions (valued at the foreign place of production as the law directs), showing, according to Mr. Greeley's solitary point of view, a loss to the country of one million.

B, owned a gold mine in Nevada, and had no capital with which to develop it. He proceeded to France, sold his mine to C for a million, which he invested in French muslin-de-laines, buttons, and glassware, worth a million in France, but worth $1,100,000 in Philadelphia, ex duty and plus transportation, &c. These sold, B netted an undoubted profit of $100,000, besides getting rid of his mine; but, according to the Commerce and Navigation Returns, the exports were nothing, and the imports $1,000,000; showing, according to Mr. Greeley's solitary point of view, a loss to the country of $1,000,000.

C, the French owner of the Nevada mine, had a million more with which to develop it. Hearing that French cloths and gloves had a good sale in Boston, he invested his million in these goods, sailed for Boston with them, sold them there in bond and plus exportation, for $1,100,000, which he at once invested in machinery, labor, &c., destined for Nevada. So far, C made a profit of $100,000, and had $2,100,000 invested in an American gold mine; but, according to the Commerce and Navigation Returns, the exports were nothing, and the imports $1,000,000; according to Mr. Greeley's solitary point of view, a loss to the country of $ 1,000,000.

D, had a rich uncle in Rio Janeiro who died and left him a million. D ordered this sum to be invested in hides and shipped to him at Boston. These hides were worth a million in Rio, but $1,100,000 in Natick, ex duty and plus transportation. Upon selling them D was clearly worth $1,100,000; yet, according to the Commerce and Navigation Reports, as there had been no exports, but simply $1,000,000 of imports, the transaction, from Mr. Greeley's solitary point of view, seemed a loss to the country of $1,000,000.

E, in 1850, shipped to Cuba, wagons, carts, agricultural implements, pianos and billiard-tables, worth $1,000,000 in Baltimore, but $1,100,000 in Havana, ex duty and plus transportation. These he sold, and invested the proceeds in cigars worth $1,100,000 in Havana, but in Russia, ex duty and plus transportation, $1,210,000. Disposing of these in turn, and investing the proceeds in Russian iron worth $1,210,000 in Russia, but $1,331,000 in Venezuela, ex duty and plus transportation, he shipped the iron to Venezuela, where he realized on it, investing the proceeds this time in South American products worth in Spain $1,464,100. He sold these products in Spain, bought olive oil with the proceeds, shipped the same to Australia, where it was worth, ex duty and plus charges, $1,610,510, which sum he realized in gold, which he carried to New York in 1853. On the latter transaction he makes no profit, but barely clears his charges. Yet on the whole he has made a net gain of $610,510; but, according to the Commerce and Navigation Reports, the exports have been $1,000,000 and the imports $1,610,510, showing, from Mr. Greeley's solitary point of view, a loss to the country of $610,510. Nay more, for Mr. Greeley balances his trade accounts each year by itself, and as E's outward shipment was made in 1850 and his importation in 1853, the country, according to H.G., lost in 1853, by over importation, $1,610,500. Yet not to be hard on H.G., and to be perfectly honest in our accounts, we will only set down a loss to the country from his point of view of $610,510.

F, owned the 4,000 ton ship Great Republic, which cost him $160,000. Finding her too large for profitable employment, and hearing that large vessels were in demand in England as troop transports to the Crimea, he sent her out in ballast and sold her in Southampton for $200,000 cash. With this sum he went to Geneva, where he invested it in Swiss watches worth $200,000 in Geneva, but $210,000 in New Orleans, ex duty and plus transportation. To New Orleans he accordingly shipped the watches, and they were sold. By these transactions he not only got rid of his elephant, but both he and the country clearly gained $50,000. Yet according to Mr. Greeley's single eye the country suffered to the extent of $200,000, for in the exports appeared nothing, but among the imports $200,000 worth of foreign gewgaws, only fit to keep time with.

G, (an actual transaction) shipped by the Great Eastern on her last voyage from New York, lard and other merchandise, worth in New York $600,000, the fact of which, in the hurry of business, he failed to report to the Custom House, and it therefore did not appear in the exports. This lard was carried to England, where it found no sale, and was reshipped to New York. G only escaped being charged duty on it when it arrived, by swearing that it had been originally shipped from here in good faith; yet it was entered as an import (free of duty), and showed, according to Mr. Greeley's one eye, that the country was on the road to ruin $600,000 worth.

H, lived in Brownsville, Texas, where he had a lot of arms and gunpowder, worth $100,000. The Mexicans levied a very high import duty on these articles, and they consequently bore a very high price in Matamoras, just opposite, being worth in the market of that town no less than $250,000. He accordingly conceived the idea of smuggling them into Mexican territory, and, with the connivance of the Mexican officials, (what rascals these foreign custom-house officials are, to be sure!) actually succeeded in doing so, and thus realized the very handsome profit of $150,000 in gold. The entire proceeds he invested in Mexican indigo and cochineal, worth in Mexico $250,000, and in Boston $275,000, in bond, plus charges. Of course, no export entry was furnished to the customs collector at Brownsville; but Mr. Greeley fastened his one eye on the indigo and cochineal, when it arrived in Boston, and made up his mind that the country had lost $250,000. As for H, he has invested $100,000 in more gunpowder and arms, and starts for Brownsville next week, to try his luck again. With the other $175,000 he has a notion of buying out the New York Tribune, and setting it right on free trade, and other matters of the sort.

I, and his friends owned a fine fleet of merchantmen when the war broke out. The aggregate burden of the vessels was nearly a million of tons, and they were worth $40 a ton. When the rebel cruisers commenced their operations, there were no United States cruisers prepared to capture them, because our best vessels were on bloc

kade service. This being the case, insurance on American merchantmen rose very high-so high that I and his friends were reluctantly compelled to sell their vessels in Great Britain and elsewhere, and convert them into cash. They brought $40,000,000, and this sum was invested in merchandise, which netted a profit of ten per cent. to I and his friends. They thus gained $4,000,000 by these transactions. The entire proceeds, $44,000,000, they then lent to the government with which to carry on its war of existence with the Southern insurgents. Profitable as these transactions clearly were to I and his friends, and to the government, Mr. Greeley, nevertheless, only sees the import of $40,000,000 worth of foreign extravagances, and consequently wants the tariff on iron increased in order to make water run up hill.

J, had $2,000,000 in five-twenty bonds, which cost him $1,400,000 gold. As the market price in New York was only 70 gold, while it was 72? in London, he conceived the inhuman idea of selling them in the latter place. The cost of sending them there, including insurance, &c., made them net him but 72, but at this price he gained a profit of $40,000. With his capital now augmented to $1,440,000 he bought rags in Italy, which he sold in New York for $1,584,000, ex duty and plus transportation, a clear profit of $184,000 from the start. No export appearing in the Commerce and Navigation Returns, and nothing but the rags meeting his unital gaze, Mr. Greeley at once posted his national ledger with a loss of $1,440,000, the cost of the rags in Italy.

K, was, and is still (for these are actual transactions taken from his account books), an exchange broker, doing business in New York. He buys notes on the banks of England, Ireland, Scotland, France and Canada-indeed, foreign banknotes of all kinds-for which he usually pays about ninety per cent. of their face value. By the end of last year he had invested $200,000 in these notes brought here by travellers. He then inclosed them in letters, and sent them to their proper destinations to be redeemed. Redeemed they were in due time, and the proceeds remitted in gold. In this business he earned the neat profit of $22,222, and the country was that much richer thereby. But Mr. Greeley, who only looked at the import of K's gold remittance, declared the country $22,222 worse off than before, and dares us to "come on" with the figures.

L, and some fifty thousand other skedaddlers ran off to Canada when the war broke out, for fear they might be drafted. Together with the colored folks who fled there, and the many travellers who went there from time to time, they carried with them most of our silver half-dollars, quarters, dimes, half-dimes, and three-cent pieces. These amounted to $25,000,000, which the skedaddlers, the colored folks, and the travellers, as with returning peace they slowly straggled back into the country, invested in Canadian knick-knacks, which they disposed of in the United States. The incoming goods were duly entered at our frontier custom-houses, but the outgoing silver was not. Mr. Greeley, unaware of this fact, detects an over-importation of $25,000,000, and is waiting to be elected to Congress in order to legislate the matter right.

M, (an actual transaction) had $1,000,000 in Illinois Central Railroad bonds, for which he desired to obtain $1,000,000 worth of iron rails to repair the road with. Not being able to effect the transaction in the United States, he sent the bonds to Germany, where they were sold, and the proceeds invested in English railroad iron, worth $1,000,000 in Glasgow, but $1,100,000 in Chicago, ex duty, and plus transportation. By this transaction M, besides effecting the desired exchange, netted a profit of $100,000. Yet, according to the Commerce and Navigation Reports, and Mr. Greeley's one eye, as there had been no exports and $1,000,000 of imports, the country was a sufferer by the latter sum.

N, was a body of incorporators who owned a tract of land lying in the bend of a river. Standing in need of water power for manufacturing purposes, they resolved to cut a canal across the bend. As this would essentially benefit the navigation of the river, the State agreed to guaranty their bonds for a loan of money to the extent of $1,000,000. Finding no purchaser for these bonds in the United States, they remitted them to Europe, and there sold them at par. With the proceeds they purchased army blankets for the Boston market, on which they realized ten per cent. net profit. These sold, the avails were invested in barrows, spades, water-wheels, wages, &c., and in good time the canal was cut and the manufactory set a-going. Profitable as this thing was to N, Mr. Greeley's single-barrelled telescope sees in it only a loss to the country of $1,000,000.

O, represents the Illinois Central, Union Pacific, and other western railroads, owning grants of land along their respective roads, to sell which to actual settlers they open agencies in London, Havre, Antwerp, and other European cities. The emigrants who buy these lands pay for them in Europe, and set sail for America with their title-deeds in their pockets, and their axes on their shoulders, ready for a conquest over forest and prairie. The agents of the Illinois Central Railroad (see report of the Company), who have sold 1,664,422 acres, say at an average of ten dollars per acre, invested the proceeds, $16,644,220, in iron rails for the road, worth that sum in England, but ten per cent. more in Illinois, less duty and plus transportation. The road has thus not only netted a profit of $1,664,422 on the transaction, but sold their wild lands to actual settlers, who will soon convert them into productive farms. But Mr. Greeley, upon seeing an import of $16,644,220 of iron rails, declares the thing must be stopped or the country will perish.

P, is Sir Morton Peto and other European capitalists, who, believing that eight per cent., the average rate of interest in the United States, is better than three per cent., the average rate in England, invest $10,000,000 of capital in American enterprises. This capital is sent hither in the form of merchandise, to stock our railroads, farms, factories, etc., and is so much clear benefit to the country; but to Mr. Greeley's solitary vision it is only a curse.

Q, and his friends are cozy old-fashioned merchants in Boston city, who own one hundred and seventy-nine vessels (see Consular Reports, 1865), which trade between foreign ports and away from the United States altogether. These vessels have an aggregate burden of one million tons, are worth forty dollars, gold, per ton, and earn a net profit per annum of ten per cent. on their cost. Although in this kind of carrying trade we are wofully behind other nations, yet it yields, in twelve years (the average age of the vessels engaged in it), the neat little profit of $48,000,000, which is invested by Q in tea, coffee, and sugar, and imported into the United States at a net profit of ten per cent. Although an unquestionable gain to Q and the country at large of $52,800,000, Mr. Greeley, with his contracted views, only regards it as a dead loss on the import side of our Commerce and Navigation Returns.

R, was a bank which had a defaulting cashier, who ran away in 1857 with $500,000 of its funds. (Sch*yl*r carried off a million of New Haven Railroad bonds). These funds were recovered and converted into gold, which was shipped to the United States. According to Mr. Greeley, who could find no record of exports to counterbalance it, the same was a dead loss to the country.

S, and his friends own 76,990 tons of whaling ships (see Commerce and Navigation Reports, 1866), worth $40 per ton, gold, or $3,079,600. These ships are sent annually to the Arctic regions and earn for S and his friends ten per cent., or $307,960 net profit each year. Five years' profits, consisting of whale oil, bone, etc., which, after an active and profitable trade at the Sandwich Islands, they returned with this year, were valued at $1,655,659, and were duly entered among the imports, furnishing to Mr. Greeley an indubitable proof that the country was losing money in this business, and that the attention of Congress should at once be directed toward supplying a proper remedy.

T, was a South American refugee, who brought with him a million of dollars in gold doubloons. After living here for many years, by which time, through foreign trading, his capital had doubled, he invested the entire avails in United States bonds, as a last and striking evidence of his faith in our institutions, and departed to his native country, there to rest his bones. This man clearly prospered, and so did the country in which he settled, and on whose national faith he lent all his fortune. Yet Mr. Greeley concludes the whole thing to have been a bad job for us, and harps upon another over-importation of $1,000,000.

U, is a gallant Yankee sea-captain, who picks up an abandoned vessel at sea laden with a valuable cargo of teas, and bravely tows her into port, receiving $200,000 of the proceeds of the sale of her cargo as salvage for his skill and intrepidity. From Mr. Greeley's point of view U is a traitor to his country, and suffering a merited poverty for over-importing. But U drives his carriage about town, and has his own opinion of Mr. Greeley's views.

V, having a debt of $300,000 due to him by a merchant in Alexandria, requests him to invest the same in Arabian horses, as fancy stock to improve American breeds. The horses arrive in good order, and on being sold, yield V a net profit of $30,000, besides enriching our native breeds of these useful animals. Mr. Greeley still holds out, and jots the whole transaction down as an additional evidence of national decadence.

Tabular Expose.

Official Returns of these Transactions as they would appear per

Commerce and Navigation Reports.-Sums all stated in gold.

Exports.

Value in the

United States.

Imports.

Foreign

value.

Net profit

to the

individual.

Immediate

accretion to the

country's stock

of productive

wealth.

A $10,000,000

$11,000,000

$2,000,000

$2,000,000

B 1,000,000

100,000 1,100,000

C 1,000,000 100,000 1,000,000

D 1,000,000 1,100,000 1,100,000

E 1,000,000 1,610,510 610,510 610,510

F 200,000 50,000 50,000

G 600,000

H 250,000 175,000 175,000

I 40,000,000 4,000,000 4,000,000

J 1,440,000 184,000 1,584,000

K 222,222 22,222 22,222

L 25,000,000 25,000,000

M 1,000,000 100,000 1,000,000

N 1,000,000 100,000 1,100,000

O 16,644,220 1,664,422 18,308,642

P 10,000,000 10,000,000

Q 48,000,000 52,800,000 52,800,000

R 500,000 500,000 500,000

S 1,655,659 1,655,659 1,655,659

T 1,000,000 1,000,000 2,000,000

U 200,000 200,000 200,000

V 300,000 30,000 330,000

W

X

Y

Z

$11,000,000 $163,622,611 $66,391,813 $124,736,033

W, X, Y, Z, represent 43,628,427,835,109 other commercial transactions, in all of which the parties to them and the countries in which they live make money, but which, regarded from Mr. Greeley's solitary point of view, should be stopped at once by appropriate legislation.

These various transactions, it will be perceived, have netted to the individuals engaged in them a clear profit of $66,391,813, while the country has added to its immediate stock of wealth not only this sum, but $58,344,220 over, viz: $124,736,033; while, according to the Balance of Trade chimera, which simply weighs the custom-house reports of the value of the exports with that of the imports (and their values in their respective countries of production, too), this commerce has been a loss to the country of $163,622,611-$11,000,000: $152,622,611.

So much for theory when confronted with practice.

The truth is, that the theory of the Balance of Trade should be precisely reversed. The profits accruing to the nation from any foreign commerce should be calculated by the overplus of the importation above the exportation. This overplus, after the deduction of expenses, is the real gain. Here we have the true theory, and it is one which leads directly to freedom in trade. I now, gentlemen, abandon you this theory, as I have done all those of the preceding chapters. Do with it as you please, exaggerate it as you will; it has nothing to fear. Push it to the furthest extreme; imagine, if it so please you, that foreign nations should inundate us with useful produce of every description, and ask nothing in return; that our importations should be infinite, and our exportations nothing. Imagine all this, and still I defy you to prove that we will be the poorer in consequence.

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