BALANCE OF TRADE

Evening Star, Issue 20993, 6 January 1932, Page 10

BALANCE OF TRADE

- PROFESSOR ON DELUSIONS ILLUSTRATION FROM ISLE OF WIGHT Professor Edwin Cannan delivered the Sidney Ball lecture at Oxford, his subject being ‘ Balance of Trade Delusions,’ reports the ‘Manchester Guardian.’ Professor Cannan spoke of the “ large class of people who spend their time in arguing that their country is going to the dogs, and take every opportunity of raising a scare that their country was not really able to pay for all the imports it was taking, a course which they said_ could only end in some rather unexplained phenomenon ‘ national bankruptcy,’ ” and continued: — A SIMPLE ILLUSTRATION. “A few moments’ consideration will suggest that the very best time for raising a scare of this kind is when the countries in which the rich old countries have invested capital are doing badly. Then the dividends paid by them to the investors in the old countries shrink, and default is made on some of the interest payable, so that the amounts paid to the investors in the rich old countries become less; and it is easy to suggest that it will become less still.

“The scaremongers then rush about the rich old countries declaring that it is already difficult, and will soon be impossible for them to pay for their imports. The balance of trade, they say, must be ‘redressed,’ and it. is necessary to subsidise exports and impose duties or prohibitions on imports, or the country will he buying more imports than it can pay for, and consequently be on the high road to national bankruptcy. “Now, if the same thing happened to the Isle of Wight—that is, if the property which inhabitants of the island own outside the island began to yield less income than before —. we might be sorry for those Isle of Wight owners of property, but we should not worry at all about the island’s balance of trade. Wo should simply take it as the natural thing that those persons in the Isle of Wight, whose incomes were reduced would spend less and invest less in and out of the island. “If they could and did counterbalance the whole reduction of their income by not investing as. much as they used to do outside the island, nothing would happen to the movement of goods across the Solent; if they could and did counter-balance the whole reduction of their incomes by cutting down their expenditure on things brought into the island the simple result would be a reduction by that amount of the imports; if. they met the whole reduction of their incomes by reducing their expenditure on new potatoes and other things produced in tho island, people in the island would would sell these things to the world outside tho island, so that tho loss on income derivable from outside would be counter-balanced, and imports paid for as usual. ... ~ “It is quite certain that there would he no appeal to tho County Council of the Isle of Wight to get parliamentary powers to give bounties on exports and impose duties or prohibitions on imports in order to ‘redress’ or put right the balance of trade and save tho island from bankruptcy.’ WILL REDRESS ITSELF. “There is no conceivable reason for supposing tho case of Great Britain or any other great country to be different from that of the Isle of Wight as we have just described it. If the income from freign investments falls off, the balance of trade will ‘redress itself so far as is necessary without any of tho politicians’ impertinent and ignorant attempts to assist it to do so. . , . , “ But reduction of income from abroad is not the only thing likely to help the scaremongers when the new countries are relatively less prosperous. In such times these countries offer re» latively less attraction to investors in the old countries, who therefore .are more inclined to put their new savings into something in their own country. This change will necessarily depress the exports of the old countries. “If any of us here lend money.to or invest in Australia or Argentina instead of investing it here exports will go to those countries which otherwise they would not have been able to pay for, Conversely, a diminution of fresh foreign investment tends to depress the exports from the old country and increase the excess of imports. Then the balance-of-trado scaremongers start lamenting the diminution of the exports as if it was the result of incapacity to save and invest instead of merely a sign of preference for home as against foreign investment. THE PRIMARY PRODUCERS.

“Applying our Isle of AVight example once more, would it not bo absurd to lament the widening of tho gap between the island’s exports and imports if that widening were caused by relative prosperity in the island which led

to tho people there investing their savings in new lodging houses and hotels there instead of jn new investments on the mainland ? > “We are passing through exactly one of those phases which I have been describing as so favourable to the hal-ance-of-trade scaremonger. The decline in the rate of growth* of population over the civilised world is tending to worsen the position of the primary producers who provide the coarse necessaries of life, and various improvements in agricultural and other primary production also tend in that direction. The inducement to _ open up new areas and extend cultivation and occupation has greatly diminished. Openings for new capital and industry are now tending to be more and more in the production of the semi-necessary luxuries and refinements of life than in the production of the coarser necessaries, and these luxuries and refinements are likely to be produced in the rich old countries rather than in the poor and new countries. “As if this was not enough, some of the most important of the undeveloped countries have done their best to ii p.-r xiio.r own development, hy imp ■■■■ i ' nil sorts of i;mi : u- ; s on commerce, and by actually refusing to admit immigrants able and willing to work. Then, when their _ miserable policy, joined to the unavoidable conditions has brought them into some difficulty, many of them have naturally begun to pay worse dividends or none nt all, on capital invested in them hy the old countries, 'and some of them have failed to meet definite obligations to lenders in the old countries. “ No wonder then that investors in the rich old countries have preferred to keep more of their savings at home! THE IMPORTANT THING. “I will not quarrel with anyone who says that these savings have somewhat diminished since the pre-war period. But even if savings have somewhat diminished, and, what is more doubtful, have diminished more than is reasonable under the circumstances, how perfectly ridiculous is the assumption of those (some of them in quite high places and with immense reputations for mental ability) who talk of us as ‘ living on our capital,* as if we had not been adding enormously to our capital! “ Remember that the _ important thing is not how much individuals have subscribed to new issues on the Stock Exchange, but how much has been actually added to the useful property of the whole community. Looking at the actual material equipment of the country, can any of us who remember what it was thirteen years, ago have the least doubt that it is enormously bigger and better? What proportions of ft can he supposed smaller or worse than in 1918? “The cotton mills and shipyards Lave ai great a productive capacity as they ever had: the railways have more. What of the wider, smoother, and dustless roads? LUXURIES. “ What of the millions of additional motor vehicles which crowd them, and the works at which these vehicles are made, and the garages in which they are stored, and repaired? What of the millions of new houses which have been built, and the improvements of the old ones? What of the additional and improved furniture and fittings of the houses—the wireless sots, gramophones, telephones, and all the other things almost unknown at the beginning of the century? What of the additions to the equipment of the buildings and apparatus for new and old schools and universities? “Does anyone pooh-pooh these things as trivial, and say wo don’t want these luxuries and refinements but more food? Of him I would ask, ‘ Are we then swine demanding nothing hut more and more hogs’ wash? Is it not luxuries and refinements that wo live for? Are we short of food? Is not the cry of a large section of the scaremongers that we are getting our food too cheap?’ “ Difficulties we certainly have. _ In common with most of the civilised world wo have the great difficulty which arises from the stupid desire of central banks, hacked by Legislatures and nationalist public opinion, to hoard the standard of currency and thereby raise its value. “ We are the special prey of the too ingenious bureaucrats who, ‘ immured in Whitehall, devise schemes which, at any rate, as botched by the politicians at Westminster, sap the existing incentives to industry and good conduct without putting any substitute in their place. And thus wo manage to throw away more than 10 per cent, of our productive power. “ But even so wo manage to carry on, and whether on or off the gold standard wo certainly shall not benefit by reviving tho 300-yoar-old and long ago exploded superstition that tho balance of trade must be watched over and kept right by Parliament—a superstition which can only bo ranked with the onco equally widespread belief that witchcraft must ho sni"P out and witches burnt at tho stake.”-