Part 29

THE ARGUMENT BASED ON OUR BALANCE OF TRADE.

One of the staple arguments of the advocates of the single gold standard is, that if our stock of gold were greatly reduced we should be unable to make payments to foreign countries in case the balance of trade turned against us. It is only through an excess of imports over exports that gold could go, and this country now produces of nearly all articles almost all that it consumes. With the exception of two years there has not been a balance of trade against us for fourteen years, as the following table will show:

Value of merchandise imported into, and exported from, the United States, from 1876 to 1889, inclusive; also annual excess of imports or of exports--specie values.

------+------------+------------+--------------+-----------+---------- Year | | | | Excess of |Excess of ending| Total | Total |Total exports | exports | imports June | exports. | imports. | and imports. | over | over 30-- | | | | imports. | exports. ------+------------+------------+--------------+-----------+---------- | Dollars. | Dollars. | Dollars. |Dollars. |Dollars. 1876 |540,384,671 |460,741,190 |1,001,125,861 | 79,643,481| -- 1877 |602,475,220 |451,823,126 |1,053,798,346 |151,152,094| -- 1878 |694,865,766 |437,051,532 |1,131,917,298 |257,814,234| -- 1879 |710,439,441 |445,777,775 |1,156,217,216 |264,661,666| -- 1880 |835,638,658 |667,954,746 |1,503,593,404 |167,683,912| -- 1881 |903,377,346 |642,664,628 |1,545,041,974 |259,712,718| -- 1882 |750,542,257 |724,639,574 |1,476,181.831 | 25,902,683| -- 1883 |823,839,402 |723,180,914 |1,547,020,316 |100,658,488| -- 1884 |740,513,609 |667,697,693 |1,408,211,302 | 72,815,916| -- 1885 |742,189,755 |577,527,329 |1,319,717,084 |164,662,426| -- 1886 |679,524,830 |635,436,136 |1,314,960,966 | 44,088,694| -- 1887 |716,183,211 |692,319,768 |1,408,502,977 | 23,863,443| -- 1888 |695,954,507 |723,957,114 |1,419,911,621 | -- |28,002,607 1890 |742,401,375 |745,131,652 |1,487,533,027 | -- | 2,730,277 ------+------------+------------+--------------+-----------+----------

This table shows that while for last year there was a balance against us of $2,730,277, and the year before of $28,002,607, for all former years from 1887 back to 1874 the balances were in our favor--all the way from $23,000,000 in 1887 to $265,000,000 in 1881. But the total want of significance so far as the movement of gold is concerned attaching to any figures showing a balance of trade against the United States will be seen by an analysis of the figures for any one year. Let us take for example the imports and exports for 1889 and analyze them by countries.

I now present a table in which I place in one group the gold-using countries, and in another the silver and paper-using countries.

Exports and imports of the United States to and from the various gold-using and silver-using or paper-using countries of the world for the fiscal year ending June 30, 1889.

------------------------------------+---------------+--------------- Countries. | Exports. | Imports. ------------------------------------+---------------+--------------- Gold-using countries: | | Canada | $42,141,156 | $43,009,473 Belgium | 23,345,219 | 9,816,435 Denmark | 3,903,937 | 846,904 France | 46,120,041 | 69,566,618 Germany | 68,002,594 | 81,742,546 Great Britain | 382,981,674 | 178,269,067 Greece | 165,079 | 988,923 Italy | 12,604,848 | 17,992,149 Netherlands | 15,062,939 | 10,950,843 Portugal and its possessions | 3,266,814 | 1,282,556 Spain | 11,946,348 | 4,636,661 Sweden and Norway | 2,615,569 | 2,983,319 Turkey | -- | 4,687,731 British possessions in Africa | 2,936,213 | 895,344 British possessions in Australia | 12,321,980 | 5,998,211 | | Silver and paper using countries: | | Austria-Hungary | 726,156 | 7,642,297 Russia | 8,364,545 | 2,985,631 Mexico | 11,486,896 | 21,253,601 Central America | 4,325,923 | 8,414,019 Hawaii | 3,375,661 | 12,847,740 Argentine Republic | 9,293,856 | 5,454,618 Brazil | 9,351,081 | 60,403,804 Chili | 2,972,794 | 2,622,625 Peru | 780,835 | 314,032 Colombia | 3,821,017 | 4,263,519 Uruguay | 2,192,848 | 2,986,964 Venezuela | 3,738,961 | 10,392,569 Cuba | 11,691,311 | 52,130,623 Hayti | 5,340,270 | 5,211,704 Porto Rico | 2,224,931 | 3,707,373 British West Indies | 10,453,973 | 20,723,268 Dutch West Indies | 887,778 | 654,320 China | 6,477,512 | 18,508,678 India, British | 4,330,413 | 20,029,601 India, Dutch | 2,249,604 | 5,207,254 Japan | 4,619,985 | 16,687,992 ------------------------------------+---------------+---------------

By this table it is seen that the only gold-using countries having a balance of trade against us are Canada, $868,317; France, $23,446,577; Greece, $823,824; Germany, $13,739,952; Italy, $5,387,301; Sweden and Norway, $367,850; Turkey, $4,687,731--making a total balance against us in gold-using countries, $49,321,452--against which we have a balance in our favor with Great Britain alone of over $200,000,000.

The balance against us in favor of all the silver using countries could of course be readily settled in silver; and by carefully noting the figures of the table last given it will be seen that it is in the last degree improbable that there will ever be a balance of trade against us in the gold using countries, taken as a whole.

Hence it is clear that if we had no gold at all we could readily settle all foreign balances that might be against us.

Nations, however, ultimately, and on the whole, square their accounts with commodities. Every nation must buy what it wants with its own products. In this country especially have we nothing to fear, because any temporary balance against us could always be met by the yield from our own mines. No country has any difficulty by reason of my difference in money systems in buying what any other nation has to sell.

This view is supported by all writers on political economy. I need quote but one. Professor Cairnes, professor of political economy in the University College of London, in his able work on "Some unsettled questions in political economy" (1874), says:

It appears to me that the influence attributed by many able writers in the United States to the depreciation of the paper currency as regards its effects on the foreign trade of the country is, in a great degree, purely imaginary. An advance in the scale of prices, measured in gold, in a country, if not shared by other countries, will at once affect its foreign trade, giving an impulse to importations and checking the exportation of all commodities other than gold. A similar effect is very generally attributed by American writers to the action on prices of the greenback inconvertible currency.

But it may easily be shown that this is a complete illusion. Foreigners do not send their products to the United States to take back greenbacks in exchange. The return which they look for is either gold or the commodities of the country; and if these have risen in price in proportion as the paper money has been depreciated, how should the advance in paper prices constitute an inducement for them to send their goods thither? The nominal gain in greenbacks on the importation is exactly balanced by the nominal loss when those greenbacks came to be converted into gold or commodities. The gain may, in particular cases, exceed the loss, but, if it does, the loss will also, in other cases, exceed the gain. On the whole, and on an average, they can not but be the equivalents of each other.

Mr. President, the best place in the world where we can have gold is not in the Treasury of the United States, not in any sub-treasury, but in circulation, if not in our own country, then, in the foreign countries where our surplus products are sold. That is where gold would do us the most good by making money plentiful and prices correspondingly high. It does us no good here whatever, locked up as it always is, and doing none of the work of money, but simply reduces to the minimum the tax-paying and debt-paying power of our wheat- and cotton-growing communities.

An unjust money should not be tolerated, whatever the material of which it may be composed, and the people of this country will not tolerate it. They do not fear the outflow of gold. If, in order to retain it, they must continue to lose as they have been losing for the past fifteen years, they will favor its going, and raise a shout of joy when it does go. With a perfect money system in our own country the range of our domestic prices would continue stable and equitable without regard to the prices of foreign countries. Our foreign trade would take care of itself, and whatever the balances might be, they would be much oftener in our favor than against us, and in reality concern only the importing merchant and not the Government or the people of the United States. The difficulty of gold-using countries to get our money, in which to pay us the balances they would owe us, would be much greater than our difficulty in getting their money, in which to pay them the occasional balances we might owe them.

Much the more serious question, (if it be a serious question at all, which I deny) is how they shall get our money, not how we shall get theirs. As the balances would be for the most part in our favor, it is for them to take such steps as may be necessary in order to pay us. But there is no just reason to apprehend difficulty in either case. A great country like the United States will have no trouble in buying the money of any other country at equitable rates--at rates regulated by the purchasing powers of the moneys of the two countries, respectively.

No country in the history of the world, having a money local to itself, has ever found the slightest difficulty in buying, upon ratios determined by the relative purchasing powers of the two kinds of money, a sufficient amount of foreign exchange (which simply means the money of another country) to meet all adverse balances of trade.

While earnestly advocating the full remonetization of silver and the maintenance in this country of a money volume sufficient to insure a steady level of prices and an unchanging value in the money unit, I entirely disclaim any desire for an inflation of the currency. My contention is that without silver we can not keep prices from further decline, and can not have enough money to serve the growing needs of population, industry, and commerce.

At the same time I can not refrain from expressing the conviction that, as between inflation and contraction, no careful student of history and of economic science can for a moment hesitate in deciding that the evils inflicted on society by contraction have been longer in duration and infinitely greater in degree than any that have ever resulted from inflation. During all periods in which there has been a generous increase in the money-volume of a country or of the world, activity and prosperity have been its accompaniment. I challenge the citation of an instance to the contrary.

With a volume of money increasing at a rate sufficient to meet the demands of a growing population, and especially if the money be such as will not leave the country, but, under all circumstances, will remain in it, to sustain prices, preserve equities, and reward labor, no country with a proper coordination of its industries can be otherwise than prosperous.

The property of mobility--of fluidity--which is so much lauded in gold, is precisely the property least to be desired in the money of a country, if that property of mobility or fluidity is to keep alternately bringing money into and taking it out of the country, disturbing prices and disarranging equities. When it comes, if it enters into circulation, prices rise; when it goes, prices fall, and thus, instead of having a steady and level platform of prices on which the trade and industry of the Republic may rest, like the firm and level platform of liberty upon which all our citizens stand, we whose business it is to "see that the Republic take no harm," furnish our people with an "inclined plane" of finance on which all their business must be conducted. Men buying this month at the elevated end of the platform find themselves selling next month at the depressed end.

Whenever in the history of a country there has been least reliance on international money (gold) and more reliance on merely national money (even of paper when reasonable limits were placed upon its quantity), prosperity has been everywhere present. I need not recall to the minds of Senators the wave of prosperity that swept over this country when it was without any international money and resorted to the "greenback" currency.

When, as a result of the Franco-German war, France was deprived of international money, suspended specie payments, and resorted to a properly limited paper currency, her progress was unbounded.

No period in the history of Great Britain can compare for activity, prosperity, or achievement, with the twenty years preceding 1816, when specie payments were suspended, and during which period, as testified to by witnesses before the secret committee of Parliament, the discount rate of the Bank of England did not buffer a single change; whereas from that period to 1847 the rate was changed sixteen times, and from 1847 to 1874 as many as 274 times, the fluctuations being sometime of the most violent character.

When gold threatens to leave Great Britain the rate of discount at the Bank of England is raised, with the view of discouraging, if not preventing, the outflow. Raising the rate of discount is like putting the brakes on a railroad train; lowering the rate is like letting off the brakes.

These changes were not due to any greater demand for money but to the movements of gold. There was frequently, in the condition of business, no warrant whatever for a rise in the rate of discount. The only reason for it was to prevent gold from performing what "our most conservative financiers" denominate its "noble" function of "mobility"--of "fluidity"--namely, the function of going "where it was wanted." This function of going "where it is wanted" is described as the great "mission" of gold, and it is assumed that it will never be wanted at more than one place at a time. Yet hear what the chancellor of the exchequer of Great Britain said a few days ago in the House of Commons: