BALANCE OF TRADE. This term in economics belonged originally to the period when the "mercantile theory" prevailed, and it is still in use, though not quite perhaps in the same way as at its origin, and the term "balance of payments" has largely taken its place. The "balance of trade" was of old identified with the sum of the precious metals which a country received in the course of its trading with other countries or with particular countries. There was no doubt an idea that somehow or other the amount of the precious metals received represented profit on the trading, and each country, desired as much profit as possible. Princes and sovereigns, however, with political aims in view, were not close students of mercantile profits, and would probably have urged the acquisition of the precious metals as an object of trade even if they had realized that the country as a whole was exporting "money's worth" in order to buy the precious metals which were desired for political objects. The "mercantile theory" was ex ploded by Adam Smith's demonstration that gold and silver were only commodities like others with no special virtue in them, and that they would come into a country when there was a demand for them, according to the amount, in proportion to other de mands, which the country could afford to pay; but the ideas in which the theory itself has originated have not died out, and the idea especially of a "balance of trade" to which the rulers of a country should give attention is to be found in popular discussions of business topics and in politics, the general notion being that a nation is prosperous when its statistics show a "trade balance" in its favour and unprosperous when the reverse is shown.
In modern times the excess of imports over exports or of ex ports over imports, shown in the statistics of foreign trade, has also come to be identified in popular speech with the "balance of trade," and many minds are no doubt imbued with the ideas (i ) that an excess of imports over exports is bad, and (2) an excess of exports over imports is the reverse, because the former indicates an "unfavourable" and the latter a "favourable" trade balance. In the former case it is urged that a nation so circumstanced is living on its capital. Exact remedies are not suggested, although the idea of preventing or hampering foreign imports as a means of develop ing home trade and of thus altering the supposed disastrous trade balance is obviously the logical inference from the arguments. A consideration of these ideas, and of recent discussions about im ports and exports, appears accordingly to be needed, although the "mercantile theory" is itself exploded.