BALANCE OF TRADE. A term applied to the difference between the value of the exports and imports of a country. This difference was formerly measured roughly, by the outflow or inflow of the precious metals in the settle ment of accounts. \Then the exports exceeded the imports, causing an inflow of the precious metals, the balance was deemed favorable: in the contrary case, unfavorable. All of these expressions, which are still familiar, had their origin in the conception of political economy dominant in the so-called mercantile period. (See article Pouncni., Ecoxomv.) It was one of the fundamental errors of that system to con found the wealth of nations with their stocks of precious metals, and the economic policy of the period zealously favored anything which seemed to increase the stock of the precious metals, and as sweepingly condemned whatever had an opposite tendency. lt, will be readily understood how upon such principles the ment of a favdrable balance of trade became the chief end of commereial policy. Various meas ures were adopted to secure this end, and led to the manifold restrictions upon commerce which characterize peeuliarly the Eighteenth Century.
With the spread of the notions of economic freedom and the gradual adoption of a more liberal if not an absolutely free-trade policy in commercial affairs, the 'balance of trade' lost its commanding place in economic doctrine. But it remained for a long time, and is to-day, a frequent popular criterion of national prosperity. Apart from the importance thus ascribed to the balance of trade there is doubtless the feeling that a nation which imports more than it ex ports must pay the excess from its accumula tions, and thus gradually become impoverished. But if it be true that a people living upon its accumulations is on the road to impoverishment, it is by no means true that an excess of imports over exports is evidence of such a fact.
Whatever its bearing upon the national wel fare, there could be no doubt that under the simpler conditions of a century ago an excess of merchandise exports over imports was an ade quate explanation of an inflow of the precious metals. This would still be true if current
sales and purchases were the only economic relations that bound peoples together. But this is far from being the ease. In addition to movements of goods we have movements of debts (bonds, stocks, etc.), and mo•ements'of services (freights for transportation), between the na tions. Any inequality in the movement of goods may be compensated, not only by payments of gold and silver, but by transfers of indebtedness or the performance of services. Indeed, the last two factors may be of such importance as to determine a movement of gold exactly contrary to what the merchandise movement might lead us to expect. Thus the United States, in the year ending June 30, 1900. with an excess of merchandise exports over imports of $544,541. 898, exported $3,093,575 in gold. In the United States an excess of mercantile exports. and in Great Britain an excess of merchandise imports, may be said to be normal conditions of trade. it thus appears that the balance of mer chandise exported and imported no longer ex plains the phenomena of international payments, the scope of the phrase 'balance of trade' has sometimes been extended to include the balance of international settlements. But in so doing the phrase once clear and distinct becomes in volved and uncertain. it seems better to confine it to its original meaning to indicate one factor of modern commercial relations, and not the substance of them all.
It should be added that the practical deter mination of the balance of trade is beset with difficulties. Methods of determining the value of both exports and imports are necessarily crude, and it is not to be doubted that many of the false conclusions that have arisen in the dis cussion of trade balances have had their origin in the defects of commercial statistics. No analysis of trade returns can truthfully do more than indicate broad general tendencies without an examination into the methods by which such returns are prepared.