Chapter CXXXII: Section IV: Partial Truth of the Mercantile System

But even among the successors of Hume and Smith, a deeper insight into, so to speak, the physics of money and of international trade must have led to the recognition of many a truth which the mercantile system had, indeed, badly formulated, insufficiently proved, but which it had, nevertheless, an inkling of. And, indeed, how frequently it happens that the progress of science proceeds from one one-sidedness, through another opposed but higher one-sidedness, to the all-sidedness which knows no prejudice!

A. Precious-metal-money is, indeed, a commodity, but of all commodities, the most current, the most many-sided in its utility, the most economically energetic, and at the same time of peculiarly great durability.[A2-4-1] Money-capital, far from being the least useful portion of a nation's capital, is rather one of its most important parts; and especially in the higher stages of civilization, where the division of labor has been most largely developed, is it peculiarly productive and indispensable.[A2-4-2] Here it is really more likely that the possessor of commodities may be wanting the wished for money, than that the possessor of money should be wanting in the wished for commodities. And, hence, the numerous half mystic expressions of the magical power of money, which have passed into literature from the common usage of the people, can be, by no means, considered mere errors.

B. Just as little, can the impossibility of the preponderant importation of money for a long time, be asserted. Hume's rigid theory of a level, by no means, exactly corresponds with the reality. The precious metal which is, indeed, imported, but which does not subsequently enter into the circulation, need exert no influence whatever on the prices of commodities in general; and may, therefore, remain permanently in the country. Think only of the articles made of the precious metals, which minister to luxury,[A2-4-3] of buried private treasure, of the treasures of the state, which are idly stored up; as well as of a portion at least of most cash on hand.[A2-4-4] From the other side, also, the over-balance or under-balance (_Ueber-oder Unterbilanz_) of a country may continue, a very long time, when its internal trade with its money-need is, in the first case, an increasing, and in the last, a decreasing one. So far, the preponderance of the importation of money may be called a favorable sign and the preponderance of the exportation of money an unfavorable one. And the person who thinks that a permanent preponderance of exports or imports is not at all possible in the way of commerce, overlooks the possibility of a very extensive national indebtedness.[A2-4-5]

C. But a distinction should be made between the _balance of payments_ and the _balance of trade_ in the narrower sense of the expression.[A2-4-6] In the case of the latter, to be complete, it is necessary to carry to the credit side of the account: 1, The exports of commodities; 2, the profit made by parties at home by realizing on (_Realisierung_) the exports in foreign countries; 3, the freight-profit made by parties at home on exports and imports, as well as in foreign carrying trade (_Zwischenverkehr_); 4, the sale of inland ships in foreign countries; 5, premiums and compensation for damage on account of maritime insurance from foreign countries. On the debit side, on the other hand, the corresponding items when foreigners have received from the home country, as in the case of imports, etc. To obtain the general payment-balance, we have still, in addition, on the credit side: 1, The profit from home participation in enterprises in foreign countries and the transfers of capital originating therefrom; 2, the interest and repayments of money-capital loaned in foreign countries; 3, the sale of stocks (_Effecten_) to foreign countries as well as new loans to which the home country makes in foreign parts; 4, remittances from foreign countries to foreigners sojourning in the home country, and money brought with them by travelers and emigrants; 5, inheritances, pensions and extraordinary payments from foreign countries. Then, too, on the debit-side, belong the corresponding counter-items.[A2-4-7] If we, in this way, take a survey of the whole world, we shall perceive a treble current of the precious metals. The first and most regular goes, in long lines, from mining countries, over to the commercial countries of the world, and distributes the newly acquired gold and silver as commodities according to the wants of the coinage, of manufactures, etc. The second oscillates, as it were, in short waves from country to country, in order to adjust the _plus_ or _minus_ for the time being of payment-balances. Lastly, regular sudden currents, with slow subsequent counter-currents, when single economic districts require to make extraordinary drafts or shipments of the precious metals, by reason of bad harvests, war, a disturbed double standard, etc.

D. Since international indebtedness has so much increased, precisely the richest nations may have the greatest regular excess of exports over imports; partly because of the great amount of capital, etc., which they possess in foreign countries; partly because of the great development of their system of credit in the interior, by means of which they find substitutes for so great a part of the metallic currency.[A2-4-8]

[Footnote A2-4-1: _Locke_, Civil Government (1691), § 49,
seq., emphasizes this durability of the value-preserving
metallic money, in opposition to the perishable articles of
consumption, as a principal element in the development of
private property and of economic civilization. But even
_Petty_ ascribes to the precious metals a higher quality as
wealth than to any other commodity, for the reason that they
are less perishable, and possess value always and
everywhere. Hence, he esteems foreign trade more highly than
inland trade, and would have those businesses which import
the precious metals protected more than others against
taxation. (Several Essays, 1682, p. 113, 126, 159.) _Adam
Smith_ also recognizes this, at least so far as intermediate
trade is concerned. (W. of N., IV, ch. 6.)]

[Footnote A2-4-2: Even _Rau_, in his additions to _Storch_
(1820), p. 397, concedes the peculiarly charming, vivifying
power, which money possesses to an extent greater than any
other commodity. Well distinguished whether the money-want
of a country is already fully satisfied or not. (Ansichten
der Volkswirthschaft, 1821, p. 157.) _Carey_ exaggerates
when he calls money the cause of the movement in society,
out of which force is produced, what coal is to the
locomotive, or food to the animal body (Principles of Social
Science, ch. XXXII, 5), or the only want of life for which
there is a universal demand. (Ch. XXXIII, 1.) But he rightly
calls it the "instrument of association." Excellent
demonstration, as to how, at the sudden outbreak of a war,
of a revolution, etc., all those who have money on hand,
even when they had previously obtained it while peace still
prevailed, in the form of a loan, are in an infinitely
better position than the owners of the otherwise most useful
commodities. (Ch. XXXVII, 12.) Earlier yet, _P. Kaufmann_
placed the "principal character of money" in this, that it
was "most perfect property (_Vermögen_);" and he calls its
quality as a commodity, philosophically considered, in
question; and judges the balance of trade according to this,
that in commodities, interest-yielding as well as dead
capital is exported, but in money-capital, which is always
gain-engendering. (Untersuchungen im Gebiete der politischen
Oekonomie, 1829, I, 4, 74, 80.)]

[Footnote A2-4-3: In England, _Patterson_ estimates the
regular additional importation (_Mehreinfuhr_) of money at
from four to five millions sterling, of which the greater
part is devoted to purposes of luxury. (Statist. Jrl., 1870,
217.)]

[Footnote A2-4-4: _Fullarton's_ view (Regulation of
Currencies, 1844) suffers from exaggeration. _Knies_, Geld
and Credit, II, 285, very well shows that the "hoards" are
by no means mere idle stores, and that, therefore, their
void produced by the exportation of money must be soon
filled up again. _Adam Smith_, even, may be considered a
predecessor of _Fullarton_. (W. of N., ch. 2, p. 250, Bas.)]

[Footnote A2-4-5: Even _Büsch_ (Werke, XIII, 26) says that
the under-balance (_Unterbilanz_) of the Scotch vis-a-vis of
England was for a long time made up in two ways, by the
marriage of wealthy English heiresses and by Scotch
bankrupts. Thus the troops, who, in the 17th century, were
traded over to France, and in the 18th, to England by German
princes, brought the money, in part, back again, which was
exported by the unfavorable balance. According to _List_,
the exported metals, after they have risen in price with us,
flow back to us again; not, however, as exchangeable
articles, but in the form of a loan, by which it is made
possible for us to dispose of them again, and again to
receive them in this shape. (Werke, II, 37.)]

[Footnote A2-4-6: Thus even _J. Steuart_, Principles, IV, 2,
ch. 8.]

[Footnote A2-4-7: Compare _Soetbeer_ in _Hirth's_ Annalen
des deutschen Reiches, 1875, p. 731 ff.]

[Footnote A2-4-8: British Europe had from 1854 to 1863, a
yearly surplus amount (_Mehrbetrag_) of imports of at least
266, and at most 1190 millions of marks, in the average, 764
millions; from 1864 to 1873, of at least 802 millions, and
at most 1388 millions, an average of 1104 millions; whereas,
on the other hand, Australia, besides its great exportation
of gold, exhibits a great excess of exports of commodities
over imports. France, too, from 1867 to 1869, had attained
to an average surplus importation (_Mehreinfuhr_) of 211
million marks; which is related to the fact that, according
to _L. Say_, it received about from 600 to 700 million
francs a year in interest from foreign countries; and that
from 200 to 300 million francs were expended by foreigners,
etc., traveling in France. Similarly, in the case of
governing countries vis-a-vis of their dependencies; whence
even the old mercantilists entertained no doubt of the
enrichment of the former. Thus France, in 1787 ff., had a
yearly importation of 613 million livres, and an exportation
of 448 millions, because the colonies sent to France 150
millions more than they drew therefrom. (_Chaptal_, De
l'Industrie, Fr., I, 134.) Hungary, from 1831 to 1840, had a
yearly exportation of 46 million florins to Austria, and an
importation of only 30 millions. (_List_, Zollvereinsblatt.
1843, No. 49) Algiers drew from France in 1844 to the amount
of 83 million francs, and found a market there for only 8
millions (Moniteur), which no one will consider an
enrichment of France. The great preponderance of French
exports in 1831, 1848 and 1849, of Austrian, between 1874
and 1876, a sign of diminished purchasing capacity! When
England, in March, 1877, imported to the amount of
£35,230,000, and exported to the amount of £16,921,000
(against £27,451,000 and £17,739,000 in March, 1876), the
Economist sees therein a sign that many outstanding debts
were called in.]