Source: Cyclopedia of Political Science, Political Economy, and of the Political History of the United States by the best American and European Authors, ed. John J. Lalor (Chicago: M.B. Carey, 1899). 3 vols. Chapter: BALANCE OF TRADE
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Hidden within the massive Lalor's Cyclopedia are some essays by important economists such as John Ramsay McCulloch (1789-1864) who was the leader of the Ricardian school following the death of Ricardo. He was a pioneer in the collection of economic statistics and was the first professor of political economy at the University of London in 1828. [The image comes from “The Warren J. Samuels Portrait Collection at Duke University.”] We have reproduced some of his essays from Lalor's Cyclopedia here in The Forum.
BALANCE OF TRADE, in commerce, the term commonly used to express the difference between the value of the exports from, and imports into a country: the balance used to be said to be favorable when the value of the exports exceeded that of the imports, and unfavorable when the value of the imports exceeded that of the exports. And in many countries this was long believed to be the case, and to a late period they were annually congratulated by their finance ministers on the excess of exports over the imports.
—The attainment of a favorable balance was formerly regarded as an object of the greatest importance. The precious metals, in consequence of their being used as money, were long considered as the only real wealth that could be possessed either by individuals or nations. And as countries without mines could not obtain supplies of these metals except in exchange for exported products, it was concluded, that if the value of the commodities exported exceeded that of those imported, the balance would have to be paid by the importation of an equivalent amount of the precious metals; and conversely. A very large proportion of the restraints imposed on the freedom of commerce during the last three centuries grew out of this notion. The importance of having a favorable balance being universally admitted, every effort was made to attain it; and nothing seemed so effectual for this purpose as the devising of schemes to facilitate exportation, and to hinder the importation of almost all products, except gold and silver, that were not intended for future exportation. But the gradual though slow growth of sounder opinions with respect to the nature and functions of money, showed the futility of a system of policy having such objects in view. It is now conceded on all hands that gold and silver are nothing but commodities; and that it is in no respect necessary to interfere either to encourage their importation or to prevent their exportation. In Great Britain they may be freely exported and imported, whether in the shape of coin or in that of bullion. The truth is, however, that the theory of the balance of trade was not erroneous merely from the false notions which its advocates entertained with respect to money, but proceeded on radically mistaken views as to the nature of commerce. The mode in which the balance was usually estimated was, indeed, completely fallacious. But had it been correctly ascertained, it would have been found, in opposition to the common opinion, that the imports into commercial countries must, speaking generally, exceed the exports; and that a balance, whether on the one side or the other, is but rarely cancelled by a bullion payment.
—I. The proper business of the wholesale merchant consists in carrying the various products of the different countries of the world from the places where their value is least to those where it is greatest, or, which is the same thing, in distributing them according to the effective demand. It is clear, however, that there could be no motive to export any species of produce, unless that which it was intended to import in its stead were of greater value. When an English merchant commissions a quantity of Polish wheat, he calculates on its selling for so much more than its price in Poland, as will be sufficient to pay the expense of freight, insurance, etc, and to yield, besi