THE FARMER AND THE TARIFF. 311 



of the subject from a modern standpoint. In its modern 

 form the " balance-of-trade" theory may be stated as follows: 

 It is evident that, except by incurring debt, or drawing upon 

 capital, no individual, in any one year, can purchase com- 

 modities except such as he can pay for by the proceeds of his 

 own produce or labor, plus his income, if any, from interest, 

 rent, or other income from accumulated capital. If he spends 

 less than he receives, he accumulates wealth; if otherwise, he 

 falls behind. The balance-of-trade theory assumes that in 

 this respect a nation is precisely like an individual. As the 

 movements of money, however, can not be traced, we can 

 regard only the movements of merchandise, of which records 

 are kept in the custom-houses of all nations. If the value of 

 imports exceeds those of the exports, there is an "unfavorable" 

 balance of trade, and the nation is said to be losing money, pay- 

 ing for the surplus of imports by money received from ocean 

 freights, or from the income or principal of previous foreign 

 investments, or by incurring debt. This seems sufficiently 

 obvious, and is, in fact, the universal popular belief in all 

 countries. Not only the public, but statesmen and financiers 

 look with great satisfaction upon annual treasury statements 

 showing that the country has sold more than it has bought. 

 This doctrine, however, is not only vigorously disputed by 

 most economists, but is treated with contempt as an "exploded 

 theory." I can not go into the detail of their argument, which 

 it requires a rather highly-trained mind to appreciate, but in 

 substance it is this: As a matter of fact the total exports of a 

 country do substantially pay for its imports; but each pur- 

 chase fftr importation is presumed to involve a future profit, 

 while from goods sold for export nothing beyond the purchase 

 price is to be expected ; therefore the more imports the more 

 profit, and a healthy balance of trade is one which shows a 

 large excess of imports which have been paid for by exports of 

 less value.* As this is not a treatise on abstract economic 



* McLeod illustrates by the example of a sailor who might buy an axe in 

 London for 65 cents and trade it to a South Sea islander for a pair of shells, 

 which he might bring to London and sell for $50. In this case the value 



