F.—ECONOMIC SCIENCE AND STATISTICS 103 
this exchange control of countries whose products were mainly foodstuffs 
and raw materials was inferior to that of the older manufacturing and 
commercial countries in Europe; for the latter were creditor countries 
and the prices of their products had not fallen as much as those of the 
products of the former. It was natural, therefore, for the financially 
more powerful countries to require that exchange funds arising out of 
their purchases should be reserved for the purchase of goods from their 
subjects and for the remitting of interest on investments held by their 
citizens. Further, a number of exchange clearing arrangements were 
set up between these weaker countries and their creditors as well as 
between the older countries themselves. In these provision was made 
for the direct balancing of credits derived from all the transactions between 
the pairs of participating countries and, occasionally, even for the reciprocal 
admission of allocated volumes of specified classes of goods on terms akin 
to barter. This whole episode of exchange control is a curious mixture 
of repression and restriction of trade combined with ingenious devices for 
mitigating the damage done by measures which are admittedly short- 
sighted. 
Primarily, quotas and exchange control were means by which a govern- 
ment sought to safeguard its general balance of trade. Their use for 
this purpose can readily be justified as a defensive measure in the 
exceptional conditions now prevailing in international trade to-day. It 
might even be admitted that a country which relies for its livelihood on 
the export of a few special commodities has the right to safeguard its 
market for those goods and secure for them reasonable terms of entry to 
other countries when commercial treaties are being negotiated. But the 
extension of the principle of general balance of trade which offers a basis 
of control for the total trade of a country with all foreign countries to the 
case of import and export trade with every individual external group is 
a development which cannot but prejudice the future rehabilitation of 
world trade on any sound or equitable foundation. 
This new concept, then, of bilateral trade balancing, this unwarranted 
extension of an old and useful general guide, is due to the realisation that 
it is possible, by using quotas and exchange control, to re-arrange trade 
relations with individual foreign countries on what can be a substantially 
equal barter basis. Such an ideal makes a wide appeal in a period of 
depression when normal trade outlets are choked; and it is significant 
that more than one-third of the commercial agreements concluded by 
European countries, both among themselves and with countries outside 
Europe, during the past two years have been dominated by the principle 
that as far as possible in every case imports should approximately balance 
exports. Now this insistence upon the equalisation of imports and exports 
between two countries where equality did not exist before is much more 
likely to scale down the higher of two unequal figures than to raise the 
lower. The country with the larger volume of exports has almost certainly 
to reduce its shipments to the volume it imports from the other country, 
with the consequence that its exporting industries suffer loss, part of which 
in turn is passed on to the producers of the materials it utilises whether 
they be fellow citizens or subjects of another group of foreign countries. 
