Fluctuations in the Foreign Exchanges. 9 



for, but owed. In this case we would be exporting promises to 

 pay, which Avould mean that we were either raising loans abroad 

 or that other nations were investing in our securities. Though it 

 is difficult to get accurate figures, yet there can be no doubt that 

 in 1913 our income from foreign securities was much greater, on 

 balance, than the amount paid out to foreigners holding our 

 securities. Sir G-eorge Paish, the editor of the " Statist," whose 

 figures are usually exceedingly accurate, calculated that about 

 that period we were actually increasing our holding of foreign and 

 colonial securities at the rate of about 160 million pounds a year. 

 The third explanation, therefore, falls to the ground. 



It is evident then, that there must be some other explanation 

 of the excess of imports, and the matter looks less alarming Avhen 

 we find that most other nations also import more than they 

 export. The real explanation lies in the fact that the mutual 

 relations of nations, particularly when the intercourse is of long 

 standing, is not all comprised in the actual exchange of com- 

 modities. Exports and imports are but one element, though a 

 very important one, in the sum total of the commercial trans- 

 actions. In order to understand the exact position of a country, 

 we must consider not merely the equation of reciprocal demand, 

 but rather the equation of indebtedness between countries. It 

 is not equivalence of exports and imports that constitutes a 

 stable condition in trade, but the equivalence in the sum of 

 debts due to a country and that of debts due by it. In examining 

 this equation of indebtedness we are simply considering the 

 various Debtor and Creditor items in a country's balance sheet. 

 These items may best be arranged in the following order : — 



1. To Exports and Imports, formerly considered the sole 

 items of the balance sheet, we may give the first place. A 

 country is clearly Dr. to other countries for the value of its 

 imports, and Cr. to other countries for the value of its Exports. 



2. Next a country is Cr. for all services done by its ships 

 and traders to other countries. Ships employed in carrying for 



