ng out of the country, and to have nothing come in--in any case,
nothing that by any fair amount of effort (whatever that be) could be
produced at home. This is called maintaining a "favorable balance of
trade." Sometimes the emphasis is more on the advantages of an excess
of exports of goods, sometimes more on the importance of the need "to
keep money at home." The simple error in these opinions is clearly
apparent in the explanation of foreign exchanges and of the principles
regulating the international flow of money.[4]

An interesting commentary on the opinion before us is the fact already
noted[5] that an excess of exports is the usual situation in poor
debtor countries having constant interest payments to meet; while, on
the contrary, rich creditor countries have an excess of merchandise
imports.

The "favorable balance-of-trade" argument, with the emphasis on money
rather than on goods, is that the protective tariff keeps money at
home which, if trade is free, will be sent abroad to buy foreign
goods, thus impoverishing the country. This doctrine as presented
in the seventeenth and eighteenth centuries in Europe, was known as
_mercantilism_. It had great influence upon the commercial policies
of all the great European nations. A superficial glance at the trade
relations of an old, rich country with a new province seems to give
evidence for such a belief. A richer country that is lending capital
(sent to the debtor country in the form of goods) has at the same time
a larger supply of money. The lack of money and the poverty of the
newer country are looked upon by the protectionist as due to the
importation of goods. The common cause of the imports to newly settled
districts and of their scanty stocks of money, it need hardly be
repeated here, is the comparative poverty of settlers and pioneers.[6]
Often these are paying for imports by means of loans, and in any case
their monetary stocks are not decreased either by their foreign trade
or by their domestic trade with the older and richer parts of the same
country. Europe and the United States, in their trade with China and
South America, usually do not get gold in exchange, but merchandise
of various sorts. It is true that in the trade of England and New York
with great gold-producing districts, such as California, South Africa,
and Alaska, gold is received in return for merchandise, for much of
the gold in gold-producing districts is merely merchandise, and its