[Among the valuable papers published by the National Monetary Commission is one of the foregoing title by George Paish, editor of The Statist (part of Senate Document 579, 61st Congress, 2d session, 1910, pp. 151-213). The following extracts serve to epitomize the argument which is developed in much greater detail and which, in a very convincing way, exposes the error of the popular view that balances of accounts for merchandise exports and imports are settled by corresponding gold imports and exports. The figures given are mostly for the years 1908-09.]

On trade balances [page 153]. The term "trade balance" is generally used for the purpose of indicating the excess value of a country's exports of merchandise over the value of its imports of merchandise or the excess value of a country's imports of merchandise over the value of its exports of merchandise. In monetary circles the term is employed to denote the ability of a country to import supplies of the precious metals. If the rate of exchange of one country upon other countries is at the level which permits of gold imports, it is said that the balance of trade is in favor of the country importing the gold. On the other hand, if the rate of exchange of any country is at a level which admits of gold exports, the balance of trade is said to be against the country exporting the gold. In the sixteenth, seventeenth, and eighteenth centuries a favorable trade balance was a matter of great concern to statesmen and to financiers. At that time it was supposed that any country which imported goods of greater value than the goods it exported would be seriously; injured by having to make payment in the precious metals for the difference between the value of the goods imported and the value of the goods exported, and that any country which persisted in purchasing goods of greater value than the goods it exported would be totally drained of its stock of the precious metals and would be ruined. The theory of the supreme importance of a balance of exports over imports was known as the "Mercantile system/' . . .

The great change in the theory of commerce that has taken place in modern times is due to the recognition of the fact that the volume of trade which any country enjoys quickly adjusts itself to the needs of that country, and that the effect of a sudden disturbing influence to trade - such as a crop failure, labor troubles, etc., which temporarily reduce a nation's exporting power - can be got over by financial operations in the great international money markets, and that excessive drains of the precious metals are not now to be apprehended. Experience has shown that apart from sudden catastrophes the foreign trade of every country is of a very elastic character, that the volume of imports or of exports quickly responds to the necessities of the case, and that no country can have an adverse balance of trade except for a short time and as a consequence of some unexpected disaster which temporarily diminishes its power to make payment for goods imported. Even at such times countries in good credit have no difficulty in borrowing temporarily or permanently the sums required to settle the balance due to other countries for commodities purchased or obligations incurred prior to the disturbing event - a process which averts any excessive denudation of the stock of the precious metals possessed by the country experiencing the disaster. . . .

Lending and borrowing countries [page 169]. There is practically no country which neither exports nor imports capital with the exception of Thibet. . . . The chief countries which supply capital to other lands are Great Britain, Germany, France, Holland, Belgium, and Switzerland. . . . Great Britain has about $15,000,000,000 of capital invested abroad and is adding to its colonial and foreign investments at the rate of upwards of $500,000,000 a year. Germany and France come next with investments of about $8,000,000,-000 each. The investments of Holland, Belgium and Switzerland are of much smaller amount, but are nevertheless considerable. The imports of all these five countries largely exceed their exports in consequence of the receipt of interest and of tourist expenditures. In the case of Great Britain the excess of imports over the exports is further largely increased by the earnings of British ships, the tonnage of which forms so large a portion of the world's international shipping facilities. The fleets of other countries are not much more than sufficient to take care of their own trade in the aggregate; indeed, in most cases they are insufficient for this purpose, and the deficiency is made good by the British mercantile marine.

The principal countries whose exports exceed their imports in consequence of the large amount of interest they have to pay on capital borrowed from other lands are the United States, the Australasian colonies of Great Britain, British India, Argentina, Brazil, and Mexico. Several other countries whose imports now exceed their exports will eventually come into this category. At the present time Canada's imports largely exceed her exports in consequence of the vast amount of capital - about $200,000,000 a year - which she is borrowing from other lands - almost entirely from Great Britain. In the course of time the Canadian indebtedness to other countries and the expenditure of her tourists, etc., will be so great that her exports will exceed her imports, although large amounts of capital will continue to flow into the country each year. Of course Canada will have no difficulty in making these interest payments, having regard to the rapid growth in the annual amount of wealth created by means of the capital she is importing. China, Japan, and Chile are other instances of the inflow of large amounts of foreign capital. . . .

Europe's capital investments in the United States [pages 174-176]. Great Britain possesses about $3,500,000,000 of

American securities. . . . The French investments in the United States, including the Pennsylvania Railroad and other loans placed in Paris since 1902, amount to nearly $500,000,-000. . . . German bankers place the amount of the German investments in American securities at about $1,000,000,000. The amount of Dutch capital in the United States is about $750,000,000. American securities are also held in Belgium, Switzerland, and in other countries. In the aggregate the amount of European capital invested in "permanent" securities in the United States is approximately $6,000,000,000.

Beyond the fixed capital invested by Europe in the United States, account has to be taken of the floating loans made by Europe to America. These floating loans are mainly incurred in the spring and summer months in anticipation of the produce shipments from the States in the fall months and they are then largely liquidated. The amount of the floating debt of the United States to Europe in the form of produce bills, finance bills, loans against securities, overdrafts, etc., averages about $400,000,000, reaching a larger sum in July and early August and falling to a much lower sum at the end of December. The rate of interest paid upon this floating debt in so far as it consists of produce bills is a very low one, the rate of interest charged on this class of loan being less than that on any other kind of security.