Economics for Helen by Hilaire Belloc

International exchange is not really different from the domestic exchanges which go on within a nation. The foreigner who has some product of his own to exchange against a product of ours deals as a private man with other private men, and if you could see all the exchanges of the world going on you would not distinguish between the character of an exchange, say, between Devonshire and London and one between London and the Argentine. The Devonshire man grows wheat, which he sells perhaps in a London market, and buys manufactured products which a merchant in London provides. The farmer in the Argentine does much the same thing, sells wheat and receives in exchange what manufactures he needs, precisely as though he were living in Devonshire instead of abroad. He does not trade with "England," but with a particular merchant or company in England.

But there are certain points about international trade which one must get clear unless one is to make mistakes in the political problems arising out of it.

In the first place, international trade is always subject to a certain interference which domestic trade does not suffer. All countries have a _tariff_, that is a set of taxes upon a great number of the articles coming in from abroad. Even those countries which, as England did until quite lately, believe in leaving their citizens on equal terms with foreign competitors and have gone in for complete free trade, examine all goods at the port of entry or at special points on the frontier, both in order to raise revenue and to keep out undesirable goods, such as certain drugs; nor does any country allow _all_ things to come in unexamined, lest forbidden things should come in unobserved. Moreover, it is important to measure the nature and volume of a nation's foreign trade, and this cannot be done without stopping things at the ports or frontiers and examining them.

In general, international trade differs from domestic trade first of all in this -- that it always has to pass through an examination at the frontiers through which it enters. It also differs from domestic trade in that it has to use another currency. Even when all countries have a gold currency, there are certain small fluctuations in the exchange values of the different currencies. For instance: before the war the English pound was worth in gold about 25 1/4 French francs, but you hardly ever had this "Parity" (as it is called) exact. The franc would fluctuate slightly against the sovereign -- sometimes above, sometimes below "Parity" by a penny, or even sometimes more than a penny, one way or the other. With many countries whose currency was not in a good condition the fluctuations would be more violent, and of course since the war, now that so many nations no longer have a gold currency at all, but a fictitious paper currency, the value of one currency against another fluctuates wildly. Within a year you could get only 50 francs for an English sovereign and then a little later as much as 80 francs.

Within one country exchanges can be simply conducted by counting all values in the currency of the country; but international trade, involving the use of two or more currencies, cannot be so simple.

There is also a third point in international trade which must be understood, and which proceeds from the very fact that international exchanges do not essentially differ from the exchanges which take place within the same country, and that is the fact that exchanges are not simple contracts between two parties, but follow a whole chain of contracts, covering a great number of parties.

We saw, in the first part of this book, that exchange even within one country, was not simple barter but _multiple exchange_.

In domestic exchange a farmer sells his wheat to a broker, but does not purchase a lorry from the same buyer: he receives money from the buyer, and with that money buys a lorry, say, a month later. But what has really happened is a whole chain of exchanges in between the wheat and the lorry -- a miller has bought the wheat from the broker, a baker the flour from the miller, and so on until towards the end of the chain a caster has sold castings to a motor maker who has assembled them and sold the lorry to the farmer.

It is the same with international exchanges; as we saw in the earlier part of this book. There is an international chain of exchanges.

The total number of units engaged in this international chain may be as large as you like; there may be ten or fifty or a hundred links before it is complete. But the universal principle holds that imports and exports usually balance. Whatever you import from abroad into a country you must, as a general rule, pay for by exporting an equivalent set of values created within your own country. But there are certain exceptions to this rule which are sometimes lost sight of.

In the first place, the imports and the exports need not all be what are called "visible" imports and exports. Many of them may be, and some always are, "invisible. " The most obvious example of these are "freights," that is, sums paid for the carriage of goods between one country and another. Thus, in the old days before the war you would find England importing more than she exported, and one of the principal reasons for the difference was that the imports were mostly brought in English ships. Thus if a man in the Argentine were sending 50 tons of wheat to England worth £500, England, after a long chain of trade with many countries, including the Argentine, would be exporting values against this £500 worth of wheat, which would be worth, say, not £500, but only £450. The difference of £50 was made up by the cost of bringing the wheat from the Argentine to England _in an English ship_. In other words, £50 worth of the total £500 worth of wheat stood for the sum which the man in the Argentine had to pay to the English sailors to bring his wheat over the sea.