us metals
which were desired for political objects. The "mercantile theory" was
exploded by Adam Smith's demonstration that gold and silver were only
commodities like others with no special virtue in them, and that they would
come into a country when there was a demand for them, according to the
amount, in proportion to other demands, which the country could afford to
pay; but the ideas in which the theory itself has originated have not died
out, and the idea especially of a "balance of trade" to which the rulers of
a country should give attention is to be found in popular discussions of
business topics and in politics, the general notion being that a nation is
prosperous when its statistics show a "trade balance" in its favour and
unprosperous when the reverse is shown. In modern times the excess of
imports over exports or of exports over imports, shown in the statistics of
foreign trade, has also come to be identified in popular speech with the
"balance of trade," and many minds are no doubt imbued with the ideas (1)
that an excess of imports over exports is bad, and (2) an excess of exports
over imports is the reverse, because the former indicates an "unfavourable"
and the latter a "favourable" trade balance. In the former case it is urged
that a nation so circumstanced is living on its capital. Exact remedies are
not suggested, although the idea of preventing or hampering foreign imports
as a means of developing home trade and of thus altering the supposed
disastrous trade balance is obviously the logical inference from the
arguments. A consideration of these ideas and of recent discussions about
imports and exports, appears accordingly to be needed, although the
"mercantile theory" is itself exploded.

The phrase "balance of trade," then, appears to be an application of a
trader's language in his own business to the larger affairs of nations or
rather of the aggregate of individuals in a nation engaged in foreign
trade. A trader in his own books sets his sales against his purchases, and
the amount by which the former exceed the latter is his trade balance or
profit. What is true of the individual, it is assumed, must be true of a
nation or of the aggregate of individual traders in a nation engaged in the
foreign trade. If their collective sales amount to more than their
collective purchases the trade balance will be in their favour, and they
will have money to receive. Contrariwise, if their purchases amount to more