schemes (though by no means all) are rapidly moving. Many of these have approximated in name, but not in spirit, and this is one of the most subtle dangers in the present development of welfare work itself a fact which needs to be keenly recognized and held in view. It is the foundation upon which also the Guild Socialists are building their structures, though the extreme Left are seeking to prepare those foundations by methods which appear to many to lack the requisites of a healthy and natural development, and to hold some danger of force being exercised in that realm where the voluntariness of the act is the condition of its life. Trade Unionism itself, for so long the protesting under-dog of industry, at the present moment stands in the position of being able to choose whether it will seek a wider and fuller co-operation, recognizing standpoints and views of other sections of the community than itself, or whether it will, at the moment of its power, emulate the old ignorant and self-centred capitalism and miss the undoubted opportunity for progress and co-operative action which lies before it to-day.

To all these systems the welfare movement stands in intimate relation-asking, not necessarily for great changes in structure, but for the conscious turning from the spirit of dominance to the spirit of co-operation. This achieved the attention of men in all classes being turned to the consideration of man as the most vital and fundamental thing in industry to-day-the actual machinery in which this spirit works is of secondary importance, since structure may be trusted to adapt itself, naturally and easily, to the spirit within.

The Measurement of the Balance of

Trade.

By C. K. HOBSON,

Formerly Research Student of the School of Economics.

THIS article is concerned with the methods of measuring what is called the Balance of Trade. Stated more accurately, though less concisely, the object in view is to consider how we can estimate to what extent during any given year, persons normally residing in the United Kingdom have on balance become indebted to persons normally residing elsewhere, or to what extent the latter have become indebted to us.

I shall illustrate the discussion with figures relating to the year 1913-the last normal year before the war. It is hardly possible to make a satisfactory analysis by the usual methods with regard to the war period, and the flow of statistical information is likely to be deficient for some time to come. We are, however, able to make a rough analysis of the position in 1920, and I shall refer to this in the latter part of this article.

The material upon which an analysis of the trade balance must necessarily be based is the official returns of the value of imports and exports, which cover nearly all the material goods which we buy from abroad, as well as nearly all those which we sell. The principal gap in the import figures seems to relate to diamonds, imports of which are known from the South African export returns to be understated to the extent of £12,000,000 in 1913. The export accounts are also incomplete in this respect, exports of diamonds in 1913 being returned as nil. Another class of material goods not covered by the export statistics is second-hand ships, amounting in value to some millions of pounds.

While the official accounts of imports and exports can be tinkered by making allowances for these points and others, it is scarcely worth while spending much time and labour on the process, because any modification made in the excess of imports shown in the returns will be small, and the margin to be allowed for error in estimating other items in the international account is inevitably large.

These other items are the so-called "invisible exports," and the smaller, though not wholly negligible, "invisible imports.' "Invisible exports" and "invisible imports" are so called not because they can in all cases be regarded as being in any sense exports or imports, but because they are items to be added to the exports and imports respectively when drawing up a full international trading

account.

The principal "invisible exports" are:

(a) Receipts of the British mercantile marine in the foreign trade, less expenses in foreign ports, but plus expenses of foreign vessels in British ports.

(b) Services rendered by persons in the United Kingdom in connection with the financing and insurance of trade.

(c) Income from Oversea investments.

(d) Miscellaneous items.

I proceed to consider how the value of the principal "invisible exports" can be estimated. First with regard to shipping earnings. (a) SHIPPING EARNINGS.

There are, broadly, four methods which may be adopted.

(i) First Method. One is to ascertain the difference between the value of the imports into all countries in the world and the value of the exports from all countries in the world, which difference should represent, broadly, expenses of transport; and to take a proportion of this amount as representing the British share. Except for a certain time lag, and for a small proportion of exports which get lost on the way (and whose value is added through insurance to the cost of the remaining goods), the goods which are exported during any year are the same as the goods which are imported, so that the world's imports and the world's exports represent two valuations of the same goods. If exports were always valued f.o.b. and imports c.i.f., as in the British Trade Accounts, the difference between the two valuations would give a fair approximation to the transport costs. In point of fact, however, there are important differences in the methods and bases of valuation employed in different countries. A useful analysis of the statistical bases upon which the trade accounts of various countries rest is given in one of the reports (Paper No. V: International Trade) prepared for the International Financial Conference at Brussels held in September, 1920.

For the present purpose, the most serious defect in the figures results from the fact that the United States, Canada and South Africa value their imports f.o.b. at the port of shipment. Another, though no doubt less important, source of error results from the adoption of various systems of " official values or "official estimates." This would not matter so much if we could suppose that official valuations introduced corresponding errors in both imports and exports. That, however, is not always the case. In Greece, import figures are based on an official valuation made in 1899, while exports are valued at current average market prices. The value of imports into Australia is based on the fair market value of the goods in the country of origin plus 10 per cent. to cover insurance and freight.

Another point to which attention may be directed is the possibility of important discrepancies between the export valuations and the import valuations of goods sent across land frontiers.

The excess value of the world's imports of merchandise in 1913 over the world's exports amounted to some £361,000,000. If we assume that the amount to be added for freight and insurance to the f.o.b. value of imports into the United States, Canada, and South Africa is no more than 10 per cent.1 of the total value of the goods imported into those countries by sea (and there is reason to think that in 1913 it was more than 10 per cent.), some £42,000,000 must be added, bringing the world's excess of imports in 1913 to some £403,000,000.

On the basis of the tonnage of the British mercantile marine, or of tonnage entrances and clearances in the principal ports of the world, rather over 40 per cent. of the total excess of imports (say £165,000,000) may be taken to be the gross sum attributable to the United Kingdom, before deducting expenses of ships in foreign ports.

This sum of £165,000,000 excludes shipping receipts from passenger traffic, but includes, in addition to freight receipts for the carriage of merchandise, certain other costs connected with transportparticularly profits on insurance of the goods and interest on the value of the goods while in transit. The whole sum represents "invisible exports," excepting such part as is expended abroad for bunkers, port dues, etc. This part should be deducted, but as a partial set-off against it, it is convenient to add an amount representing expenditure by foreign shipowners in the United Kingdom, which is an "invisible export." The net deduction would not, I think, exceed £30,000,000, so that we are left with some £135,000,000 attributable to the United Kingdom on account of freight and other costs of transport. If, anticipating a later argument, we put insurance and financial charges upon trade at about 2 per cent. of the value of our imports and exports, we reach the conclusion that in 1913 some £105,000,000 might be attributed to shipping, and some £30,000,000 to other costs connected with transport. If earnings from passenger traffic, as well as from cargo traffic, were taken into account, a substantial addition would have to be made to the £105,000,000, bringing it, I suppose, to at least £120,000,000.

3

1 With regard to this figure it may be noted that the excess of imports, namely, £301,000,000, is more than 10 per cent. of the world's exports minus the imports from oversea into the United States, Canada and South Africa (£4,073,000,000 less £425,000,000). This total of the world's exports excludes in most cases re-exports, but includes a large value of exports across land frontiers. There is little doubt that on the whole ocean freights represent considerably more than 10 per cent. of the f.o.b. value of the goods exported. The official statistics of imports into Brazil give both the f.o.b. and the c.i.f. values. Freight and insurance represented in 1913 over 19 per cent. of the aggregate f.o.b. value of imports. In the case of manufactured goods alone the percentage was 14.

2 I assume that the percentage would not be substantially different were financial, insurance and commission charges in connection with transport to be taken into account as well as freight.

3 It may be noted that receipts from passage money count only to a limited extent as an "invisible export." The service rendered by a shipping company in carrying a British passenger to a foreign country is as a rule not an "invisible export."

On the whole this method of estimating shipping earnings is, I think, more useful for the purpose of comparing one year with another than for fixing the figure for a single year.

(ii) Second Method.-A second method by which the earnings of British shipping can be estimated is to ascertain the receipts per ton of shipping for foreign mercantile marines for which official statistics are published, or for those British shipping companies which publish information, and to deduce therefrom the aggregate receipts of the whole of the British mercantile marine engaged in the foreign trade.

The receipts of the Swedish and Danish mercantile marines, with regard to which elaborate official statistics are collected and published every year, suggest that the gross receipts of British shipping engaged in the foreign trade might be £132,000,000 in 1913 (on the basis of the Swedish returns) or £139,000,000 (on the basis of the Danish returns).

A few British shipping companies published information as to their gross receipts from freight and passage money. Following are some particulars :

Year
Ended

Passenger Boat Companies.

Cunard Steamship Co. 31/12/13

Average per ton

£

Peninsular & Oriental 30/9/13

Unfortunately the number of companies which published information was small before the war, and is now smaller still. The information, such as it is, suggests that the earnings of cargo boat companies in 1913 amounted to rather less than £5 per gross ton of shipping, while the large passenger line companies earned about £10 per gross ton of 1 Excluding interest on investments, approximately £100,000.

This is an American company, but much of the shipping owned by it is under the British flag.