upon the notion that “one man’s gain is another’s loss,"[3] but there is an error in elementary arithmetic here, both as to the number and as to the aggregate amount of profits.  The purpose of a protective tariff is to compel two of the citizens of a country to trade with each other instead of trading with two citizens of a foreign state; the number of profits made by each country is therefore not increased by substituting domestic for foreign trade.

What, then, as to individual size and aggregate amount of the profits?  The gain is not the same in all trades; the trade is made if there is a gain to each party, no matter how small it is; but the generous “profit” on one transaction where the conditions of the two parties are very different may be greater than the total of petty gains on a dozen trades between two traders of evenly matched powers.  Indeed, the greater the difference in the conditions and the capacities of two groups of traders, the greater is the sum of the profits which they may secure through the members of each group trading with those of the other, rather than by the members of each group trading only among themselves.  Can it safely be assumed that every trade with a foreigner is less advantageous than one with a fellow-citizen?  Diamond cuts diamond, but two Yankees left to themselves surely should not be worsted in bargains with the universe.  If they could exchange to better advantage with each other they probably would discover it as soon as the interested manufacturers and political orators who can prove so eloquently that they know the other man’s business better than he knows it himself.  Forcing the home trade by making our citizens trade with each other whether both wish to or not may be to the advantage of one citizen, but it is not likely to be to the advantage of both citizens.

Sec. 7. #The balance-of-trade argument.# At the foundation of nearly all belief in the virtues of a protective tariff will be found the “favorable balance-of-trade” notion.  The ideal of the more thorogoing upholders of a protective policy is to keep merchandise consistently flowing 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.