[Editor's Note: Published in January 1914 in Neue Frei Presse,"Our
Passive Trade Balance" (“Unsere passive Handelsbilanz”) would
prove to be Eugen von Böhm-Bawerk's last publication
before his death. Ludwig von Mises mentions the
article in an essay written after Böhm-Bawerk's death, but
to our knowledge, this is the first time the essay has appeared in English. Nathan Keeble located
a scan of the article posted by the Austrian National Archives. Translation
by Kai Weiss.]
As is well known, the trade balance of the Austro-Hungarian monarchy has
become strong and increasingly passive since 1907. Previously, it had been active for more than
thirty years, from 1875 to 1906, with the only exception of 1898, when a very
small amount of passivity had been recorded. Even earlier, the years 1859 to
1869 were active, and the years 1870 to 1874 showed a passive trade balance
in rapid changes. After the long active period from 1875 to 1906, passivity
set in 1907, initially with the small number of 44.7 million Crowns, and then
again in 1907, so as to rise rapidly over the annual numbers of 142.8, 427.4,
434.3, 778.4 to the level of 822.9 million in 1912, which is extremely
important for our circumstances. Also, the balance for the current year of
1913 is likely to close with a very substantial level of liabilities.
Why has our trade balance again become passive? Opinions on this vary
considerably. Or, to be more precise, we are facing a phenomenon which has
caused a great deal of public and professional interest and concern, but has
not yet been fully clarified in a completely satisfactory manner. It came
upon us like a mysterious surprise. In the beginning, they were believed to
be purely mechanical because of the pressure to increase imports of food
products and raw materials and because of the known causes of the severe
impediment to our export, particularly to the Orient. But as passivity grew
and, especially since it was constantly settling in, this mechanical
explanation - we will see later on why - turned out to be insufficient, and
our experts began to look for other, deeper explanations for the equally
strange and disturbing phenomenon. A substantial part of the arising and interesting
discussion took place in the columns of the Neue Freie Presse and
therefore I am very pleased to be able to bring some thoughts to the public,
which arose from the consideration of the strange problem in my mind, also at
this place, which is excellently suited for this purpose.
I'm much more a theoretician than politician and therefore stand in the
mastery of concrete practical details, in the intimate knowledge of the
individual economic facts which emerged in the various import and export
sectors during the critical period, certainly far behind the excellent
professionals who have spoken before me on this issue. On the other hand,
however, I believe that it is precisely on this issue that full clarification
cannot be achieved without the aid of theory; that, in this case, it is
almost more important than knowledge of the concrete facts to interpret these
against the background of certain fundamental theoretical insights; and I
therefore believe that I dare to contribute, so to speak, my theoretical
might to solving our great economic mystery.
First, a few words about the previous explanations. I have already spoken
of the purely mechanical explanation of the need to increase imports of raw
materials and to reduce exports as a result of disruptive wartime turmoil and
perhaps an even more restrictive trade policy. Certainly these mechanical
reasons explain something, but certainly not everything and not the main
thing in the long run. The passivity of our trade balance was then associated
with the "industrialization" of our homeland on several occasions
and in different opinions. One of the most intelligent representatives of
this opinion believed it to be in connection with the prophecy that because
of this very origin the passivity would remain permanent and would not
disappear any more. I would like to believe, conversely, that this attached
prophecy shows that there is something wrong with the statement that has been
made. There is no direct connection between industrialization and the
passivity of the trade balance.
The connection is only mediated by intermediate members. And these
intermediate members, paradoxically as this may sound, can be of quite the
opposite nature. National e conomies can become rich by developing their
industrial production, so rich that they are able to sell their accumulated
wealth and capital to other, poorer nations in the form of loans or other
types of interest-bearing or profitable capital investments in poorer
countries abroad. Then, the interest and other incomes of these foreign
capital investments, as we will see later, do not flow into the rich
industrialized country in the form of money, but in the form of imported
products that can be bought for the amount of interest owed or similar, and
constitute an extra increase to the imports, which, because it is already
paid in advance by the interest owed, no longer needs to be paid for by
exported products, as is usually the case in international trade in goods,
and which therefore constitutes a plus of imports over exports, in other
words a passive form of the trade balance. And because the interest receipts
or otherwise invested capital abroad are so permanent as these capital
investments themselves, a passivity of the trade balance resulting from such
a cause can and must also be a permanent one. This is the case with the rich
industrialized countries such as England, Germany, France and Belgium. The
most striking example is England, whose trade balance has been constantly
passive for many decades, for example in 1912 with the colossal figure of
almost 146 million pounds sterling or about 3500 million crowns.
Unfortunately, however, the paradigm of the creditor states, which have
become rich as a result of industrial development, does not yet fit into our
case at all. Regrettably, our overall monarchy as a whole is still one of the
debtor states that is predominantly committed to foreign countries, and there
can therefore be no question of us having already achieved the desired degree
of 'permanent passivity', which is based on the permanent influx of goods
from foreign debtor states.
But now there is a second, just the opposite, intermediate cause, which
can link industrialization with passivity, but only with momentary, temporary
passivity. When a poor, well-funded country begins to turn its attention from
agriculture to industry , it may well be that it will not be able to
finance the large, costly investments required to set up and equip its
industrial production facilities, including the necessary auxiliary
institutions for a full transport and traffic system, from its own capital
resources, but has to get into debt for its procurement from foreign
countries. It borrows the necessary capital from abroad - again, in the last
instance, not in the form of money, but directly or indirectly in the form of
any products or means of production, which supplement the inadequate stock of
goods of the domestic economy in those directions which require the intended
technical investments to be made. Due to and on the occasion of these debt
contracts, a flow of goods pours into the domestic market, which does not
have to be paid for by the domestic market like its other ordinary trade
imports through an identical export of its own products, but which can remain
unpaid for the time being because of the borrowing that has taken place, and
which therefore, just as in the opposite case of the interest-bearing
creditor states considered earlier, justifies a plus in the import of goods
over the export of goods or a passive trade balance. Of course, a passivity
arising from this intermediate cause cannot be permanent or everlasting.
Because you cannot continue indebtedness indefinitely; you have to pay off
the debts you have incurred sooner or later, and, in any case, you have to
start sending the interest on the debts you have contracted abroad as soon as
possible. Both types of out payments must sooner or later, but in any case in
the foreseeable future, cause a decline in the flow of goods, an export of
products to foreign countries that will first reduce the passivity of the
trade balance, then balances and finally end even in the opposite, an active
trade balance; accordingly, countries that are in debt have passive trade
balances, countries releasing themselves from their debts by means of
repayment, or punctually paying off their debt interest without further
indebtedness, have active trade balances.
Is this perhaps the paradigm that fits our case? Certainly much more
likely than the paradigm of the permanently "passive" creditor
states. And if a different variant of opinion wants to explain our passivity
as a "transition" phenomenon connected with (especially in Hungary
increasingly onsetting!) industrialization, then it will certainly come
closer to the truth. But it is impossible to explain everything, and in
particular the striking change in the shape of our trade balance since 1907.
That is because industrialization with its capital requirements, especially
in the western parts of the overall monarchy, has already begun much earlier
and has nevertheless been accompanied by an active trade balance for many
years. It is therefore logical to conclude that the equally sudden and sharp
turnaround, which we have before us as a problem in need of explanation,
cannot be fully explained by a cause which, although perhaps to a lesser
extent but also at the time of the active trade balances, had been effective.
Another attempt to explain the situation will focus on the home-sent
earnings of our emigrants. It is not through indebtedness that, in this view,
we acquire the capital goods that have become necessary, as a result of our
progressive industrialization, which we have acquired from abroad, but rather
we earn it with the earnings of our emigrants. Our passivity, like the
passivity of the wealthy creditor states, although it is due to another
intermediate cause, does not mean indebtedness, but, on the contrary, an
increase in the wealth of our monarchy, which we owe to the hard work and
thriftiness of hundreds of thousands of our emigrated workers. Again a grain
of truth, but certainly again not the explanation of the main thing. If our
emigrants' earnings were lacking, however, the passivity of our trade balance
would most likely be somewhat lower than it actually is. But the difference
that is involved in the change from quite respectable activity to enormous
passivity is far too big to be explained by this cause. In the 25 years from
1879 to 1903, we had an average activity of 225 million Crowns, in 1912 a
passivity of almost 823 million; this gives an explainable difference of 1048
million. Now, the annual figure of emigrants' earnings for the year, which is
included in their attempted explanations, does not amount to more than 460
million. (Others suggest the figure is even lower.) Moreover, if one
considers that the emigrants also have to lead a not inconsiderable amount of
capital to foreign land, although emigration has increased again in the last
decade, it was already effective before 1903 in the same sense and therefore
already provided several hundred million in earnings per year at that time.
The result is that the increase in earnings which has occurred since then
means that, even in the best case scenario, only a very modest fraction of
the difference in the trade balance can be explained. The main point of the
amendment must therefore be explained differently.
I fear that the right explanation will be far less optimistic. I believe,
that in the last few lustrums in our trade balance, we will once again have
become very passive, simply because we have started again in the same
lustrums to be heavily indebted to foreign countries. We had previously had a
long list of active trade balances, because at that time we had succeeded in
bringing foreign debt to a halt, smoothing off the interest due on old debts
by means of exported flows of goods and even redeeming a considerable
proportion of our old debt securities by means of the same goods flows sent
abroad. And we have now become passive again, because we have once again
started to get even more indebted abroad; for reasons which, although they
may be related to a certain extent to the industrialization of our homeland,
which is so often called upon for that purpose, but which, I believe, can be
attributed to a different and much stronger part of all sorts of other, far
from entirely pleasing phenomena, which are even more profoundly in our
private and, above all, public economic life. This positive opinion of mine
is to be explained and justified in a second article.
