Erich Schiff’s German economic-policy essay challenges the demand that a country balance, or permanently fix, its exchanges with each individual trading partner. Through a three-country model, an account of monetary adjustment, and an analysis of import restrictions, he argues that bilateral imbalances are normal consequences of the international division of labour. Enforcing bilateral equality can therefore damage precisely the national economic interests it purports to defend.
Schiff distinguishes two versions of the balancing programme. One demands equality between merchandise imports and exports; the other also recognizes tourism, freight, interest, and other payments.
Man nimmt also an einem Überschuß der Wareneinfuhr aus einem einzelnen Lande in das eigene Land keinen Anstoß, wünscht jedoch, daß die Zahlungsbilanz mit jedem einzelnen Lande ausgeglichen sein solle.
English translation: One therefore takes no offence at a surplus of imports of goods from an individual country into one's own country, yet wishes that the balance of payments with each individual country should be in equilibrium.
The broader accounting does not resolve the conceptual problem: both versions isolate bilateral relations from the multilateral network that makes specialization possible. In an example adapted from Fritz Machlup, Switzerland specializes in watches, Czechoslovakia in cloth, and Yugoslavia in pigs. Differing demands generate deficits with one partner and surpluses with another, even when each country’s aggregate payments balance. Equality within every bilateral relationship would require an exceptional correspondence of demands.
Das Prinzip des polygonalen Handels bleibt dasselbe, ob drei oder dreihundert Länder beteiligt sind; es ist nur leichter durchschaubar, wenn bei der Darstellung eine geringe Zahl von beteiligten Ländern angenommen wird.
English translation: The principle of polygonal trade remains the same whether three or three hundred countries are involved; it is merely easier to see through when a small number of participating countries is assumed in the exposition.
The simplified model thus exposes a general mechanism rather than a peculiarity of three-country exchange. Schiff subsequently addresses the objection that its offsetting figures have merely been chosen to produce equilibrium. Continuing purchases require financing through exports, services, capital transactions, or reserves. An otherwise unfinanced outflow of gold and foreign exchange contracts domestic circulation and changes relative prices, tending to reduce the import surplus. His qualification is important: inflation must not counteract that monetary contraction.
Credit introduces a temporal dimension into settlement.
Nicht immer fallen dabei Leistung und begleichende Gegenleistung zeitlich zusammen.
English translation: The performance and the counter-performance that settles it do not always coincide in time.
Borrowing can finance present imports against future counter-performance. Schiff consequently distinguishes the risks of excessive foreign indebtedness from the existence of a bilateral deficit: the former may warrant concern without making the latter an adequate diagnosis of economic weakness.
The consequences of compulsory balancing emerge when Switzerland restricts Yugoslav pigs. Yugoslavia then has less purchasing power and must reduce purchases of Swiss watches or Czech cloth. In the second case, the contraction travels through Czechoslovakia before affecting Swiss exports. Adding countries multiplies the routes of adjustment without removing the interdependence. Import restrictions diminish the opportunities for exports and specialization rather than eliminating the need for overall settlement.
Schiff’s argument is counterfactual: exports need not visibly fall immediately after an import restriction to be lower than they would otherwise have been. Changes elsewhere in the payments system may conceal the loss. Nor does the mechanism depend on retaliation, since restricting foreign deliveries already restricts foreign customers’ means of payment. Visible gains to protected producers therefore do not establish a gain for the domestic economy as a whole.
An analogy with occupational exchange reinforces the argument. Doctors need not sell bakers services equal in value to the bread they buy from them; receipts from other patients finance the difference. Territorial borders do not invalidate this structure of indirect exchange. Generalizing the requirement to buy only from those who buy equally in return would undermine the division of labour itself.
Finally, Schiff distinguishes exact bilateral equality from the policy of preserving historically established exchange proportions. Such proportions at least reflect a relationship that actual trade once produced, but they cannot serve as permanent economic standards. Natural, technical, and social changes continually alter advantageous patterns of production. If Swiss textile production becomes more competitive, a beneficial reallocation away from watches will also change bilateral balances. Fixing those balances obstructs adaptation. Schiff’s central conclusion is therefore that national advantage must be assessed through multilateral exchange and changing productive opportunities, not through the apparent symmetry of isolated bilateral accounts.
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