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284 ECONOMIC INQUIRIES AND STUDIES
words, then, it is said there can be no doubt we have
been living upon our capital, as we have been sending
abroad the securities which we once possessed, and
have been becoming indebted to foreign countries,
results corresponding, in fact, to the excess of imports
over exports shown in our trade returns.
Such is the allegation, and the question is how we
are to deal with it in a particular case according to the
principles laid down at the heginning of this paper.
I would notice then, first of all, that the statements
are not even formally complete for the purpose of
proving the point to which they are addressed. That
we are parting with our securities and becoming, on
balance, less of a creditor nation than we were before,
is not a fact, even if it were true, which would prove
that we are living on our capital. In stating the matter
theoretically, I drew attention to the possibility that a
diminution of investment abroad might be accompanied
by an increase of investment at home, and that, before
we could infer from a diminution of our investments
abroad that we were living on capital, we must go
further, and demonstrate that there had been no equi.
valent increase of our capital at home. I must add,
further, that this is no mere theoretical and argumenta-
tive point. Somewhat more than thirty years ago,
when I was assisting Mr. Bagehot in the editorship 01
the" Economist," the question of an excess of imports
being treated as a proof that we were, as a nation,
living on ourcapital even then arose, and Mr. Bagehot's
first idea on the subject was, that it was quite possible
for the country to be parting with some of its foreign
investments, and yet not to be diminishing its capital.
The very things we were importing, he said, the food
and the raw materials, were the articles required by
labourers who would be employed in building the
houses and factories, and making the railways, and
executing other works which would constitute invest-
ment at home. The diminution of our investments
abroad, and the consequent increase, for the time, of