"ECONOMISTS," said John Kenneth Galbraith, "are most economical about ideas. They make the ones they learned in graduate school last a lifetime." I'm not an economist, but I've certainly committed their sin. I learned the doctrine of free trade in school 37 years ago and never reexamined it until recently.

It's not that I lacked the incentive to do so: For many years the company I run -- Berkshire Hathaway, Inc. -- was an important textile manufacturer, and we regularly took our lumps from imports. Nevertheless, the benefits to society from free trade seemed to me so compelling that I never lobbied for import quotas or tariffs, though both our union and trade association argued that I should.

We finally gave up on textiles a few years ago -- and I, more recently, gave up on free trade. My textile experience played no part in my conversion; I remain convinced that protection of specific industries and jobs should not be the concern of capitalism. Rather, I changed my thinking because I finally became aware of a more fundamental damage that a massive, continuing trade deficit will impose on this country.

I have a plan that will promptly eliminate the trade deficit but leave us free of most of the problems that quotas and tariffs produce. But first, to understand the necessity for action, we need to look at both the promise and reality of free trade.

The economists' rationale for free trade is the theory of "comparative advantage." The premise is simple: Do what you do best. If both Americans and Hondurans enjoy cereal with bananas, we should produce the cereal and they should grow the bananas. If, instead, the two countries reject trade and insist upon self-sufficiency, the citizens of both will eat less and work more.

Well, just like the script says, we're doing what we do best and the rest of the world is doing what it does best -- but things aren't working so well. Last year the rest of the world purchased only $217 billion of our merchandise while we purchased $387 billion of theirs.

Of course, if there were only two islands in the world -- one producing bananas and the other producing cereal -- such an imbalance would be unlikely. If our island wanted bananas, the other island would expect grain of equivalent value. If instead we offered long-term IOUs, backed only by our children's willingness to honor them, the other guy's banana boat would never leave the dock.

We do not trade in a two-island economy, however. We trade instead in a world that has willingly accepted American IOUs in exchange for goods. Last year, therefore, our citizens could consume about 4 percent more than they produced. That is a privilege denied much of the world. Brazil or Mexico, for example, can't import goods in return for IOUs denominated in their own currencies, no matter what interest rate theypromise. And today they can't pledge to pay in American dollars because no one believes they can live up to the commitment.

America's exceptional ability to charge its massive foreign purchases is a reward for our nation's past integrity. The credibility of our IOUs means we can trade pieces of paper (U. S. bonds, dollar-denominated deposits, etc.) for whatever we'd like to have. An unlimited credit card of that kind can be as seductive for a country as for an individual. Promiscuous usage, however, has inevitable, though often delayed, consequences.

One certain consequence for a country is that the value of its IOUs will eventually drop. A sufficiently large decline will produce a cure: At one exchange rate or another, a debtor country will be able to balance its books. And, indeed, the drop that the dollar has taken will almost certainly cause our trade deficit to fall somewhat in 1987. A devaluation draconian enough to eliminate the deficit, however, would be intolerable both to us and our major trading partners.

Won't the world, though, react to the erosion in the value of our IOUs by eventually refusing to accept them, thereby forcing our trade into balance? Won't we, like the less-developed countries, finally hit a credit-card limit?

Here, again, our good reputation plays a perverse role. A world that finally rejects our IOUs -- U. S. Government securities, for example -- will eagerly accept ownership of our assets instead. In contrast, creditors of, say, Peru are understandably loath to trade large amounts of either goods or the Peruvian IOUs they hold for businesses, real estate, etc. within that country's boundaries. Why? Because the creditors are likely -- at some point, and, in one way or another -- to have their property confiscated. Both history and common sense tell us that, in most countries, massive foreign ownership does not square with political reality.

The United States is viewed differently. Even if foreign ownership of assets within our borders should mushroom, no one would expect us to descend to confiscation or other kinds of punitive actions. Therefore, other nations will remain enthusiastic about trading their cars and VCRs for, say, Manhattan real estate or partial ownership of IBM. Foreigners' faith in our IOUs may eventually falter; faith in our real estate and businesses will be steadfast.

Staggering shifts in ownership could occur. The equity value of all public companies in America is under $3 trillion, which is equivalent to less than 20 years of our current merchandise trade imbalance. And, as foreign-held properties and IOUs grow, the income from these investments will grow correspondingly and add to the buying power that foreigners are amassing from their trade surplus. That process will go on and on as compound interest does its thing.

Our riches are our curse in our attempts to attain a trade balance. If we were less well-off, commercial realities would constrain our trade deficit. Because we are rich, however, we can continue to trade earning properties for consumable trinkets. We are much like a wealthy farm family that annually sells acreage so that it can sustain a life style unwarranted by its current output. Until the plantation is gone, it's all pleasure and no pain. In the end, however, the family will have traded the life of an owner for the life of a tenant farmer.

The time to halt this assets-for-consumables trading is now, and it can be done. The plan I have in mind may at first sound gimmicky. In truth, it retains most free-market virtues. It neither protects specific industries nor punishes specific countries, and it should not engender trade wars. It would increase our exports and might lead to increased overall world trade. And it would balance our books without further devaluations of the dollar.

We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Our exporters would, in turn, sell the ICs to parties wanting to import goods into the United States. To import $1 billion of goods, for example, an importer would need ICs that were the by-product of $1 billion of exports. The inevitable result: trade balance.

Because our exports total close to$20 billion a month, ICs would be issued in huge quantities and would surely trade in an exceptionally liquid market. They would have a short life -- perhaps six months -- to discourage speculative accumulations. Intuitively, I feel they would sell at something less than 10 cents per dollar of face value. For ease of seeing what might happen, however, let us postulate a price of 10 cents.

Other things being equal, this would mean a U.S. producer could realize 10 percent more by exporting his goods than by selling them domestically,with the extra 10 percent coming from his sales of ICs. In actuality, many of our newly assisted exporters would cut prices abroad to gain market share. They would most likely do so when selling commodity-type products. If aluminum, for example, was selling for 60 cents per pound domestically and ICs were worth 10 percent, domestic aluminum producers could sell in foreign markets for about 55 cents plus transportation costs and still earn normal margins. Our output would be more competitive and exports would expand.

Foreigners selling to us, of course, would face tougher economics. But that's a problem they're up against no matter what trade "solution" is adopted -- and one surely is coming. The IC approach would maximize the flexibility of countries exporting to us, since it would not penalize any specific industry or product. In the end, the free market would determine what would be sold here and who would sell it; the ICs would determine only the aggregate dollar volume.

To see what would happen to imports, let's look at a car now being imported for $10,000. Assuming ICs sold for 10 percent, the importer would face a total cost of $11,000. If demand for the car was exceptionally strong, he might manage to pass all of this on to the American consumer. More likely, competitive forces would not allow this and the foreign manufacturer would have to absorb some part, or even all, of the $1,000 IC cost.

The IC plan would have some serious negative consequences. Prices of many imported products would increase, and so would the prices of certain competitive products manufactured domestically. Often the cost of the ICs, either in whole or in part, would act as a tax on consumers. Additionally, interest rates might initially rise, although that is by no means certain.

These are serious drawbacks. But there are drawbacks also in continuing devaluations, higher tariffs, or quotas -- courses of action offering a smaller chance of success. A price must be paid to eliminate the trade deficit, just as one must be paid if the budget deficit is to be eliminated. If we seek a free lunch, we will have no lunch at all. What can be said with certainty is that the price of any "solution" to the trade-deficit problem will rise if action is delayed.

I believe that ICs would produce, rather promptly, a U.S. trade equilibrium well above present export levels but below present import levels. ICs would not build a protective wall around any specific domestic industry, and thereby reduce its incentive to compete worldwide. Instead, they would moderately aid all of our industries in world competition; the free market would ultimately determine which were winners.

This plan would not be copied by nations that are net exporters: ICs of such countries would have no impact on trade since they would always sell at a nominal price. Would major exporting countries retaliate in other ways? Would this be a Smoot-Hawley tariff war all over again? Hardly. At the time of Smoot-Hawley we ran an unreasonable trade surplus that we wished to maintain. We now run a damaging deficit that the whole world knows we must correct.

For decades the world has struggled with a shifting maze of punitive tariffs, export subsidies, quotas, and the like. Many of these import-inhibiting and export-encouraging devices have long been employed by major exporting countries trying to amass ever-larger surpluses -- yet significant trade wars have not erupted. Surely one will not be precipitated by a proposal that simply aims at balancing the books of the world's largest trade debtor. Major exporting countries have behaved quite rationally in the past and they will continue to do so -- though it may be in their interest to attempt to convince us that they will behave otherwise.

The likely outcome is that the exporting nations -- after some initial posturing -- will turn their ingenuity from protecting their domestic industries to encouraging imports from us. Remember: As their markets for our goods grow larger, so also will the stock of ICs increase, for use by their export industries. Larger quantities of ICs would also drive down their market price. Indeed, sufficient export opportunities for us could make ICs valueless and render moot the entire plan. With this incentive, previously "inviolate" trade restrictions of important exporting countries might quickly disappear.

In installing an IC plan, we might opt for a transition period. For a few years, our government could issue extra ICs, a step that would enable the world to adjust as we reduced our trade deficit in an expeditious but controlled manner. The government could either auction extra ICs every month or simply give them to, say, the less-developed countries to foster their exports.

At some point, however distant, America must eliminate its trade deficit. If we have previously swamped the world with our IOUs and transferred to exporting countries ownership of much of our property, we will have only two choices.

The honorable course would be for us to consume much less than we produce for a long, long time. This choice would leave our children paying, with interest, for what we have charged. The sustained pain and social unrest that this approach can produce is now visible in a number of LDCs.

The dishonorable choice would be for us to confiscate foreign-owned property in one way or another and to inflate our currency to such a degree that our IOUs become close to valueless.

We should avoid getting close to either distasteful choice. A wise man once said, "All I want to know is where I'm going to die, so I'll never go there." This dictum applies, in spades, to economic problems.

In 1626, we made one of our better moves: Encountering some consumption-oriented locals, we swapped a few trinkets for ownership of Manhattan Island. Now we've begun reversing the process. We should stop this foolishness promptly, and ICs will do the job. Warren Buffett is chairman of Berkshire Hathaway Inc., a multibillion-dollar holding company based in Omaha. His company is a large holder of communications stocks, including The Washington Post Co. and Capital Cities/ABC.