| International Balance of the United States Before the War | |||||||
|---|---|---|---|---|---|---|---|
| (Figures in millions of dollars) | |||||||
| Credit | Debit | Balance | |||||
| Credit | Debit | ||||||
| Merchandise | 2,000 | 1,500 | 500 | ||||
| Bullion | 30 | ||||||
| Freight, etc | 25 | ||||||
| Remittances | 150 | ||||||
| Tourists | 30 | 200 | 170 | ||||
| Interest and dividends | 75 | 300 | 225 | ||||
| Investment | 40 | ||||||
| 570 | 570 | ||||||
780. Explanation of the “favorable” balance.—The most important feature of the table is the great credit item due to the excess of exports over imports. Ever since 1873, with rare exceptions (only four years altogether) the United States has shown a credit balance of this kind, a “favorable” balance as it was called in the days when people believed that it would bring precious metals into the country. Actually, the “favorable” balance implied nothing more than that we were a debtor country, bound to export more than we could import from the rest of the world, to meet our obligations. The character of these obligations is indicated in the column of debit balances. Foreigners did more ocean carriage for us than we did for them, and had a balance due to them on that account; the figure in the table would be considerably larger if the freight bill had not been partially offset by the considerable purchases of coal and stores made by foreign ships in our ports, which counted of course to the credit of the United States. The remittances of private persons, largely of immigrants to this country sent to agents or relatives in their old home, amounted to a surprisingly large aggregate. Funds would be remitted, say, by a postal money-order, but of course the foreign government that honored this order would look for payment to the American post-office, which would have to depend on our surplus of exports to meet the debt. So in the case of the other items, expenses of American travelers and the claims for interest and dividends of European investors, we were bound to make heavy payments, and made them by delivering our cotton, copper, petroleum products, and so on, to a value much exceeding the value of our imports.
781. Movement of specie in the period of the war.—Some part of the total exports of the war period was a free gift. The food, clothing, and medical supplies that were donated by private individuals, by associations, and by the government, demanded no commercial return and no acknowledgment of indebtedness from the foreigner. Large as were these gifts in absolute value, they can be omitted from consideration; they may have formed a considerable portion of a milliard and still be negligible. For most of the exports that appear in the commercial returns the foreigner had to pay in the present or promise to pay in the future.
One means of payment was hard cash. In the few years immediately preceding the outbreak of the war the European banks, nervous because of the political outlook, had been trying to build up their reserves, and had been drawing gold from the United States. In the single month of July, 1914, over $40,000,000 were shipped from New York. American bankers and business men owed at this time several hundred million dollars, maturing before the end of 1914; the city of New York owed $80,000,000. For a brief period sterling exchange rose far above the normal par; an American was willing to pay over $5 for the right to a pound sterling payable in London. Soon the tide set in the other direction. The total gold stock of the United States at the outbreak of the war was about 1.8 milliard dollars. In 1920 it was 2.7 milliard, roughly one third of the world’s total stock of gold used for monetary purposes. In the interval the United States received from Europe over 1.2 milliard dollars in gold, of which it kept the larger part.
Reference to the table at the beginning of the chapter will show that silver flowed in the opposite direction. The United States as a silver-producing country, has had regularly a surplus to export, but parted with the very large sums appearing in the table in the years 1918-1919 as a means of liquidating part of the balance owed to Asia. The demand for silver to be shipped to the East was so strong that for a brief period the bullion in the silver dollar, which so recently as 1915 was worth only forty cents, was actually worth more than a dollar in gold.
782. Securities and loans.—Another means of payment employed by the peoples of Europe to meet the balance against them was the sale in the United States of American securities owned abroad. It is supposed that in the period 1914-1920 Americans repurchased 4 to 5 milliards in value of stocks and bonds that had been issued in the United States and held by foreigners. For example, of the common stock of the U. S. Steel Corporation 1,286,000 shares, over one-fourth of the total issue, were in 1914 held abroad. At the end of 1918 the number had dropped to 484,000, and in 1919 it declined still further.
American investors, furthermore, purchased several milliard dollars worth of foreign, mainly European securities, issued by governments, by municipalities, by railroads, and by business enterprises. Evidently the European, in debt to the American for the goods sent across the sea, could square the account by selling his stocks and bonds in this country and paying the proceeds to his creditor here.
Finally, and most important, the American government, after the entry into the war of the United States (April, 1917) took upon itself the task of financing the purchases made by associated European governments in this country, and advanced to them a sum amounting to nearly 10 milliards of dollars. In July, 1921, the account stood as follows, including only the advances made under the Liberty Loan acts, and omitting considerable sums due to the United States for the sale of surplus war material and for grain supplied to impoverished districts.
| (Figures in millions of dollars.) | |
|---|---|
| United Kingdom | 4,166 |
| France | 2,951 |
| Italy | 1,648 |
| Belgium | 348 |
| Total of these items | 9,113 |
| Total including items omitted | 9,435 |
783. Position of the United States as a creditor country.—Although it is not possible to describe with perfect precision the process by which the European peoples arranged to pay for the excess exports of the United States, the general situation is well enough known to warrant one conclusion of the greatest significance. The process resulted in turning the United States from a debtor country to a creditor country. Even if we disregard the 10 milliard loans made by the American government, and take account only of the investments made by private citizens in this country, it is apparent that the United States at the close of the war, instead of owing every year a balance to other countries on account of interest and dividends, was entitled to demand such a balance from abroad. So many items enter into the general international balance that this single one cannot be taken as determining the outcome, and deciding that after the war there would be in normal years an excess of imports over exports. The country will doubtless remain a debtor under some heads (private remittance, tourists). At the close of the war it certainly was not collecting interest and dividends in the form of an excess of imports, as the figures show. It continued to invest capital in foreign countries, particularly in Europe, in North America, and in South America; the capital value of the loans far exceeded any annual interest charge on them. Perhaps this process will continue in the period of reconstruction. So long as the flow of capital for investment in other countries exceeds the annual charges due from them, the surplus of exports (so far as determined by this one item) will continue. It is reasonable to believe, however, that sooner or later the tide will turn, and the United States will have, year in and year out, a surplus of imports over exports. The change will require a readjustment of ideas that have been fixed by generations of habit. Investors, demanding interest payments from foreign debtors, will no longer be able to maintain the attitude that imports menace the prosperity of the country and should be cut down by the restrictions of the tariff. Exporters will find that the current is set against them, and that they can broaden their market only as they stimulate still greater growth in the import trade. The American people will realize at last that, without a conscious exercise of their will, they have become a “world-power,” and that in their own interest, quite apart from humanitarian motives, they must accept new responsibilities and take an active part in international affairs.