Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-05-18
TRADE FOLLOWS DOLLAR
THROUGHOUT THE WORLD
Noted Banker Tells How International
Credits Serve Industry.
and Commerce.
and Commerce.
Continued From First Page)

tails. The volume OF our foreign COM
r1erce reached peak in october, 1929.
the total value of exports and imports
in that month being one OF the largest
reported since the inflated totals OF
1920. Since then the trend has been
steadily downward. although the pres
ent level compares not unfavorably with
those of several years in the recent
past. 1t Is only in comparison with
the very high totals of last year that
the current figures appear extremely
low
Nevertheless. the current decline in
our foreign trade is rightly regarded as
highly significant feature of the gen.
eral business situation, both here and
abroad In order to find its causes we
must go back beyond the stock market
panic Of last Fall and beyond the recess
sion in domestic business activity that
began last Summer. If we examine the
trend of foreign financing, we find that
last year the United States ceased to be
O heavy exporter of long-term capital
and became a heavy importer of short
term capital. This abrupt change in
the international financial position of
this country, which was due primarily
10 the absorption of foreign and domes-
tic funds by our inflated stock market
was In turn the chief cause of the de-
cline In our export trade.
finance and foreign trade, which At first
glance appears rather complex is really
q very simple matter Of arithmetic. II
Il best understood by considering fer
eien finance as merely one phase of
foreign trade--s trade in securities
When We invest capital abroad we i'm
port stocks and bonds, and are thereby
enabled to export commodities. In ef-
feet, foreign countries are importing our
goods and are paying for them not in
cash but In secur!ties-thac Is, in their
promises to pay at some future time.
Exports Must Equal Imports.
Thus, If we consider foreign trade as
O whole-as an exchange OF goods, serv-
ices, gold and securities--lt becomes
self-evident that over long period our
exports must equal our imports. For
a short time there may be n discrep-
ancy. which is reflected in bankers in
ternational balances. But the balances
which bankers require abroad in order
to carry on their business are compare
lively stable. II the actual balances
rise greatly above the necessary level or
decline much below 1t, the disparity be-
tween the supply of and demand for
such balances produces fluctuations in
exchange rates which result in gold
shipments and otherwise discourage a
continuance Of the conditions that pro-
duced the disparity.
But to present set of economic phe-
nomena in mathematical terms is one
thing and to analyze the casual reIa-
tionships between those terms is quite
another. No one can disagree with The
fundamental assertion that our balance
OF international payments must balance
because such an assertion is tantamount
to saying that we must pay for what we
get and must be paid for what we give
But the difficult questions Of cause and
eject remain. Every item In the ball
sA.-,e vi payments Is more or less closely
related to all the others, partly as cause
and partly as effect.
FOR practical purposes the most useful
point Of departure Is perhaps the change
sn international bank balances, since
this item furnishes yardstick by which
bankers measure the how Of funds. and
at The same time acts as q sort of gov
ernor or balance wheel Which through
1tS effects on foreign exchange rates and
the movement of gold, most directly de-
RermineS the now OF international pay-
ments. A credit or export item in the
balance OF payments is one that tends
20 increase the bank balances of Amer
scans abroad or to decrease the balances
OF foreigners in American banks, and
oebit OF import item Is one that tends
20 reduce the foreign bank balances of
americans or to increase. the deposits
OF foreigners IN banks In this country.
Balance Interesting.
IL Is interesting to note how the bal
Ance OF international payments of the
United States has been maintained dur
ing the last decade, in the face of the
abnormal conditions that have prevailed
curing this period. Estimates of the |
various items in the balance have been
made since 1922. During the seven
year period from 1922 through 1928, the
united States had a surplus of rner-
cnandlse exports amounting to "a. OO8.- |
100000; our loans to foreign countries
earned 1885, 100000 in interest: and
credit balances of foreigners in our
banks increased $3.50, 900 600
These three net items, totaling 50 O0o. = |
100000, all represent amounts for which
foreigners must have rendered an equi-
Talent to us, in one form or another. |
1his equivalent was paid, first by a sur
plus of invisible" imports-that is, by
the rendering of miscellaneous services. |
such as the carriage of ocean freight, |
etc, amounting to s5,157, 900 900; by the
shipment of SPAS, ooo,o 900 in gold and
currency; and by the delivery OF
&3,603, 000,0 900 In stocks and bonds. Thus
It appears that there has been not a
credit balance, but considerable debit |
balance. in the exchange of goods and
services and that the funds for invest
fnent abroad have been supplied from
the interest earned on previous foreign
Investments.
But we must be careful not to read
Nnwarranted implications into the fig
ares. It is no more accurate to say
that our ability to expand our foreign
Investments has been solely due to our
large receipts of interest from older
EnVngtrnpntc than tn az that fU
to our so-called favorable" balance
of trade in commodities Nor can the
casual relationship be regarded as OPP
Grating entirely in the opposite direc-
ton, as is done by those who attribute
our persistent surplus of merchandise
exports over imports to the increase In
our foreign investments. 1t is I'M
doubtedly true that trade follows the
dollar"-that is, that foreign invest
Tnents stimulate export trade; and also
that an export trade balance facilitates
the further expansion of loans abroad.
Factors Outside Balance.
But both of these conditions are ulti-
n1ately due to factors that lie quite out
side the balance of payments-m the
present instance. to the rapidly increas-
ing productivity of American industry
and the need of American capital in
foreign countries. The World War re-
suited in the destruction of property
and the Reorganization of industry and
finance In Europe. During the greater
part OF the last decade the principal
task has been that of rehabilitation.
Fortunately, America has been in a
position to aid In performing this work
by chipping huge quantities Of commod-
tiles overseas and by lending TO Europe
the money with which to pay for them.
1T is idle to speculate as to whether we
evere able to ship the commodities be-
t,,a tal Y,oppnu IN lend or