INTRODUCTION

This is the twelfth consecutive annual report on the balance of international payments of the United States to be published by the Department of Commerce. The reports for 1922, 1923, and 1924 are out of print, but an itemization of our international transactions during these years, as well as during the 3-year period, 1919-21, may be found in the summary table in appendix L.

These annual surveys represent primarily a compilation of our international transactions from the standpoint of commerce, banking, and foreign exchange. In practice, their usefulness extends into the wider fields of national and international economic policy. The study of the changes in the country's international financial position during 1933 reflects the effect of dollar depreciation upon individual types of transactions and provides us with a quantitative measure of such elusive factors as the reported "flight from the dollar", the repatriation of foreign dollar securities, and shifts in international banking accounts.

The various classes of international transactions constantly tend to exert positive or negative influences upon each other. Transactions which involve increased expenditures abroad may set in motion forces which lead to an increase in receipts from foreigners. These interdependent influences cannot be measured with precision, but they suggest the significance which such factors as United States tourist expenditures abroad, international dealings in securities, earnings on investments abroad, short-term capital movements, and many others have in any evaluation of this country's international financial position.

Preliminary estimates of the United States balance of international payments in 1933 were released by the Finance and Investment Division of this Bureau on March 21, 1934. Although important changes have been made (on the basis of more complete data) in some of the preliminary figures, the latter reflected with a fair degree of accuracy the relative importance of the major international movements during 1933. Many of the figures are necessarily estimates and are, therefore, subject to further revision, but it is believed that later data will not indicate any important changes in the present compilation.

The greater portion of this study was made during the incumbency of Dr. Willard L. Thorp, as Director of this Bureau, to whom acknowledgment is made for valuable advice and criticism. The compilation and analysis of the data were made by Dr. Amos E. Taylor, Assistant Chief of the Finance and Investment Division, and by Dr. Paul D. Dickens, also of the Finance and Investment Division, who prepared several sections as indicated in the text of the bulletin and who collaborated in various other ways. Dr. Taylor, who is responsible for the text and arrangement of the report, was also aided by other members of the Division's staff and by various specialists who were consulted on matters pertaining to their respective fields. Mention is also made of the many individuals, banks, brokerage houses, and business concerns, whose cooperation was essential to the compilation of some of the more important items.

JUNE 1934.

CLAUDIUS T. MURCHISON, Director, Bureau of Foreign and Domestic Commerce.

(X)

UNITED STATES BALANCE OF INTERNATIONAL PAYMENTS IN 1932 AND 1933

1 This item consists roughly of three parts: (1) Exports and imports of goods for which data are available but not recorded in the official trade figures (e.g., ships, bunker fuel sold in the United States, silver, etc.); (2) goods whose export or import is wholly or partly omitted from official trade data (e.g., unrecorded parcel-post shipments, goods smuggled into the country, etc.); (3) corrections of certain recorded trade figures to allow for possible overvaluation (in case of goods sent on consignment) or undervaluation (in case of imports subject to ad valorem duties), uncollectible accounts, etc.

2 This item includes certain funds which had accumulated abroad in blocked accounts and were funded during 1933.

3 Capital items are viewed as "exports" and "imports" of evidences of indebtedness.

4 This item represents three sets of short-term transactions: (1) Net outflow of $412,000,000 in shortterm banking funds; (2) net amount of $7,000,000 extended by Reconstruction Finance Corporation for financing agricultural surpluses; and (3) net estimated inflow of $34,000,000 in commercial funds.

5 This item takes account of all security movements between the United States and foreign countries and includes international sales and purchases of long-term issues, new underwriting, sales and purchases of properties not represented by security issues, and security transfers resulting from redemption and sinkingfund operations.

(XI)

THE BALANCE OF INTERNATIONAL PAYMENTS OF

THE UNITED STATES IN 1933

INTRODUCTORY

A nation's balance of international payments may be briefly defined as an itemized account of the commercial and financial transactions conducted, within a stated period of time, by all the people of that nation with the people of all other nations.

All transactions entering into the balance of international payments during a given year must necessarily be shown in currency values. It is, therefore, convenient to show the items on the basis of receipts for exports, whether "visible" or "invisible", and of payments made for imports, "visible" or "invisible." This makes possible a simple and consistent classification without the necessity of too many qualifying technical terms, which usually tend to bewilder rather than aid the average reader. The confusion often attending the treatment of capital transactions may be eliminated if appropriate emphasis be placed on the fact that the so-called "export of capital" represents an import of evidences of indebtedness, and vice versa. For purposes of classification, the sale of a security to a foreigner is similar to the sale abroad of merchandise or services.

The claims which Americans hold against foreigners as a result of sales of merchandise or services of various kinds may exceed the foreign funds required to meet corresponding claims held abroad against residents of the United States. This balance may be settled in various ways as, for example, by gold imports or by foreign lending by Americans (i.e., by importing foreign evidences of indebtedness). The possible methods of international settlement are numerous, but in the aggregate all receipts (credits) and payments (debits) must balance. It is, of course, virtually impossible to determine with exactness the value of certain items, and for that reason the compiled statement usually contains an item representing transactions unaccounted for, even though various minor errors may tend to offset each other.

International transactions are exceedingly varied and tend constantly to exert "promotive" and "detractive" influences upon each other. For example, payments by foreign governments may require the collection of fewer taxes in the receiving country, with the possibility that part of the domestic funds thus released may cause larger expenditures abroad by merchants or tourists. Large expenditures abroad by American tourists may, in turn, tend to influence foreign business favorably and lead to increased purchases in the other country. It is impossible to measure these influences statistically, but it is possible to trace them and to note their relative significance.

(1)

Many of the purposes served by the annual balance of international payments at once suggest themselves. A nation engaged in international trade is constantly remitting and receiving funds across the national frontiers. Its capacity to absorb the stream of cash claims coming from abroad depends upon the nature and sources of its income abroad. Normally the balance of payments reflects a nation's capacity to pay, its ability to buy or to borrow abroad, and its changing requirements for foreign goods and services. Budgetary policies are frequently influenced by the results of the international balance. The exporter, the importer, the banker, the investor, the student of world affairs-all watch the ebb and flow of the international movements.

The significance of particular classes of transactions depends, of course, upon the special factors underlying them. A country's international financial position may be materially affected by the results of involuntary acts, such as defaults by foreign debtors in a time of transfer difficulties. Exchange and transfer restrictions may require reinvestment abroad by the creditor, even though normally he would have his interest receipts transferred for expenditure or investment at home. For these reasons special attention is given in this year's analysis to the status of our investments abroad.

Owing to the suspension of gold payments by the United States during the last three quarters of 1933 and the effect of dollar depreciation upon the international balances, this bulletin devotes more space to a discussion of exchange rates than did other recent issues. With a view to delineating the principal exchange factors and their influence throughout the year, the analysis of the year's accounts is preceded by a section on The Dollar in Foreign Exchange during 1933.

The analysis of United States foreign trade in 1933 is confined to (1) brief treatments of significant changes in total value and total quantity of merchandise exports and imports in 1933 as compared with 1932 and (2) the major changes in geographic distribution. Two tables showing the latter class of changes by individual countries and by trade regions are included for purpose of convenient reference. The limitation of textual discussion was considered logical in view of the several special publications on foreign trade published by the Bureau of Foreign and Domestic Commerce.

The different classes of international transactions are discussed in the order shown in the summary table opposite page 1 of this bulletin. A special section on the Present Status of American Investments in Foreign Countries is added this year because of certain abnormal influences which underlay the international securities movements in 1933 and because of the large volume of our foreign investments, the interest and sinking-fund services on which are either wholly or partially in default.

The section on the International Securities Movements is supplemented this year by the results of a special survey of foreign holdings of American corporate shares. In the collection of data the Finance and Investment Division received the cooperation of approximately 80 corporations, some of which were not able, however, to furnish sufficiently complete data to warrant inclusion in the statistical compilations. Several others prepared the data but were unable to make them available in time for inclusion in the survey.