SALES OF OUTSTANDING SECURITIES

Besides new issues of foreign securities and payments on old loans, the international movement of capital comprises two other important elements, "Sales of outstanding securities to foreigners" and "Purchases of outstanding securities from foreigners." In previous years an attempt was made to distinguish between American securities and foreign securities in collecting information concerning purchases and sales, but it seemed advisable not to make this distinction in the present study. The following data are based on replies to a questionnaire sent out by the Finance and Investment Division of the Department of Commerce. For comparison the results of previous questionnaires are given below, showing purchases and sales in 1919, 1920, 1921, 1922, and 1923.

Although these figures are far from complete, they show that American investors have acquired since 1922 a decided preference for foreign bonds payable in United States dollars rather than foreign currencies and that foreign investors have for the last three years been very active in the American market. In some cases they have bought American securities because they had lost confidence in their own national finances. In other cases they have bought back their own securities because of reviving confidence. The second motive is believed to have predominated in 1924, although the first one certainly was more important in 1923.

It is worthy of note that the total purchase of securities, including both those issued here and those purchased abroad, was apparently less in 1924 than in any year since the war, with the exception of 1923, although the amount of new foreign bond issues was the greatest since 1916.

THE UNFUNDED CREDIT BALANCE IN 1924

As in the three preceding years, the table of international payments in 1924 shows an excess of debits over credits, amounting to $212,000,000. It is important to note that in 1923 debits exceeded credits by $119,000,000, in 1922 by $508,000,000, and that in those two years the most satisfactory explanation of the excess was found in an assumed reduction in the "unfunded credit balance "-that is, the excess of amounts owed to us over amounts owing by us, as shown on the books of bankers and merchants. A questionnaire answered by several hundred large banks and manufacturers for export

showed that this assumption was justified, for between July 1, 1921, and July 1, 1922, accounts receivable from foreigners decreased by $313,000,000 while accounts payable increased by $62,000,000. The banks that answered this questionnaire showed an increase in foreign deposits from $358,000,000 to $418,000,000. For the calendar year 1923 reports from 88 banks showed an insignificant increase in deposits from $488,000,000 to $491,000,000. Reports for 1924 were received from 68 banks, showing an increase in foreign deposits from $505,000,000 to $721,000,000. If this increase of $216,000,000 be added to the table the debits and credits would almost exactly balance.

Too much stress should not be placed on this close balance, as there were a few important banks that did not report, and no attempt was made to obtain reports from manufacturers and export houses. These two omissions doubtless cancel each other in part, for the increased value of merchandise exported must have resulted in an increase in accounts receivable, while the nonreporting banks are generally believed to have obtained an increase in foreign deposits. i. e., in accounts payable, comparable with that shown by the reporting banks.

There were three principal reasons for the increase in foreigners' bank balances: First, the growing importance of New York as a clearing house for international trade; second, the custom of many foreign borrowers to leave funds on deposit for some months after selling their bonds; third, a continuation of the "flight of capital" from some European countries.

If the changes in unfunded credit balances are added to the tabulated figures for the last three years the net result is as follows: In 1922 an excess of debits amounting to $133,000,000; in 1923 an excess of debits amounting to $115,000,000; in 1924 an excess of credits amounting to $4,000,000. These balances are so small that they should be regarded as merely part of the noneliminable residue of error, which in analyses of this kind must always be large.

BALANCE OF PAYMENTS GEOGRAPHICALLY ANALYZED

It is common knowledge that in international trade debts due by one country to another are frequently settled by drawing on credits in a third country, so that the transactions between any pair of countries have no need to balance. This principle of triangular trade is very important in the trade of the United States, since our imports and exports from and to any one foreign country rarely come anywhere near balancing, even with the aid of these invisible items that can be allocated by countries. Our relations with each continent are roughly sketched in the following table, in which only net items are shown, and all items less than $1,000,000, or which can not be allocated to a specific region, are omitted. It is apparent that our payments to South America, Asia, and Africa can largely be met by means of credits in Europe, North America, and Oceania. In actual practice they are largely met by drafts on London.

NET GAIN FROM THE YEAR'S TRANSACTIONS

It is impossible to state in one figure the amount of net profit from the year's transactions. The outstanding fact is that we got goods and services that we wanted in exchange for goods and services that foreigners wanted. Americans were so prosperous that they could spend $600,000,000 in foreign travel, largely for pleasure, and could give $55,000,000 or more for philanthropic purposes, besides the $300,000,000 sent abroad by foreign-born residents, mainly for the support of friends and relatives. This money was not derived from capital, but from current income, for the market value of foreign bonds issued or purchased in this country exceeded the amount sold to foreigners or repaid at maturity (including bonds held by the United States Treasury) by about $555,000,000, and the net imports of gold and currency (both of which are in the nature of capital investments, although yielding no interest) amounted to about $308,000,000.

A comparative statement of the account of the United States with foreign countries on January 1, 1924, and January 1, 1925, would look somewhat like the following table, in which the totals are not entered on account of the impossibility of obtaining complete information.

Assets (owed to United States):

Foreign government debts to United States Government 1.

Foreign government securities owned by United States residents..
Miscellaneous foreign investments.

The only item among the assets that has not increased in value is foreign currency held in the United States. This was an important item before the mark became worthless, but had lost the greater part of its value before the beginning of 1924. The increase in foreign government debts to the United States Government did not affect the currents of trade, as it was merely an increase on the books of the Treasury, due to the failure of many debtor nations to pay interest. Of the $300,000,000 increase in the gold stock of the United States only $258,000,000 was derived from the excess of gold imports. Unfunded credit advances to foreigners are known to have been considerable, both those connected with the export of goods and those of a financial nature.

Investments of foreigners in the United States are shown to have increased by $274,000,000. This figure includes the greater part of the reported sales of securities to foreigners. To the extent that these were sales of foreign securities, they should be entered as a decrease in assets rather than as an increase in liabilities, but the amount is unknown. However, $45,000,000 of these reported sales were considered as sales of foreign government securities and deducted from the amount of such securities owned in the United States in order to reconcile totals derived from different sources.

Although, as already remarked, the net profit to the Nation from its foreign commerce can not be stated, some observations can be made concerning certain kinds of transactions. For example, the bulk of the merchandise exported must have been sold at a profit to the American producer or exporter, at least equivalent to the ordinary business profits obtainable from domestic sales, since there was no compulsion to sell abroad at a loss, as is sometimes the case when the domestic demand unexpectedly turns out to be unequal to the supply. A few industries have been making small profits on both domestic and foreign sales because of overexpansion of plant during and immediately after the war, and the opportunity to sell