66

If merchandise exports total $4,621,000,000 and imports $3,651,000,000, the so-called "favorable" balance (what Europeans call an active" balance) was $970,000,000. On account of the nature of the figures from which this balance is deduced, it is more likely to err by being too large rather than too small, but the error is probably not great. To this should be added the excess of exports of silver over imports, as silver is really merchandise, although it is usually presented separately for historical reasons. The excess of silver exports was $35,946,131, making the total excess of merchandise and silver over one billion dollars.

or

Such an excess of exports is usually called a "favorable" "active" balance of trade. It should be constantly borne in mind, however, that in itself it is neither favorable nor unfavorable to the country having it. The gain from foreign trade does not consist in merely disposing of goods abroad but in disposing of them on favorable terms, receiving in return either goods, services, securities, or gold. A "favorable" balance merely means that to a certain extent payment for goods exported has been made not in merchandise but in services or securities or gold, which may or may not be advantageous to the nation, depending on the nature of those services and securities and the need of the nation for gold.

MOVEMENT OF GOLD

The inward movement of gold, which had continued without interruption since August, 1920, came to a halt in December, 1924. As early as June there was a marked falling off in imports, and in August exports began to increase. The year as a whole showed imports $258,000,000 in excess of exports, but the last month showed exports $29,000,000 in excess of imports. The chief causes of these developments were the greater demand for gold in India, the restoration of stability in some of the European currencies, and the large amount of foreign loans floated here in the second half of the year. Most of the product of the South African mines in the second half of the year went to India, because of the good crops there and the high value of the rupee; the restoration of more stable conditions in Europe removed much of the necessity of shipping gold to maintain exchange; and the restoration of confidence in the minds of American investors made possible the acquisition of such American balances as were necessary by transfer from other accounts in this country instead of by shipment of gold.

As in 1923, England was the chief source of gold imports, having sent $131,000,000. Second place was taken by Netherlands with $51,000,000, while Germany, which was second in 1923, sent only $5,000,000, and was suspassed by Canada, France, Argentina, Mexico, and China. On the other hand, Germany received nearly onethird of the exports ($20,000,000) as part of the proceeds of the $110,000,000 loan which was intended to provide a gold reserve for the new German currency. England received over $12,000,000, almost all in the month of December. It is commonly believed that a large part of this was destined for Continental nations.

India received somewhat less than in 1923, owing to the new practice of shipping gold direct from the Transvaal. The other countries receiving more than they sent were Spain ($299,034), Switzer

land ($43,200), Uruguay ($130,000), Venezuela ($784,713), Ceylon ($225,000), and Hongkong ($1,882,940). British India, England, and China received nearly all the silver exported.

Comparing these figures with those shown in the preceding table, it is obvious that there is very little connection between the balance of merchandise trade with a given country and the flow of gold to and from that country.

The stock of gold now in the United States is supposed to be about $4,500,000,000, between 45 and 50 per cent of the world's total stock. A certain amount of it is subject to withdrawal on demand by foreign owners of cash balances here and by foreign holders of United States currency.

The possibility of withdrawal at such a rate as to disturb our financial stability is very slight. The sums deposited in our banks as reserves for the monetary systems of nations that have attempted to stabilize their currencies without going to the length of paying out gold freely in exchange for notes are safer here than anywhere else; the balances maintained by private banks and business concerns are essential for the orderly conduct of their business; the amount of United States currency in the hands of foreigners can not be very great, in spite of the impression it makes on Americans traveling abroad; and in any case the reserves of the Federal reserve system are ample, as are also the system's resources available for strengthening its reserves when needed.

MOVEMENT OF CURRENCY

The movement of United States currency may be considered here, although it might almost as well be considered among the capital items, being practically a noninterest-bearing investment. In recent years there has been a considerable amount of investment in United States currency by residents of countries with rapidly depreciating exchange, who were willing to forego interest for the sake of security. From this point of view shipments of currency resemble shipments of stocks and bonds. This movement seems to have come to an end in the early part of 1924. According to reports received by the New York Federal Reserve Bank from 14 large New York City banks imports of currency have exceeded exports each month since March, and the net excess of imports during the year was over $49,000,000, disregarding shipments to Cuba through the reserve bank of Atlanta, which approximately balanced. There is thus indicated a definite turn in this tide, also an indication of the growing strength of European currencies.

Since the return movement started, the largest amounts were received from Germany ($32,000,000), England ($9,400,000), Netherlands ($4,800,000), and Switzerland ($3,700,000). Apparently there was a small net outward flow to Latvia, Russia, the Dominican Re public, and Peru.

Of course, these returns do not cover all shipments of currency into or out of the country. Travelers take unknown sums of money with them and immigrants send paper money to their friends abroad, but much, if not most, of this money is either used to buy steamship tickets or is brought back by immigrants, or it is converted into local currency and shipped by the money changers back to the United

States. The sums sent through the mails or carried by travelers. would naturally be small bills, but the amount of small bills outstanding, as reported by the Treasury, remained practically unchanged. This is all the more striking, inasmuch as about threefourths of the shipments reported to the New York reserve bank in the last six months of the year were in denominations of $20 or less. It is estimated that there is over $100,000,000 of American paper money in Cuba and other parts of Latin America where American currency is legal tender. There are also large sums of American money, both paper and gold, in the reserves of European banks. The total can not be stated and is not necessary for the purposes of this study, but from the results of the New York reserve bank's inquiry it seems certain that the net movement was inward in 1924. This conclusion is strengthened by the fact that the total of paper money outstanding decreased by over $5,000,000 during the year, in the face of rising prices.

OCEAN FREIGHT PAYMENTS

The most practicable basis for estimating freight payments is to determine the ratio of the freight charge to the value of goods carried. The United States receives freight payments from foreign countries for exports carried in American vessels and makes payment for imports carried in foreign vessels. The earnings of, American ships when carrying imports to the United States represent purely domestic transactions.

The ratio is higher in the case of exports than in the case of imports on account of the bulky nature of the cargoes. Figures supplied by the Shipping Board and by many exporters and importers for the year 1922 showed an average rate of 7 per cent for exports and 4.5 per cent for imports.

The Federal Reserve Board's index of export shipping rates shows that in 1924 they averaged as high as in 1922, or slightly higher. Exports carried in American vessels in 1924 amounted to $1,514,812,456, or 38.4 per cent of all water-borne exports, being almost identical with the proportion so carried in 1923 and 1922. The prices of these exports, according to the Federal reserve bank's index of wholesale prices of export goods, were 13.4 per cent higher than in 1922. Consequently the ratio of freight charges to the value of the cargo was about 6.3 per cent, or $95,000,000; from this a deduction of one-fifth should be made for port expenses abroad, making the net sum receivable about $76,000,000. The earnings of American vessels carrying goods between foreign ports would increase this sum, but the amount is not known. It is not believed to be very large.

Imports carried in foreign vessels in 1924 amounted to $2.133,061,218, or 67.5 per cent of all water-borne imports, a slightly smaller proportion than in the previous year. The prices of these imports were apparently about 15.4 per cent higher than in 1922, and the ratio of freight charges was therefore about 4 per cent. On this basis the freight payable was $85,000,000. Deducting one-fifth to allow for the expenses of vessels in American ports, the net sum payable by the United States to foreign shipowners was about $68,000,000. Therefore, our export of shipping services exceeded our import by about $8,000,000.

IMMIGRANTS' REMITTANCES

There are in this country over 15,000,000 persons of foreign birth, of whom about 5,000,000 are of voting age and unnaturalized. A large proportion of them regularly send money to their relatives and friends abroad, either in drafts or currency or postal orders. The foreign recipients are thus enabled to buy American goods without giving their own products in exchange or else to buy foreign goods and pay for them with drafts on America. Another way of putting it would be to say that the foreign-born residents in America, when they send remittances to their friends abroad, practically consume foreign goods by proxy instead of importing them to consume in person. The result of such transactions is either to increase our exports of goods and services or to decrease our imports.

The remittances sent abroad may be looked upon either as payment for services rendered by foreigners residing in this country or as philanthropic donations by residents of America to their relatives and friends abroad. The economic effect is the same in any

event.

The number of declared immigrants arriving in 1924 was 354,770less than one-half as many as in 1923. This figure, however, takes no account of the "nonimmigrant " aliens, many of whom have failed to leave the country again within a year and should therefore be considered as immigrants, since they presumably derive their living from the United States. Neither does it include the immigrants who have been smuggled in and who were estimated by the Secretary of Labor to number 150,000 or more. The excess of reported alien arrivals over departures was 295,000 as compared with 706,000 in 1923. The new immigration law, which went into effect on July 1, 1924, is intended to discourage the immigration of individuals without their families and of laborers seeking temporary employment, and it should ultimately result in a diminution of the amounts sent abroad for the support of relatives. It is doubtful, however, if its effect has yet been noticeable. Reports from Italy, Greece, and Sweden indicate an increase in remittances from the United States, possibly due to improving business and agricultural conditions in the United States.

It may be assumed, then, that remittances in 1924 were approximately the same as in 1923; that is, $350,000,000. This includes remittances by draft or money order and also currency sent by mail or carried by returning immigrants. Against it would have to be counted the cash brought into the country by newly arriving foreigners. The amount shown to immigration officials in the fiscal year 1923-24 was $46,000,000. Deducting this we have a net debit of about $300,000,000 on account of immigrants.

The most important countries receiving these remittances were Italy (about $100,000,000), Germany (about $80,000,000), Poland (about $30,000,000), Russia (about $25,000,000), Greece and Ireland (about $20,000,000 each).

CHARITABLE AND MISSIONARY EXPENDITURES

The leading organizations engaged in foreign relief reported the amounts they expended abroad in 1923 as over $40,000,000. Those that reported for 1924 showed a smaller amount, and some of them

had practically ceased their activities. It is believed that $25,000,000 would cover their expenditures in 1924. To this sum should be added the amounts expended by religious organizations for missionary purposes, which was estimated as $30,000,000 in 1923 and was probably the same in 1924. Thus we have a debit of $55,000,000 on account of philanthropy-less than in 1923 but still greater than that of any other country in the world.

EXPENDITURES OF AMERICAN TOURISTS ABROAD

The expenditures of American tourists abroad act in precisely the same way as immigrants' remittances. What they consume abroad is to all intents imported into this country, although it can not be valued by the customs inspector.

Besides the tourists, in the strict sense of the term, there are a number of Americans who live abroad, either by preference or for economical reasons. Here are included the heiresses who marry abroad, and, at the other extreme of the financial scale, the students and persons with small fixed incomes who must live cheaply. Whatever they spend, if their incomes are derived from the United States, acts to increase the debit balance of this country.

The Bureau of Immigration keeps a record of American citizens leaving the country. In 1924 there were 301,648 of these, not including those who visited Canada. This was 40,000 more than in the previous year. During 1924, 322,065 citizens returned from abroad, being 22,000 more than in the preceding year.

The average amount spent by each traveler varies according to the part of the world in which he travels, and can only be guessed at, except, of course, that the absolute minimum of expense could be stated with a fair amount of certainty. However, as the overwhelming majority of these tourists visited Europe, and there are many private tourist agents and public officials in a position to observe their expenditures, the opinions of these observers are probably a very reliable guide to the amount spent in Europe, and we may assume that the average spent in other parts of the world (including passage money paid to foreign shipowners) is at least as large as that spent in Europe. The consensus of opinion is that the average for Europe in 1923 was between $1,000 and $1,500, and $1,250 was taken as the basis of our calculations for that year. Since retail prices and the cost of living increased in most European countries, except England and the Netherlands, between July, 1923, and July, 1924 (the most important tourist months), and hotel rates increased, according to reports, even more than other prices, it is wholly reasonable to suppose that the average tourist's expenditure in 1924 was somewhat greater than in 1923. The increase was especially great in Germany, Austria, and Belgium. In the other countries it was largely or wholly offset by a decline in exchange rates. To a certain extent the high prices in the countries mentioned kept tourists away; moreover the number going abroad late in the summer and presumably staying only a short time was larger than usual. Consequently, the average expenditure has been estimated at $1,300, only $50 greater than in 1923.

The total amount of tourists' expenditures in 1924, excluding Canada, may be estimated on this basis as $420,000,000.