United States for munitions and supplies of every kind grew enormously, while at the same time the shipments of goods to pay for these supplies fell off from the pre-war level. The following table shows the trade with Europe during the three fiscal years, 1915 to 1917: advances and credits to the amount MERCHANDISE EXPORTS TO AND IMPORTS FROM EUROPE 1915-1917 1915 1916 1917 Exports to Europe.... Imports from Europe... Excess of Exports... The excess of exports over imports for these three years thus amounted to about $7,400,000,000. If there be set against this sum the gold imports and an allowance for the usual charges against the United States for interest, freight, insurance, foreign travel, etc., which together might be estimated in the aggregate at about $2,000,000,000 for the three-year period, it will be seen that at the time of our entrance into the war the United States had nearly, if not quite, liquidated her foreign indebtedness and by the end of the year 1917 had certainly attained the position of a creditor nation. After our entrance into the war the United States government became the banker of the Allies and advanced them credits to the amount of $9,710,000,000. When these advances ceased, private capital was called upon to make further loans to Europe to aid in the work of reconstruction. It has recently been estimated1 that private 1 B. M. Anderson, Jr., in The Chase Economic Bulletin, I, No. 1, p. 8. Issued by the Chase National Bank, New York City, October, 1920. tainly no exaggeration to claim that the United States is today a creditor nation to an extent of not less than $10,000,000,000 to $12,000,000,000. The annual interest charge on this sum at 5 per cent would be $500,000,000 to $600,000,000. Moreover, many of the items for which we formerly remitted to Europe, as freights or insurance, are probably now payable to the United States, while others, like tourists' expenditures, are greatly reduced; it may safely be estimated that the former payments to Europe will be cut in half. Instead, therefore, of having to remit to Europe some $500,000,000 a year in excess of our imports, we shall be in receipt of excess payments from the rest of the world of not less than $250,000,000 to $350,000,000. EFFECTS OF BEING A CREDITOR NATION To be a creditor nation means the receipt by citizens of this country of surplus income from sources outside the country itself; it means normally larger imports than exports. As a debtor nation we were compelled to export more than we imported; as a creditor nation we may import more than we export. What effect will this changed situation probably have upon our export trade? In the first place, little or no effect may be observable for a period owing to extraordinary or temporary occurrences. Thus the present abnormal situation in Europe compels further borrowing by them from this country instead of meeting the obligations already incurred. Even the payment of interest on our government advances has been deferred for a period of three years. It is unlikely that Europe's balance of trade with the United States will become favorable in any shorter length of time. It is conceivable, but altogether unlikely and undesirable, that these debts might be met by further shipments of gold to this country. They might also be canceled by the transfer of American securities to this country, but this movement has already gone so far that this resource is pretty well exhausted. Let as assume, therefore, that the ultimate and permanent effects of being a creditor nation are in full operation and that our imports exceed our exports; or, as it is generally stated, that our balance of trade is "unfavorable." What effect will this probably have upon our export trade? Several possibilities suggest themselves. 1. The relation between imports and exports may be altered, but yet no falling off may occur in our exports. Both may continue to grow, though imports may grow more rapidly until they overtake and pass exports. This has been true of other nations and may well be true of the United States. Thus the export trade of such creditor nations as Great Britain, France, the Netherlands, Germany and Belgium showed a steady and in some instances a remarkable growth during the half century before the World War. In 1800, the imports of Great Britain amounted to $140,000,000 and the exports to $165,000,000. Both of these grew steadily throughout the nineteenth century, although the former grew so much more rapidly that in 1900 the imports were $2,300,000,000 and the exports $1,415,000,000. The large excess of imports over exports in the last named year resulted in part from the earnings of British foreign investments, which amounted in 1914 to about $20,000,000,000. It is estimated that before the outbreak of the World War the British people gained from such investments about $1,000,000,000 annually, of which perhaps $200,000,000 was received by them in the form of surplus income, while the balance, or $800,000,000, was reinvested abroad. It may safely be assumed that a similar course 1 For fuller details on this and some other The full effects of our changed situation may also be delayed by the investment abroad of the excess payments due us. In other words, our trade balance may continue to show an excess of exports over imports and we may be content to accept securities and promises to pay rather than commodities and services. Finally, our tariff policy may make it so difficult for foreign nations to sell to us, or even to pay us what they owe, as to retard the normal working out of our changed commercial relations. Any such delay will only defer and not alter the outcome; indeed, it will only aggravate it and will necessitate still larger excess payments to us in the future. The effects of being topics treated briefly in this paper, see my book, a creditor nation may be postponed but can not indefinitely be averted. now in press, War Costs and Their Financing, to be published by D. Appleton and Company. of development in the United States will cause a steady growth in exports, but a still more rapid increase in imports. 2. Our exports may be affected by the character of the imports. Proceeding on the assumption that our imports will exceed our exports and that the balance will not be paid in gold, it is clear that the excess must be paid in commodities. These commodities may be either consumable commodities or raw materials and partly manufactured goods. It is probable that the debtor nations of Europe will endeavor to cancel part of their obligations to us by shipments of colonial products, as jute and tea fron India, tin and rubber from the Straits Settlements, coffee from Java, wool from Australia, etc. Considerable time must elapse before Europe will be able to send us large amounts of manufactured goods to compete with our domestic products. In so far as these imports consist of foodstuffs, semi-luxuries and other consumption goods, there would result a more plentiful supply, cheaper prices for them and for all competing articles or substitutes, and to that extent a higher standard of living. It is, of course, conceivable that the receipt of such a surplus might induce a certain amount of indolence; we might prefer to live on our incomes and enjoy more leisure instead of working. But such a result is altogether improbable under the existing distribution of wealth, the modern organization of industry, the prevailing "price and profit" system of enterprise, and the present habits of thrift and work of the American people. The larger part of the imports would doubtless continue to be, as they have been in the past, raw materials and partly manufactured goods, whose possession would permit our manu facturers to increase their own production of finished goods. Domestic competition would be stimulated and sharpened and a larger market would be sought. This larger market might be found at home if at the same time the importation of competing European goods fell off. Such a contingency could not be more than temporary, however, for eventually direct importation from Europe must assume large proportions and their manufactured articles compete with our own in the United States. To the extent to which this pressure becomes severe will the need be urgent of finding a market outside of the United States for some, at least, of our own manufactures if prices are to be maintained. 3. Will markets be open to our export trade? Our recent experiences in domestic trade have illustrated the fundamental truth that the purchaser, in the final analysis, determines the volume and character of commerce. The same thing is true of international trade. The question may therefore be stated in another way: Does the world want our wares? There can be no doubt as to the immediate answer, for the world needs what we have to offer and is taking all we can spare. Europe is buying for her own needs, and is less able than formerly to supply the wants of non-European nations, which therefore turn to us. It has been estimated that the British have lost probably one-fourth of the $20,000,000,000 foreign investments, which they owned before the war, either by transfer to the United States or in other ways. Of the foreign investments of the French, amounting to some $8,500,000,000 and placed principally in Russia, Turkey, Rumania and Mexico, fully one-half must be accounted as irretrievably lost; while the German foreign investments of perhaps $5,000,000,000 have been or will be largely transferred to the Entente Allies. Rendered immeasurably poorer by the war, these peoples will have to work harder to supply their own wants. At the same time, they have plunged heavily in debt to the United States, and will be compelled to send to this country many of the surplus goods with which they formerly supplied other markets. This will leave these markets open in greater measure than formerly to us. This is especially true during the period of reconstruction in Europe when domestic needs are urgent. It thus becomes our duty as well as our opportunity to increase our exports. But what of the future when Europe has recovered from the destruction of war and is able to compete again as formerly? The European nations will continue to demand our great agricultural staples, and the more they develop their manufacturing industries the greater will this demand be, both for raw materials and for foodstuffs. The growth in population, in economic development and in intelligence of non-European countries will at the same time create demands for manufactured goods which Europe alone will not be able to supply. If the economic development of the newer countries is not to be delayed, they must be supplied with capital goods; that is, with railway equipment, farm machinery, etc., as well as with articles for immediate consumption. The present interest of the European states seems to lie in the exploitation of the Balkans; an increasing demand for our capital will come, therefore, from North, Central and South America, and from Asia. There can be no question as to the continuance and growth of this demand; every technical improvement in industrially advanced countries widens the gulf between them and the less advanced countries and makes more imperative the introduction of improvements into the latter if they are to share adequately in the economic progress of the world. 4. The character and destination of our exports have already been indicated. The greatest need on the part of other countries will be for capital goods to assist them in their work of production. In the case of Europe the demand is for machinery and equipment and raw materials; in the newer countries it is for capital to assist in the exploitation of rich natural resources. For them the largest profits lie in the exploitative industries, and the exchange of their raw products for the manufactures of more advanced communities. They will, therefore, demand finished consumption goods also for immediate use. In both of these lines-that of farm and mining machinery, railway equipment, etc., and that of staple articles of general consumption-the United States is preeminent with her methods of largescale mass production. The best markets for both of these lines will be the Americas, Asia and Africa, with all of which our export trade has shown the greatest relative development since the pre-war period. There is every reason to suppose, therefore, that our export trade will continue to develop along the lines already marked out. 5. Is export trade essential to American prosperity? In the discussion thus far, the continuance of an export trade in increasing volume to supply the expanding needs of the world has been assumed. There are those, however, who argue that Great Britain, France, Germany and other European nations will soon regain their former trade, will undersell the United States in foreign markets as a result of their more favorable rates of exchange, and that the export trade of the United |