Part 2

4th. The payment of passenger and freight rates to foreigners owning foreign vessels;

5th. Money expended by Americans touring abroad;

6th. Remittances by foreigners in the United States to their friends or dependants abroad;

7th. Loans by the United States to foreign countries, which during this war are reaching gigantic proportions, or loans by U. S. banks or citizens to foreigners;

8th. Remittances from the United States to pay for foreign securities marketed in the United States, which have reached very large proportions during this war.

In like manner all of these unrecorded factors or any of them may apply to any of the foreign countries and transfer money or credits to the United States. For instance:

1st. The purchase by foreign banking corporations or individuals of American securities or properties;

2nd. The payment of interest or dividends on foreign securities or properties held by American capitalists;

3rd. The liquidation of loans negotiated by Europe or foreign bankers in America;

4th. The payment to Americans of passenger and freight service on American ships by foreigners;

5th. The money expended in America by foreign persons traveling in America;

6th. Remittances to persons within the United States from foreign friends or relatives;

7th. The lending of money to the United States, or to citizens, bankers, or corporations of the United States by foreign Governments, bankers, or citizens who might make loans on American bonds or American evidences of debt;

8th. The payment for insurance due to American Insurance companies.

The “balance of trade” relates only to commodity shipments. When a country ships less commodities than it receives it must make up the difference by shipping gold, shipping securities, transferring bank credits, or rendering service, such as insurances, passenger and freight, wharfage and dockage, or entertaining travelers.

COMMODITIES PAY FOR COMMODITIES

If the term “commodities” were broad enough to cover all of these factors, then it might be properly said that the debts of the citizens of one nation to the citizens of another nation were all covered by exchange of commodities.

This is so far recognized that it is a common expression to say that all imports are paid for by exports, because no nation can except for a limited time pay its commodity trade balance in gold without exhausting the gold upon which the credit of its currency is based.

GOLD EMBARGO AND DOLLAR PARITY

The reason of the gold embargo in Great Britain and in France, in the United States and in Germany at this time is that it is of recognized importance that there should be available a sufficient supply of gold to safeguard the paper money issued by these nations. For unless the paper currency is always freely exchangeable for gold the people would be unwilling to receive the paper money on a par with gold. When the paper money is not on a par with gold the people immediately would pay their debts in terms of the cheaper currency, and every contract in the country would be disturbed by the standard measure of value of contracts being thus suddenly impaired. People in the United States, for example, enter into millions of contracts measured in terms of dollars and they do not say a gold dollar, unless it be in some formal important contract, so that if the dollar in paper money should not be equal in value to a dollar in gold, all those owing dollars in such current business would meet their debts in the paper dollar. All business people recognize the importance of maintaining the American dollar at par in domestic transactions. It was a day of triumph after the Civil War when the United States reached a point at which “resumption of specie payment” occurred; a never-to-be-forgotten day in America’s financial history. The American people would not submit for a moment to have their paper money worth ninety-nine cents on the dollar; they demand it shall be worth a hundred cents on the dollar, yet we are faced with the astonishing condition that an American gold dollar in New York, under embargo, is worth only 67 cents in Spain at 28.50 cents per peseta normally 19.30 cents.

In other words, a gold dollar in New York worth sixty-seven cents in Spain must have fifty per cent. added to it to buy one hundred cents’ worth of Spanish oil in Barcelona. It takes three such gold dollars in New York to be worth two gold dollars by weight in Spain.

WHAT IS THE EFFECT OF THE AMERICAN DOLLAR AT A DISCOUNT IN SPAIN?

The effect is that we pay three dollars in gold in New York and get two dollars of gold credit in Spain. Our money buys fifty per cent. less than it ought to. The same thing is true, of course, of a British pound sterling and of the French franc. It is perfectly obvious that this rate of exchange is imposing a ruinous cost upon the United States and the Allies—just to the extent that they are compelled to buy pesetas at this rate for the purpose of making purchases in Spain. It must be remembered also that the prices in Spain are on a war basis—in other words, that commodities have nearly doubled in price, even in terms of Spanish money so that the fifty per cent. extra which we pay in gold for Spanish currency is in reality doubled, and this exchange is thus actually costing us nearly one hundred per cent. In the meantime to correct this our country has adopted the questionable policy of imposing an embargo on the shipment of Spanish goods to the United States, or the buying of Spanish goods by American merchants. The effect of this is that olive oil has gone from two and a fraction dollars a gallon to eight and ten dollars a gallon, as every American business man should know. The commodity embargo policy is undesirable, for there is a much better policy available which I wish to point out.

THE CAUSE OF THE DEPRECIATION OF THE AMERICAN DOLLAR ABROAD

The imports and exports from the United States in 1917 amounted to over nine billion dollars. The exports amounted to six billion, two hundred and thirty-one million; the imports to two billion, nine hundred and fifty-two million, with a favorable balance of trade to the United States of approximately three billion, one hundred and eighty million. I submit on the following pages a table of these imports and exports:

--------------+-------------------------+----------------------------- | Month of December— | 12 months ended December— Exports to— +------------+------------+--------------+-------------- | 1917 | 1916 | 1917 | 1916 --------------+------------+------------+--------------+-------------- Grand | | | | divisions: | | | | Europe |$323,690,436|$349,558,509|$4,054,362,029|$3,813,278,324 North America| 155,135,812| 93,285,797| 1,264,688,666| 924,553,649 South America| 33,700,646| 22,787,859| 312,420,985| 220,266,818 Asia | 60,465,901| 42,447,145| 431,149,591| 364,959,155 Oceania | 14,591,876| 9,751,896| 117,158,921| 105,572,649 Africa | 6,279,609| 5,402,574| 51,464,784| 54,010,506 |------------+------------+--------------+-------------- Total | 593,864,280| 523,233,780| 6,231,244,976| 5,482,641,101 |------------+------------+--------------+-------------- Principal | | | | countries: | | | | Austria- | | | | Hungary | .... | .... | .... | 61,771 Belgium | 8,400| 6,691,023| 22,628,659| 30,998,928 Denmark | 134,363| 4,165,928| 32,388,864| 56,329,490 France | 73,564,381| 58,706,507| 940,810,070| 860,821,006 Germany | .... | 1,142,353| 3,275| 2,260,634 Greece | 1,030,494| 1,431,702| 8,477,603| 33,685,689 Italy | 46,162,066| 37,974,651| 419,095,473| 303,530,476 Netherlands | 7,899,931| 11,345,624| 90,520,301| 113,730,162 Norway | 1,668,338| 4,234,745| 62,866,850| 66,209,717 Russia | | | | in Europe | 816,462| 23,097,932| 314,639,528| 309,806,581 Spain | 10,159,988| 6,577,521| 92,409,320| 64,316,888 Sweden | 503,364| 5,900,309| 20,900,854| 47,967,590 United Kingdom| 177,433,009| 185,209,430| 2,001,031,104| 1,887,380,665 Canada | 101,767,255| 60,939,523| 829,972,331| 604,908,190 Central | | | | America | 4,861,129| 4,008,658| 52,206,466| 46,531,841 Mexico | 15,485,408| 4,415,374| 111,111,541| 54,270,283 Cuba | 24,652,166| 18,846,295| 196,350,315| 164,666,037 Argentina | 11,553,945| 7,192,128| 107,641,905| 76,874,258 Brazil | 6,566,030| 5,210,987| 66,207,970| 47,669,050 Chile | 7,586,866| 3,919,899| 57,483,996| 33,392,887 China | 6,366,898| 3,645,538| 40,208,612| 31,516,140 British East | | | | Indies | 7,290,060| 3,775,091| 42,746,749| 30,799,916 Japan | 40,199,201| 14,821,946| 186,347,941| 109,156,490 Russia in Asia| 525,675| 16,540,391| 109,169,243| 160,701,673 Australia and | | | | New Zealand | 6,474,755| 7,351,503| 76,909,225| 81,305,968 Philippine | | | | Islands | 7,804,316| 2,268,853| 38,148,726| 22,775,491 British Africa| 5,215,449| 2,508,294| 39,023,443| 32,448,177 --------------+------------+------------+--------------+--------------

------------------------------------------------------------------- Statement of imports and exports, 12 months ended December, 1917. -------------------------+-------------+-------------+------------- | Exports. | Imports. | Balance in | | | our favor. -------------------------+-------------+-------------+------------- Netherlands | $90,520,301 | $22,744,504 | $67,775,797 Norway | 62,866,850 | 6,280,233 | 56,586,617 Spain | 92,469,320 | 36,881,630 | 55,587,690 Sweden | 20,900,854 | 18,069,487 | 2,881,367 -------------------------+-------------+-------------+-------------

---------------------------------------------------------------------- DEPARTMENT OF COMMERCE, BUREAU OF FOREIGN AND DOMESTIC COMMERCE, Washington, February 4, 1918.