in foreign exchange, which classification seems to cover all the male citizens of voting age and some others; and finally the speculative purchase of foreign internal securities. No reliable estimates of the aggregate amount of these credits is available, but the figure must be a large one, and the end is not yet. The score is still mounting and will continue to mount until international trade is restored to its normal equilibrium. Setting aside the rather remote possibility of any number of our debtors becoming permanently bankrupt, either fiscally or commercially, somewhere between fifteen and twenty billions must be paid back to us, the floating portion first and rapidly, the funded portion gradually over a period of from twenty-five to fifty years. What are the forms which this payment will take? There are six possible mediums in which international settlements may be made. The first is gold, the international money. The reasons why gold cannot effect any considerable portion of these settlements are so obvious that it is not necessary to discuss them. The second medium is the transfer of titles to tangible permanent property located outside our borders. This covers securities representing actual ownerships, such as stocks, titles to real estate, etc. The third medium is new funding or refunding operations upon the indebtedness itself. This represents merely a postponement of the payments, although by constant renewals there may be set up what will, in effect, constitute a revolving fund which will provide for a part of the debt with more or less permanence. The fourth medium is services, such as freight, insurance, etc. What this will amount to depends very largely upon the successful development of our own merchant marine. To the extent that our exports and imports move in our own bottoms, our acceptance of bills for freight, etc., will be reduced. It is not impossible that this item may become an element of invisible export instead of invisible import as it has been in the past. The fifth medium consists of remittances to travelers and nonresidents, and remittances from immigrants to their families in Europe. It has been estimated that before the war our tourists alone carried across the water $250,000,000 a year. Therefore this is an item of considerable importance. The sixth form of payment lies in an excess of imports over exports. This constitutes what is known as an adverse balance of trade, for the reports of exports and imports cover only the movement of visible raw materials and manufactured products. Whatever part of the annual payment of principal and interest upon Europe's fifteen or twenty billion dollar debt to us is not accepted by our investors in the form of titles to property or new evidences of indebtedness, and whatever part conditions prevent our receiving in the form of services or counterbalancing with remittances to Europe, must of necessity appear in the form of an unfavorable balance of trade. It will be a shock to America when this occurs. We have grown up with the idea, correct under then existing conditions, that a favorable balance of trade spells prosperity. That is the reason it has been called "favorable". Now, however, we have changed from a debtor to a creditor nation. From a condition in which we balanced invisible imports with surplus visible exports, we now have a flow of invisible exports which must be balanced with surplus visible imports. As a result we must adapt our ideas of prosperity to an adverse balance of trade, for this condition is now coming as inevitably and inflexibly as the change of seasons. And the combined efforts of Congress, bankers and business men cannot stop it. The pressure of international settlements seeking a level is a force beyond the control of man. Contrivances may postpone its action, may divert its courses, but the dams of tariff walls cannot hold back its flows. When we dam it up in one or many spots the pressure will vent itself all the more violently at some other point. The gold point in most of the foreign exchanges will doubtless be a fiction or a fond memory for many years. The international balances are too far from equilibrium to be adjusted by minor shipments of gold, and for a period of many years adjustments will be effected through a medium of greater and more flexible proportions, namely, variations in the relative price levels, corresponding variations in the exchange rate, and the consequent movement of goods. For the present, at least, the rates of exchange will remain abnormal-far from the gold point for currencies that are far from the gold basis-and will be free to register as a gauge the pressure of settlements due and payable on a scale which will make the fluctuations of normal times seem diminutive by comparison. Exchange rates are determined by the balance of trade and by the relative purchasing power of the currencies. Yet each of these factors has a great influence over the other, and the normal reaction to exchange rates which do not represent gold parity is that a stimulus is set up toward the automatic rectification of these variations. Gold parity cannot be secured by freedom to ship gold. The balances and the inflations are too great to permit the condition to be corrected in this way. It can and will be reached when the world is paying us for our exports and for its debts in goods, and when through deflation the price levels of these goods in foreign markets decline to a point where they can compete in our markets at prices based on gold parity. Until this deflation of foreign currencies is achieved, exchange rates will fluctuate to whatever extent is necessary to bring the foreign price level in terms of our currency to a point where we can import a sufficient quantity of some materials and goods each year to cover our exports and add whatever excess is necessary to balance the principal and interest of the indebtedness due and payable to us that year and not cared for otherwise. Natural imports under normal conditions consist of those materials or products which we cannot produce, or which can be better produced, or produced more cheaply, elsewhere. Natural exports are those materials or products of which we have a monopoly, or which can be better or more cheaply produced here than elsewhere. Through the breakdown of foreign productive ability, the effects of which will doubtless last many years, we will, for some time to come, be able to produce in general better and, in terms of gold, cheaper than will our old competitors. There will then exist a situation in which natural exports will tend to exceed natural imports. Yet this result cannot follow, because the force of compulsory invisible exports, acting through the exchange rate, must necessarily compel an unfavorable balance of trade. What will occur is that materials and products which we are able to produce better and more cheaply than other countries in terms of the nominal values of currencies will be enabled to flow into this country The sixth form of payment lies in an excess of imports over exports. This constitutes what is known as an adverse balance of trade, for the reports of exports and imports cover only the movement of visible raw materials and manufactured products. Whatever part of the annual payment of principal and interest upon Europe's fifteen or twenty billion dollar debt to us is not ac cepted by our investors in the form of titles to property or new evidences of indebtedness, and whatever part conditions pre vent our receiving in the form of services or counterbalancin with remittances to Europe, must of necessity appear in the form of an unfavorable balance of trade. It will be a shock to America when this occurs. We hav grown up with the idea, correct under then existing condition that a favorable balance of trade spells prosperity. That is th reason it has been called "favorable". Now, however, we ha changed from a debtor to a creditor nation. From a condition which we balanced invisible imports with surplus visible expor we now have a flow of invisible exports which must be balanc with surplus visible imports. As a result we must adapt our id of prosperity to an adverse balance of trade, for this condition now coming as inevitably and inflexibly as the change of seasc And the combined efforts of Congress, bankers and business r cannot stop it. The pressure of international settlements seeking a level force beyond the control of man. Contrivances may postpon action, may divert its courses, but the dams of tariff walls ca hold back its flows. When we dam it up in one or many spot pressure will vent itself all the more violently at some other p The gold point in most of the foreign exchanges will doub be a fiction or a fond memory for many years. The internat balances are too far from equilibrium to be adjusted by r shipments of gold, and for a period of many years adjustr will be effected through a medium of greater and more flexible portions, namely, variations in the relative price levels, c ponding variations in the exchange rate, and the consequenti ment of goods. For the present, at least, the rates of exc will remain abnormal-far from the gold po for cus are far from the gold basis-and wi 50 the effects of 51 DE 15 m ** gold, cheaper that I a situation in dus al 2D 2 MW imports. Yet til æræ deine pulsory invite pa aning theERR necessarily come an avorable balance of train occur is that materials and products which we are able t spy than other countries in terms of be enabled to flow into this " |