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Foreign investments in the United States, as of the end of 1934 (see fig. 13), were the subject of a detailed and comprehensive survey, the results of which were published last year.68 The estimates of those investments have since been kept up-to-date on the basis of extensive sample data received from the same sources as the original information. It was particularly desirable that this be done because of the tremendous inflow of foreign capital into the United States during the last 3 or 4 years and because of the important changes resulting therefrom.

Table 24.-Foreign Long-Term Investments in the United States, by Types of Investment, 1934, 1936, and 1937

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Foreign direct investments in the United States were not subject to any spectacular developments during 1937. The normal growth of business enterprises-that is, the reinvestment of earnings-appears to have been the principal influence bearing on these investments. Newly established enterprises were small, and no sales to investors in the United States were noted.

FOREIGN HOLDINGS OF COMMON AND PREFERRED STOCKS

Common-stock holdings are the most volatile of all of the classes of foreign investments in the United States (see table 24 and fig. 12). One of the principal reasons is that such holdings are estimated on a market-value basis, and market values are subject to very wide fluctuations. Another reason is the character of the international movement of capital during recent years. Much of the flow of foreign funds into this country since 1933 has been motivated by a desire to obtain a degree of security for principal rather than permanent employment of capital. Unstable economic and political conditions in Europe were dominant causes of the capital movement. A large part of the funds were placed on deposit in American banks and were subject to immediate withdrawal. Another large part sought employment in the securities market, where there were, during most of the period 1933-37, opportunities for capital appreciation. Some of these funds may actually have been invested on a short-term basis, although nominally in the form of long-term securities. Under these conditions one would expect to see the changes in the total of foreign investments reflect to a considerable extent the changes in foreign holdings of common stocks.

Reports received from 260 corporations 69 indicated that foreign holdings of common shares increased during 1937 by 8 percent. The 69 Department of Commerce, Bureau of Foreign and Domestic Commerce, Foreign Investments in the United States. 1937. 69 Of these 260 corporations, 193 had common-stock issues listed on the New York Stock Exchange. The total outstanding common shares of these 193 corporations so listed at the end of 1937-592,000,000-repre sented 46 percent of all the common shares of United States corporations listed on the Exchange.

total market value of those holdings, on the other hand, decreased by 31 percent (see table 25). On the basis of these data, total foreign investments in United States common shares were estimated at $1,850,000,000 at the end of 1937, compared with $2,700,000,000 at the end of 1936. Foreign share holdings increased only among issues listed on the New York Stock Exchange; others showed a slight drop. On an industrial basis, railroad shares were the favored investments, increasing 28 percent during 1937. The next largest increase was 10 percent in the petroleum and mining shares. Analyses according to dividend- and non-dividend-paying status, price change, and other market factors failed to reveal any dominant factor. The clear preference for New York Stock Exchange issues, however, points to the factor of ready marketability as of primary importance.

Table 25.-Indexes of Foreign Holdings of United States Common and Preferred Shares, 1936-37

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The foreign interest in preferred stock declined slightly as a result of smaller holdings of non-New York Stock Exchange issues. The index of New York Stock Exchange preferred shares held in foreign countries did not change. Railroad shares showed an increase of 14 percent, while holdings in all other industrial groups declined. Holdings of United States corporate bonds did not change to any significant extent. The estimate of "other investments" was left unchanged at $750,000,000.

SHORT-TERM ASSETS AND LIABILITIES

The United States was, at the end of 1937, net debtor to abroad on short-term account in the amount of $1,045,000,000 (see table 26). The excess of foreign liabilities over foreign assets has increased each year since 1934. Also, gross liabilities have increased from year to year while gross assets have declined (see table 36 and fig. 18).

About 81 percent of the short-term foreign liabilities were in the form of deposits in American banks. Of these foreign deposits, $173,000,000 were for the account of foreign central banks with the Federal Reserve Banks, $466,000,000 were for the account of foreign commercial banks with insured banks in the United States, and $117,000,000 were for the account of the foreign branches of American banks. The remainder-$681,000,000-were deposits by foreign individuals, corporations, and other organizations, and foreign governments. More than 93 percent of the liabilities were payable in dollars. On the other hand, only 16 percent of the foreign assets of the United States were in the form of deposits in foreign banks, and only 30 percent of total assets were payable in foreign currencies. Acceptances made for foreign account, loans to foreign banks, and other short-term investments were the largest items.

The geographic data regarding the short-term foreign liabilities of American banks showed a high degree of concentration among five countries, Switzerland, England, Canada, France, and the Netherlands, which together controlled 57 percent of the total. Liabilities to Latin American and Far Eastern countries accounted for about 29 percent of the total. Liabilities to Germany and Italy were comparatively small. The foreign assets reported by United States banks and brokers were located in largest volume in Canada, followed in order by Germany 70 and England. Short-term foreign assets in Latin America and the Far East were also quite large (see table 26).

Table 26.-Geographic Distribution of Outstanding Short-term Foreign Liabilities and Assets Reported by Banks and Brokers in the United States, Dec. 29, 1937 [In millions of dollars]

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Source: Statistics of Capital Movements Between the United States and Foreign Countries and of Pur chases and Sales of Foreign Exchange in the United States, Report No. 6 (United States Treasury Department, Division of Research and Statistics, April 1938), covering the period October to December 1937. The classification of the ownership of these foreign liabilities and assets is based on the domicile rather than the citizenship of the owner.

70 See section, "Short-Term Capital Movements-German Standstill Credits."

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The international account of the United States Government consists of receipts from foreign governments on so-called "war-debt" account and miscellaneous Government transactions. The latter include net receipts from Panama Canal operations, expenditures in foreign countries by the various executive departments, remittances by the Veterans' Administration to veterans living abroad, and the respective costs of United States diplomatic representation in foreign countries and (for the sake of convenience in classification) of foreign representation in this country. Payments to foreigners by the War Claims Arbiter and the Alien Property Custodian, which involved the transfer of significant sums in former years, are now very small or nil. The various items entering the international account of the United States Government are summarized in appendix D (table X). The increase in net payments to foreigners on Government account from $66,000,000 in 1936 to $97,000,000 in 1937 was the result primarily of the transfer to the Insular Treasury of the net proceeds of processing taxes collected on Philippine coconut oil, amounting to $47,754,000, offset in part by a decline in payments to veterans living abroad in settlement of adjusted service certificates from an estimated $13,000,000 to less than $1,000,000 and by a decrease from approximately $6,700,000 to only $72,000 in payments to producers in the Philippine Islands as rental and benefit payments under the provisions of the Agricultural Adjustment Act as amended. Total receipts, including the estimated cost of foreign diplomatic representation in the United States, were substantially unchanged in the 2 years, while total payments rose to $126,000,000 in 1937 from $96,000,000 in the preceding year. Expenditures abroad by the various executive departments, which constitute the bulk of the payments, were practically the same in 1937 as in 1936, except for somewhat higher outlays by the Navy and War Departments. Net receipts from Panama Canal operations were again $6,000,000.

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The receipts of the United States Government on war-debt account comprised $395,286 received from Finland and $9,828 tendered by Hungary in partial payment of current and past-due amounts. The total of $405,000 was smaller than in any post-war year except 1935. In appendix D are shown, as of January 15, 1938, the total indebtedness of foreign governments to the United States (table XI), total payments received on account of the indebtedness of foreign governments to the United States (table XII), and the indebtedness of the German Government to the United States (table XIII).

The United States Revenue Act of 1934 placed an excise tax on the first domestic processing of Philippine coconut oil and provided that the taxes collected would be paid to the Treasury of the Philippine İslands, the remittance of the money to be conditional on the Philippine Government not paying any sub. sidies to producers of copra, coconut oil, or allied products. The amount remitted in 1937 represented the net proceeds of the tax up to June 1, 1937.

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Miscellaneous service transactions produced total estimated receipts from foreign countries of $230,000,000 in 1937 as compared with $191,000,000 in 1936. Corresponding payments to foreign countries were $64,000,000 and $68,000,000, respectively. Net receipts by the United States on miscellaneous service account were, accordingly, $166,000,000 in 1937 and $123,000,000 in the preceding year. This category of transactions includes motion-picture royalties paid by foreigners to United States producers and by exhibitors in this country to foreign producers, receipts and payments involved in international communications, receipts of stock-transfer taxes, fiscal agents' commissions, and brokerage fees, international insurance transactions, and sales and purchases of other services between the United States and other countries. Data relating to international insurance transactions, which have been a subject of special interest in recent years, are reported in detail below.

INTERNATIONAL INSURANCE TRANSACTIONS 72

A decrease in the net outflow of funds on account of the operations of foreign insurance companies in the United States from $43,000,000 in 1936 to $33,000,000 in 1937 and an increase in the net inflow of funds on account of the operations of United States insurance companies in foreign countries from $21,000,000 to a post-war peak of $33,000,000 brought receipts and payments on international insurance account into virtual balance in 1937, as contrasted with a net outward movement of $22,000,000 in the preceding year (see table 27). These developments were the result primarily of a sharp fall in the reported movement of funds from the domestic branches of Canadian life insurance companies to their home offices in Canada on the one hand, and of a sharp rise in the amounts withdrawn from Canada by United States life companies on the other. The transfers abroad on account of the operations of domestic branches of foreign fire and marine companies were somewhat smaller in 1937 than in 1936; those arising out of the operations of branches of foreign casualty companies," of nonadmitted foreign companies, and of the United States affiliates of foreign companies were all somewhat larger. The net movement of

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72 Brief discussions of insurance transactions in the balance of international payments of the United States appeared in Trade Information Bulletin No. 833, The Balance of International Payments of the United States in 1935, pp. 39-40, and in The Balance of International Payments of the United States in 1936, pp. 42-45. An extended treatment was published in Trade Information Bulletin No. 834, Insurance Transactions in the Balance of International Payments of the United States, 1919-35. Investment aspects of the operations of foreign insurance companies in the United States were set forth in Foreign Investments in the United States, pp. 38-40, 43.

73 The readmission of one foreign company in 1937, the return of another to the list of active branches, and the retirement of still another company resulted in an increase in the number of active branches of foreign fire and marine companies to 69 from 68 in 1936.

74 The entrance of an additional company in 1935 raised the total number of United States branches of foreign casualty companies to 10.

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