THE BALANCE OF INTERNATIONAL PAYMENTS OF

THE UNITED STATES IN 1939

INTRODUCTION

The balance of international payments of a country consists of the payments made, within a stated period of time, between residents of that country and residents of foreign countries. It may be defined in a statistical sense as an itemized account of transactions involving receipts from foreigners, on the one hand, and payments to foreigners, on the other. Since the former relate to the international income of a country, they are called "credits," and, since the latter relate to international outgo, they are labeled "debits." 1

In the compilation of the items which enter into a balance-of-payments statement, the fact of residence, rather than nationality, is ruling. This procedure relates directly to one of the basic purposes of the balance-of-payments schedules, which is to show the sources of the supply of foreign currencies, or of foreign exchange, arising out of claims against foreigners and the nature of the demand for foreign currencies from persons with payments to make abroad. Conversely, they also indicate the sources of the supply of dollars, or of dollar exchange, arising out of claims against this country by foreigners and the nature of the demand for dollar exchange from foreigners with commitments to meet in the United States.

Broadly speaking, a balance of payments comprises only cash transactions and transactions involving the purchase or sale of foreign exchange. In practice, however, this rule cannot be literally construed nor rigorously applied. For example, shipments of goods by charitable organizations enter the merchandise account (as credits), although no payments are expected from the foreign recipients. Since exports of this type are not separable in the trade returns, they are counterbalanced by including noncash institutional gifts in the category of contributions (as debits). Other merchandise adjustments entered in the balance-of-payments statement cover allowances for possible undervaluations or overvaluations in import and export declarations. They serve, therefore, only to offset noncash elements in official trade statistics.

In itself, the statistical summary of the balance of international payments indicates no functional or causal relationships among the items which compose it. These must be established upon the basis of collateral facts, of quantitative comparisons over relatively short periods of time in series, or of theoretical demonstrations.

A more detailed discussion of the theoretical bases of balances of international payments was printed in the 1937 and 1938 studies. Copies are available for those particularly interested."

The balance-of-payments area of the United States is coterminous with the areas to which the official statistics of merchandise export and import trade apply. These areas include continental United States, Alaska, Hawaii, Puerto Rico, and, since January 1, 1935, the Virgin Islands. Areas excluded are the Philip pines and the Panama Canal Zone. For balance-of-payments purposes the latter are considered as foreign countries.

Since, by definition, the balance of international payments of a country consists of payments effected, within a stated period of time, between residents of that country and residents of foreign countries, and since, also by definition, international payments include changes in the short-term foreign assets and liabilities of the country, it follows that aggregate receipts from foreigners and aggregate payments to foreigners are equal; for any cash claims upon foreign countries not taken up by those with payments to make in foreign countries (an apparent excess of credits) would appear automatically as a net addition to short-term banking assets in foreign countries (or as a net reduction in short-term banking liabilities to foreigners)-that is, as an exactly offsetting debit. Conversely, cash claims in favor of foreigners not matched by cash claims against foreigners (an apparent excess of debits) would appear as a net addition to short-term liabilities to foreigners (or as a net deduction from short-term assets abroad) that is, as a counterbalancing credit.

The net difference between the sum of recorded and estimated credit transactions and the sum of recorded and estimated debit transactions is labeled "Other transactions and residual," and the sign affixed is that of the smaller aggregate. A more complete designation would be "Net discrepancy as a result of errors, omissions, duplications, unestimated items, and unreported transactions." Aside from indicating that the limitations of available statistical data make impossible the identification and accurate estimation of all balanceof-payments transactions, the residual item is without significance. A further discussion of the residual item, with particular reference to the 1939 balance of payments, will be found in a later section of this bulletin.

Since 1935 the annual report on the balance of payments has been supplemented by a series of specialized research undertakings designed to provide more satisfactory bases for the computation of the annual estimates and for the detailed analysis of individual classes of transactions essential to a more adequate study of long-term trends. The results of these studies, four of which have been published as separate bulletins and several others as special circulars, have fully confirmed the original thesis that the figures in the annual statement tend to have only a limited significance if no attempt be made to appraise both the long-run and the short-run influences which lie behind them.

A recently published study, Oversea Travel and Travel Expenditures in the Balance of International Payments of the United States, 191938,2 has made available for the first time comparable estimates of American travel expenditures in oversea areas for the entire post World War period to date. This study contains a detailed analysis of the nature and volume of oversea travel, in which the history of this type of travel during a period of more than a hundred years is traced with the aid of statistics of passenger traffic compiled for the first time by comparable classifications.

An earlier study, Insurance Transactions in the Balance of International Payments of the United States, 1919-35, was published in 1936. This report provided for the first time a scientific basis for the

? U. S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Economic Series No. 4. U. S. Government Printing Office, Washington, 1939. 95 pp. Price, 15 cents.

U. S. Department of Commerce. Bureau of Foreign and Domestic Commerce, Trade Information Bulle. tin No. 834. U. S. Government Printing Office, 1936. 37 pp. Price, 5 cents.

preparation of annual estimates relating to the international movement of insurance funds.

A special inquiry into the volume of noncommercial personal remittances was prompted not only by a desire to improve the accuracy and the comparability of the annual estimates, but also to overcome certain difficulties growing out of exchange controls and other restrictive measures which have steadily diminished the utility of foreign sources of remittance data. Although the ends in view are not yet fully achieved, the efforts to date have assured the cooperation of all the principal remitting agencies in the United States and the full utilization of domestic sources of remittance data.

Comprehensive studies of several other service items have been recently undertaken. Definitive revisions of the estimates of institutional contributions to foreign countries for the entire period since the World War, which appear elsewhere in this bulletin, have been effected upon the basis both of data accumulated in the past and of data obtained by new inquiries. An investigation of Government international transactions in the years since 1919, covering the receipts and payments of executive establishments, receipts and payments under treaties, conventions, and agreements, and various World War settlements, is virtually completed. A study of freight and shipping services in the balance of payments of the United States has been begun on a broad scope.

The annual bulletins on the balance of international payments have made extended reference at various times to "corrections" and adjustments in the reported foreign trade statistics in order to secure export and import values which would represent, as nearly as possible, actual balance-of-payments values. Among its various procedures, the Finance Division initiated an inquiry, through the aid of the Works Progress Administration, into the payments value of certain commodity imports. Although the results of this undertaking are still highly tentative and although any report at this time would be premature, it may be stated that, in the case of certain important imports, considerable collateral data have been compiled which will ultimately make possible important adjustments in the foreign trade statistics for entry in the balance of payments.

One of the special studies initiated by the Finance Division late in 1934 was designed to provide detailed data on foreign investment holdings in the United States. This survey, published in 1937, has accomplished much more than its original purpose, since it served as the primary point of departure for other researches into the international investment position of the United States. The results of a special inquiry into foreign dollar-bond repatriations, which made possible the presentation of data on estimated American holdings of foreign dollar bonds by individual countries, together with the recent survey of American direct investments abroad, have subsequently provided a working basis for the computation of current data on American "long-term" investments abroad.

U. S. Department of Commerce. Bureau of Foreign and Domestic Commerce, Foreign Investments in the United States. U. S. Government Printing Office, 1937. 109 pp. Price, 15 cents.

U. S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Status of United States Holdings of Foreign Dollar Bonds, end of 1938 and 1939. (Mimeographed.)

U. S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Economic Series No. 1, American Direct Investments in Foreign Countries, 1936. U. S. Government Printing Office, 1938. 49 pp. Price, 10 cents.

A special bulletin on the international investment position of the United States will be published in the course of the year; the net creditor status of the United States, as indicated by recent surveys, is summarized in a later section of this bulletin. The new study, based on detailed information for the year 1937, will provide for the first time the basis for a complete by-country analysis of foreign investments in the United States. It will also make possible comparisons of the trends in direct and nominee holdings and explorations of certain of the characteristics of foreign investments about which our knowledge has previously been inadequate.

SUMMARY'

The broad features of The Balance of International Payments of the United States in 1938 were reproduced in 1939. (See table I and fig. 1.) The unusually large surplus of merchandise exports over imports in these years was offset to a relatively small extent by net payments to foreigners for various services. The resulting excess of receipts by this country on trade and service account, coupled with an influx of capital funds from abroad, was responsible for a heavy inflow of gold in continuation of the extraordinary movement begun in 1934.

A summary statement on The Balance of International Payments of the United States in 1939, based on preliminary data, appeared in the Survey of Current Business for February 1940.

Figure 1.-Balance of international payments of the United States, 1934-39.

NOTE.-Since the data shown in figure 1 represent net receipts and net payments, the length of the bars bears no necessary relation to the comparative gross dollar volume of international transactions in the several

years.