13, 1941, 140,318 tons had been delivered, 66,391 tons were in transit, and 150,601 tons awaited shipment. Deliveries on these orders are expected to be completed by the middle of 1942. In addition, the company has agreed to buy up to 30,000 tons of Brazilian rubber in 1941, 1942, and 1943 at a maximum cost of about $20,000,000.

Including receipts under the cotton-rubber exchange agreement, the Government's stock pile of crude rubber as of mid-September was about 230,000 tons. Private stocks, now controlled under the priorities system, have also greatly expanded, amounting to approximately 216,000 tons on August 31-an increase of about 90,000 tons since the Rubber Reserve Co. was established.

Commitments by the Metals Reserve Co. through September 13, 1941, for the purchase of materials from other countries totaled approximately $880,000,000, distributed as follows: Refined tin, $207,500,000; tin ore, $122,434,000; aluminum, $180,034,000; copper, $140,110,000; tungsten, $113,169,000; manganese ore, $41,766,000; lead, $31,819,000; chrome, $12,015,000; antimony, $6,403,000; zinc ore, $3,843,000; and other metals in lesser amounts.

The Defense Supplies Corporation had made commitments totaling approximately $67,790,000 through September 13, 1941. Of this amount, however, $40,000,000 represented the Corporation's announced willingness to purchase up to 100,000 bales of raw silk now in the United States or which may hereafter arrive. Such stocks were frozen by order of the Office of Production Management following interruption of trade with Japan in August. The balance of the Corporation's commitments cover mainly commodities which it is in the process of obtaining from abroad, including $10,000,000 of cork, $6,303,000 of nitrate of soda, $3,200,000 of jute, $3,000,000 of South American wool, $1,500,000 of Manila fiber, $1,340,000 of quinine sulfate, and lesser amounts of leather, kapok, diamond dies, and several other items.

The Defense Supplies Corporation is also transporting and storing in this country 250,000,000 pounds of Australian wool, of which more than 82,000,000 pounds had already been received as of September 13. The wool belongs to the United Kingdom, but the United States Government is providing for transportation and storage costs, estimated to total about $12,000,000, and has the right to use any part of the wool that may be required.

These purchases by the three RFC subsidiaries, together with small acquisitions by other Government agencies, are accounting for a heavy portion of total imports. While imports on private account have also increased greatly in many cases, contracts by official agencies now cover many of the major foreign sources available. In the case of one commodity the Government has become the sole importer. Under arrangements worked out with the British and Netherland Governments and the International Rubber Regulation Committee, effective June 23, 1941, all exports of crude rubber to the United States from southeastern Asia will be restricted to the Rubber Reserve Co., though shipments will continue to include for a time deliveries on old contracts by private importers.

As in the case of exports under lend-lease, therefore, an increasingly large part of the import trade is being carried on through official channels. This development is an inevitable outgrowth of the present

emergency. Only the Government has the interest, authority, and resources to store up great reserves of materials and to make satisfactory arrangements for their procurement. The concentration of imports of these materials in official agencies also simplifies distribution problems under the priorities system.

The significance of the stock-pile program lies not only in the accu mulation of materials vital for United States defense production but also in its bearing on another important aspect of this country's foreign policy-the prevention of shipments of such materials to the Axis powers. In connection with his proposal on July 19, 1941, for the creation of an inter-American system of export control, the Under Secretary of State urged that each of the American republics establish a system of export control covering its own production of strategic and critical materials. The Under Secretary stated that there were strong markets in the United States for most of these materials and gave assurance that United States Government agencies stood ready to give consideration to purchasing supplies of such commodities under the stock-pile program.

This offer has already been implemented by the negotiation of special agreements with Latin American governments and producers. One of the most complete arrangements of this type is that with Mexico. It was announced on July 14, 1941, that the Metals Reserve Co. and the Defense Supplies Corporation, in conjunction with the State Department, had completed arrangements which, for the following 18 months, would make available to this country or other countries of the Western Hemisphere the exportable surplus of Mexican strategic and critical materials, including antimony, copper, graphite, lead, mercury, tungsten, tin, zinc, and henequen.

The raw-material-producing countries of Latin America, the Far East, and elsewhere have benefited substantially by the stock-pile program and heavier consumption in United States defense industries. Principally because of these factors, imports from Latin American countries in the first half of 1941 were almost 100 percent larger than in the first half of 1939, yielding a substantial excess in favor of that area as a whole and, in conjunction with other factors, greatly easing the exchange difficulties experienced by many of these countries following the outbreak of the war. Imports from the Netherlands Indies and British Malaya have also increased enormously.

The benefits conferred by these purchases, however, are not fully indicated by the import statistics. In several cases the United States has agreed to make substantial advance payments to assist in production or for other purposes. In connection with the purchase of 340,000 tons of aluminum by the Metals Reserve Co. from Canada, for delivery through 1944 and involving approximately $126,000,000, it was agreed to advance $50,000,000 to finance the expansion of power and plant facilities. On September 17, 1941, it was announced that the Defense Supplies Corporation had contracted with Amtorg Trading Corporation for the purchase of approximately $100,000,000 of Russian materials and had agreed to advance up to $50,000,000 of this sum for use by the U. S. S. R. in purchasing supplies from this country. Effects of Shipping Shortage on Foreign Trade.

Probably more decisive in its effects on the future volume of foreign trade than any of the forces mentioned is the shortage of merchant

vessels resulting from German attacks on British and neutral shipping. At the beginning of the war in September 1939, the world's merchant marines, other than Great Lakes vessels, totaled roughly 65,600,000 gross tons, distributed approximately as follows: British Empire, 20,600,000; United States, 9,000,000; Germany and Italy together, 7,900,000; Japan, 5,600,000; other countries, 22,500,000.

During the war immense additions to and subtractions from the fleets of the various countries have been made, and sweeping changes have been effected in the routes which they serve. From September 1939 through June 1941, merchant marine losses, excluding Axis vessels, totaled about 7,000 000 gross tons, of which the British Empire lost some 4,400,000, and allied and neutral countries lost 2,600,000. Losses during the last 6 months of this period were slightly in excess of 2,500,000 gross tons. Partly offsetting these sinkings, a considerable part of the tonnage owned by countries occupied by Germany took refuge in British or neutral ports, and much of this shipping is operating on the world's trade routes. In addition, the United States has turned over large amounts of shipping to the British, partly from new production and from old tonnage previously laid up, but partly also from transfers out of coastwise and ocean services.

In view of acquisitions of additional ships from these sources, it appears that at the beginning of 1941 the total tonnage of the British Fleet was only slightly less than at the beginning of the war.39 The efficiency of the British merchant marine, however, is believed to be materially lower, because of the wartime conditions under which it must operate. The convoy system, rerouting for the sake of safety, slower turn-arounds, the German bombing of British ports, and the tying up of damaged vessels for repairs are factors tending to lower the efficiency of the fleet by comparison with peacetime standards.

The effects of the German war on British shipping are felt not only on the North Atlantic but also on all the other major trade routes of the world. A decrease in the number of British and other foreign vessels which formerly carried a great part of the traffic on Latin American and Pacific routes has been offset in substantial measure by additions of United States flag vessels. Moreover, there has been a considerable increase in operating efficiency as indicated by the much heavier volume of imports and exports now moving in trade with Latin America and southeastern Asia. The extent to which United States ships can be assigned to carry this growing volume of trade has been necessarily limited, however, by transfers to the United Kingdom and other countries and by requisitioning for United States naval auxiliaries and Army transports.40

In an effort to overcome the shipping shortage, the United States Government has embarked on a gigantic ship construction program. While production in 1941 will probably yield only about 1,000,000 gross tons, output is expected to rise to some 5,000,000 tons in both 1942 and 1943. In recent months, moreover, this Government has instituted an intensive patrol of a large part of the North Atlantic in an endeavor to reduce shipping losses.

88 Ships of 100 gross tons or over.

39 Sir Arthur Salter stated in January 1941 that the British still had 97 percent of their 1939 seagoing tonnage. Maritime Commission announced on July 9 that up to that time it had taken more than 109 seagoing vessels, totaling 995,146 gross tons, from the merchant marine for transfer to the Army and Navy.

40 Th

. For some months to come, however, production of commodities for export and the increased demand for imported raw materials may be expected to press against available shipping facilities. Control of shipping in order to give preference to the most vital import and export commodities has consequently become necessary. On April 30, 1941, the President stated in a letter to Admiral Land, Chairman of the Maritime Commission, that it would be necessary "to reallocate our own flag ships, including those which will be completed in the next few months, in such a way as to make every cargo directly and indirectly useful to our defense efforts and the winning by the Democracies of the battle now being waged in the Atlantic."

Allocation of cargo space for materials most urgently needed was initially practiced for several months through informal arrangements between the Maritime Commission, acting with the advice of the Office of Production Management, and ship operators. Enactment of the Ship Warrants Law on July 14, 1941, provided the Maritime Commission with additional authority whereunder a more formal system of priorities for shipping can be enforced. The measure also enables the Maritime Commission to exercise more effective control over ocean freight rates, including those charged by foreign flag vessels. This authority strengthens the informal agreements previously reached with American flag ship operators. On July 30 the Commission announced a new scale of maximum time charter rates, effective August 1, materially reducing rates.

The net effect of the shipping shortage is to limit the total foreign trade volume below the maximum otherwise possible and, in view of the consequent necessity for shipping priorities, to increase even more sharply the concentration of strategic raw materials in the import trade and of military supplies for the United Kingdom in the export trade.

The New Role of Finance.

In no respect has the change in our international position been more profound than in our financial relations with other countries. This change is somewhat similar to the transformation which has occurred in the internal financial policies of the warring countries of Europe and the Far East. These countries have all endeavored, with varying degrees of emphasis and success, to insure that what is otherwise possible and desirable in their economic effort shall not be hampered by conventional standards of finance. This is what has been called the "negative function of money," that is, "to avoid impeding the solution of the real physical problems of mobilizing men and materials." 41 In a more positive sense, on the other hand, the belligerent nations have employed the arm of finance to restrict economic activities which do not contribute toward attainment of their major purposes.

In an analogous manner, the United States has availed itself of its immense international financial strength in accordance with the requirements of national defense. Passage of the Lend-Lease Act constituted in essence a declaration a declaration that financial limitations resulting from depletion of British gold and exchange resources

Quoted with sight rearrangement, from the Economist (London) for May 3, 1941.

would not be permitted to restrict the flow of war goods essential to prosecution of the war against the Axis powers. Similarly, ExportImport Bank and other Government loans to Latin American countries serve the purpose of hemisphere defense and solidarity, while financial assistance to China is in line with this country's political and strategic interests in the Far East.

While financial assistance is thus provided on a vast scale where otherwise our defense efforts and those of friendly nations would be impaired, financial restrictions, on the other hand, have also been employed to prevent operations of other powers inimical to our interests. The earliest use of this weapon was the freezing of several billion dollars in assets of conquered European nations to prevent their confiscation and use by Germany. These measures were ultimately extended, on June 14, 1941, to embrace not only the dollar assets of the conquered peoples but also those of Germany and Italy and the rest of continental Europe in order to impede operations here and elsewhere contrary to the national defense interests of the United States. These freezing orders were designed to restrict not merely direct transactions with the Axis powers but also transactions by their representatives in other countries. To assist American firms in complying with these restrictions, the Government issued, on July 17, 1911, a “Proclaimed List of Certain Blocked Nationals," including some 1.800 firms operating in Latin America. At the same time, in order that legitimate commerce with the other American countries might not suffer, the Treasury issued a general license authorizing payments for ordinary trade transactions with or on behalf of nationals of blocked countries resident in Latin America whose names did not appear on the above list.

The freezing of Japanese assets on July 25 marked the first application of this system of financial and exchange restrictions to a nonEuropean power, affording the United States Government instant control over all payments and other financial transactions between the two countries.

Decline in Inflow of Gold and Capital.

The employment by this country of the two-edged weapon of finance to aid friendly countries and to oppose those whose policies run counter to our interests, together with other developments resulting from the war, has far-reaching consequences for international gold and capital movements. Broadly expressed, the inflow of foreign capital into the United States, a dominant characteristic of our balance-of-payments position for the last 6 years, has been greatly reduced and, so far as Europe is concerned, effectively stopped; whereas, on the other hand, the United States, chiefly through the medium of official agencies, has become an exporter of capital on a vast scale and on terms quite different from those customarily employed in the past.

The occupation by Germany of a great part of the European Continent and the freezing of continental European assets in this country have largely removed both the possibility and the incentive for further capital transfers from that area. By the same token the movement of gold from continental European countries, which still hold the major portion of the world's reserve stocks outside the United States,42 has

42 According to an estimate in the Federal Reserve Bulletin for May 1941. European countries still hold some $6,000,000,000 of gold reserves. This estimate includes substantial amounts held under earmark in the United States or elsewhere.