771. Statistics of American Commerce, 1914-1920.—The course of the commerce of the United States during the war and the few years of peace immediately following appears in the statistics of the accompanying table, in which, for reasons that will appear later, the movement both of merchandise and of specie is indicated.

772. Interpretation of the Statistics.—With the figures of this table should be compared those given in section 663, covering the course of trade from 1860 to 1913. Attending only to the figures giving the value of merchandise the reader will note that the imports in the early years of the war remained about at their former level, that they increased in the latter part of the war, and particularly after its close. The exports, on the other hand, showed the effect of the war almost from its beginning. They had first exceeded 1 milliard dollars in 1896, and had grown steadily with the growth of population and with the rise in prices due to the increase in gold output, passing the mark of 2 milliards in 1911. From that level they now shot up to 3, 4, 5, 6, 6, 8, 8 milliards in the individual years; history does not provide another example of such prodigious growth. As a result the excess value of exports over imports, which had in recent years been about half a milliard, grew to 1, 2, 3, even 4 milliard dollars a year.

Part of the increase in the value, both of imports and of exports, was of course due to the rise in prices which accompanied the war. To enable the student to make the necessary correction for this factor a column of the table supplies the “index-number” of the Department of Labor, showing what the average wholesale prices were in any year compared with the years 1913-1914. Evidently if prices in 1918-1919 were double what they had been just before the war, the figures for the value of trade in those years should be divided by 2 to give an idea of the actual quantities of goods exchanged. Applying this process of correction the student will note that the volume of imports actually shrank in the course of the war, but that the exports, in spite of this process of reduction, reached a level which had not before been dreamed of. In fact the figures for exports in 1918 and for parts of 1917 and 1919 do not take account of the great quantities of stores shipped from the country in transports of the government, and therefore not reported to the customs officials; the figures should be raised by perhaps one-third to give a comprehensive idea of the total quantity of goods sent out in that period of greatest national exertion.

773. Increase in value of exports to Europe.—Not only did the thoughts of the whole world center in Europe during the war; the wares of the world flowed thither, in unexampled volume, to be used to destroy and to be destroyed. For reasons already given the European belligerents cut down their exports, and strove so far as they could to increase the volume of their imports. The United States was in the reverse position. While it was still neutral, and likewise after it entered the war (April, 1917), it was the great source from which the European states supplied the needs which they had not time or strength to supply themselves. Although the larger part of central and of eastern Europe was cut off by the blockade and by the difficulties of transportation, the exports of the United States to Europe, which before the war had run a little over 1 milliard, increased to 2, 3 and 4 milliards. In the first full year of peace, 1919, when the larger part of Europe was again open to trade, and the exhausted peoples were endeavoring to restock, the value of exports to Europe exceeded 5 milliard dollars in value.

774. Increase in value of exports to other continents.—The figures of the preceding section give, however, but a partial and misleading idea of the peculiar position which the United States assumed in the economy of the world during the war. In spite of the great increase in value, and increase in quantity, of exports to Europe, the proportion of the total exports which went to Europe rose very little. As shown above (sect. 708), the United States had tended, in the years before the war, to distribute its exports more widely. The proportion which exports to Europe formed of the total dropped from four-fifths in the ‘80’s to three-quarters about 1900, then to two-thirds; in 1913 the proportion was 60 per cent.

The figures for the war period were 71, 69, 69, 63; in 1920 the figures dropped to 54. It is apparent that there was a great expansion of exports in this period, not only to Europe but to other parts of the world as well.

To understand this situation we must remember that the United States had not only to meet the demands of the emergency in Europe, but also had to take the place of the great industrial states of Europe in meeting the demands of the rest of the world. England, Germany, and France were unable to sell goods in their usual markets, and the United States for the time took over their old customers.

775. Statistics of distribution of exports.—Exports from the United States, therefore, increased greatly in value, not only to Europe but also to other continents. The following table indicates the distribution of exports in the period of the war; Oceania and Africa, taking together five per cent or less of American exports, are omitted.

The distribution of American exports in Europe has already been described. Of the countries grouped under the heading North America, Canada accounted for rather more than half of the total; Cuba and Mexico also bought greatly increased amounts of the exports of the United States. In South America, Argentina, Brazil, and Chile increased their purchases three-or four-fold; in Asia, Japan raised the value of its purchases from about 50 to over 300 million dollars.

776. Changes in the composition of exports.—This expansion was shared unequally by the different groups of commodities which together made up the total exports. Raw materials for manufacture declined in importance; before the war they had accounted for about one-third of the total exports, but by 1917 they made up only about one-eighth. On the other hand there was a great increase in the export of foodstuffs. The United States had tended in the period immediately preceding the war to consume an ever-increasing proportion of the foodstuffs that it produced. The export of foodstuffs, raw and manufactured, had declined to about 500 million dollars in the years 1910-1913. In the early years of the war it rose to about 1 milliard; in 1918 it amounted to almost 2 milliards, and in the first two years of peace it exceeded that figure.

That part of American trade which showed the most extraordinary expansion was the export of manufactures. Before the war the value of finished manufactures exported had averaged about 700 million. In 1915 the figure exceeded 1 milliard; in 1916 and succeeding years, 2 milliards; in 1920, 3 milliards. The growth was particularly noticeable in trade with non-industrial countries, which had previously relied in large part on Europe for manufactured wares and found now the supply from that source cut off. Exports of manufactures from the United States to Asia, South America, and Africa increased about five-fold, comparing the years 1914 and 1920. Exports of manufactures increased even to Europe, including such important items as railroad supplies, agricultural implements, machinery, petroleum products, etc.; and it was estimated that in 1920 the United States was supplying one-third of the total demand for manufactured wares in the trade of the world.

777. Effect of the war upon the import trade.—The United States made its commercial contribution to the World War, as has already been said, by following a course which was the reverse of that of the European belligerents; it expanded its exports, and restricted its imports. Of necessity it renounced a very large part of that trade which had been the greatest source of supply, the trade in imports from Europe. Before the war Europe supplied about half of our needs (49 per cent of total value of imports, 1913). In the last year of the war imports from Europe amounted to less than one-seventh of the total (14 per cent in the year ending June 30, 1918). The varied manufactures which we had been used to import from the industrial states of western Europe were no longer in the market. Many of these wares were luxuries appealing indeed to the taste of the consumer, but not involving any serious economic consequences when the supply failed. Others, notably the chemicals and the special kinds of glass and porcelain which had previously been imported from Germany, played an important part in industrial processes, and had if possible to be replaced. American manufacturers entered a field which the Germans had long regarded as their own peculiar province, and which, indeed, they would probably have long continued to dominate if they had not broken the peace.

Forced to an extension and diversification of industry by the demands not only of the American but also of many foreign consumers, the country imported an increased proportion of crude materials for use in manufacturing as the proportion of finished manufactures ready for consumption declined. Raw wool, raw silk, crude rubber and items of that character rose toward the top of the list of wares imported, and gave a new importance to the trade with South America and Asia.

778. The excess value of exports over imports.—The war led, for reasons already given, to an enormous increase in the excess value of exports over imports. The table at the beginning of the chapter presents figures which were without parallel in the history of this, or indeed of any other country: an annual excess in the years 1915-1920 averaging over 3 milliard dollars a year, a total excess for the period 1914-1920 amounting to 18.5 milliards. The following table shows how unequal was our balance in trade with the different continents, and indicates the close connection of the great excess of exports with the European war.

Taking Europe alone the excess of exports to the credit of the United States was over 20 milliards in the years 1914-1920. North America was the only other continent showing a large “favorable” balance, and Canada was the single country that accounted for most of this. The balance in trade with South America and with Asia was against the United States, as had been usual in the past, but to an extent which passed the bounds of any previous experience.

779. Items in the international balance before the war.—In approaching the subject of the balance of trade of the United States during the war it is desirable to have in mind the most important items which, before 1914, constituted the international credits and debits of the country. The table below pictures these items in the form of a simple balance sheet, as they were estimated in 1910.12 The figures are given in round sums, indicating that they make no pretence to statistical accuracy; they are to be understood merely as showing the tendency of a normal year. In the case of several items no attempt is made to do more than indicate the net balance that might be expected, year in and year out.

780. Explanation of the “favorable” balance.—The most important feature of the table is the great credit item due to the excess of exports over imports. Ever since 1873, with rare exceptions (only four years altogether) the United States has shown a credit balance of this kind, a “favorable” balance as it was called in the days when people believed that it would bring precious metals into the country. Actually, the “favorable” balance implied nothing more than that we were a debtor country, bound to export more than we could import from the rest of the world, to meet our obligations. The character of these obligations is indicated in the column of debit balances. Foreigners did more ocean carriage for us than we did for them, and had a balance due to them on that account; the figure in the table would be considerably larger if the freight bill had not been partially offset by the considerable purchases of coal and stores made by foreign ships in our ports, which counted of course to the credit of the United States. The remittances of private persons, largely of immigrants to this country sent to agents or relatives in their old home, amounted to a surprisingly large aggregate. Funds would be remitted, say, by a postal money-order, but of course the foreign government that honored this order would look for payment to the American post-office, which would have to depend on our surplus of exports to meet the debt. So in the case of the other items, expenses of American travelers and the claims for interest and dividends of European investors, we were bound to make heavy payments, and made them by delivering our cotton, copper, petroleum products, and so on, to a value much exceeding the value of our imports.

781. Movement of specie in the period of the war.—Some part of the total exports of the war period was a free gift. The food, clothing, and medical supplies that were donated by private individuals, by associations, and by the government, demanded no commercial return and no acknowledgment of indebtedness from the foreigner. Large as were these gifts in absolute value, they can be omitted from consideration; they may have formed a considerable portion of a milliard and still be negligible. For most of the exports that appear in the commercial returns the foreigner had to pay in the present or promise to pay in the future.

One means of payment was hard cash. In the few years immediately preceding the outbreak of the war the European banks, nervous because of the political outlook, had been trying to build up their reserves, and had been drawing gold from the United States. In the single month of July, 1914, over $40,000,000 were shipped from New York. American bankers and business men owed at this time several hundred million dollars, maturing before the end of 1914; the city of New York owed $80,000,000. For a brief period sterling exchange rose far above the normal par; an American was willing to pay over $5 for the right to a pound sterling payable in London. Soon the tide set in the other direction. The total gold stock of the United States at the outbreak of the war was about 1.8 milliard dollars. In 1920 it was 2.7 milliard, roughly one third of the world’s total stock of gold used for monetary purposes. In the interval the United States received from Europe over 1.2 milliard dollars in gold, of which it kept the larger part.

Reference to the table at the beginning of the chapter will show that silver flowed in the opposite direction. The United States as a silver-producing country, has had regularly a surplus to export, but parted with the very large sums appearing in the table in the years 1918-1919 as a means of liquidating part of the balance owed to Asia. The demand for silver to be shipped to the East was so strong that for a brief period the bullion in the silver dollar, which so recently as 1915 was worth only forty cents, was actually worth more than a dollar in gold.

782. Securities and loans.—Another means of payment employed by the peoples of Europe to meet the balance against them was the sale in the United States of American securities owned abroad. It is supposed that in the period 1914-1920 Americans repurchased 4 to 5 milliards in value of stocks and bonds that had been issued in the United States and held by foreigners. For example, of the common stock of the U. S. Steel Corporation 1,286,000 shares, over one-fourth of the total issue, were in 1914 held abroad. At the end of 1918 the number had dropped to 484,000, and in 1919 it declined still further.

American investors, furthermore, purchased several milliard dollars worth of foreign, mainly European securities, issued by governments, by municipalities, by railroads, and by business enterprises. Evidently the European, in debt to the American for the goods sent across the sea, could square the account by selling his stocks and bonds in this country and paying the proceeds to his creditor here.

Finally, and most important, the American government, after the entry into the war of the United States (April, 1917) took upon itself the task of financing the purchases made by associated European governments in this country, and advanced to them a sum amounting to nearly 10 milliards of dollars. In July, 1921, the account stood as follows, including only the advances made under the Liberty Loan acts, and omitting considerable sums due to the United States for the sale of surplus war material and for grain supplied to impoverished districts.

783. Position of the United States as a creditor country.—Although it is not possible to describe with perfect precision the process by which the European peoples arranged to pay for the excess exports of the United States, the general situation is well enough known to warrant one conclusion of the greatest significance. The process resulted in turning the United States from a debtor country to a creditor country. Even if we disregard the 10 milliard loans made by the American government, and take account only of the investments made by private citizens in this country, it is apparent that the United States at the close of the war, instead of owing every year a balance to other countries on account of interest and dividends, was entitled to demand such a balance from abroad. So many items enter into the general international balance that this single one cannot be taken as determining the outcome, and deciding that after the war there would be in normal years an excess of imports over exports. The country will doubtless remain a debtor under some heads (private remittance, tourists). At the close of the war it certainly was not collecting interest and dividends in the form of an excess of imports, as the figures show. It continued to invest capital in foreign countries, particularly in Europe, in North America, and in South America; the capital value of the loans far exceeded any annual interest charge on them. Perhaps this process will continue in the period of reconstruction. So long as the flow of capital for investment in other countries exceeds the annual charges due from them, the surplus of exports (so far as determined by this one item) will continue. It is reasonable to believe, however, that sooner or later the tide will turn, and the United States will have, year in and year out, a surplus of imports over exports. The change will require a readjustment of ideas that have been fixed by generations of habit. Investors, demanding interest payments from foreign debtors, will no longer be able to maintain the attitude that imports menace the prosperity of the country and should be cut down by the restrictions of the tariff. Exporters will find that the current is set against them, and that they can broaden their market only as they stimulate still greater growth in the import trade. The American people will realize at last that, without a conscious exercise of their will, they have become a “world-power,” and that in their own interest, quite apart from humanitarian motives, they must accept new responsibilities and take an active part in international affairs.

784. Shipbuilding before the war.—An excess of imports into the United States, over the exports from this country, will come sooner and will be larger if the country resumes an important position in ocean shipping, as some believe it will. The United States continued, before the World War, to build shipping in considerable volume. The statistics of Lloyds Register show that in the first decade of the twentieth century, American shipyards contributed about one-seventh of the total tonnage built in the world. Most of the vessels built, however, were destined for service on the Great Lakes or in the coasting trade; the tonnage of steamers built for the foreign carrying trade was relatively unimportant. Foreign ships carried regularly about nine-tenths of our sea-borne trade in merchandise.

785. Shipbuilding by the American government.—In the first year of the war the tonnage of ships built actually declined. The provision of adequate cargo space became, however, a matter of urgent importance, as ships were drawn into service as transports and the ravages of the submarine extended. The government established in 1916 a Shipping Board, for the construction of ships as a public enterprise, and when it entered the war in 1917 it proposed to make one of its most important contributions to the war by the supply of new tonnage. The results are presented in the statistics of the accompanying table.

786. American shipping at the close of the war.—Comparing the figures of the table with the years of the war (and noting that each year of the table ends June 30, not Dec. 31) it is apparent that the contributions of the United States to relieve the dearth of shipping were of real importance in the last year of the war, but that the new industry developed slowly and reached its maximum of output only after peace had been declared. The peak of monthly production was attained in August, 1919, when about 400,000 tons of sea-going steel steamers were constructed. The sudden expansion of the industry, demanding the training of nearly a million men called from other occupations, was necessarily expensive. In three years, ending in 1920, the Shipping Board expended about 3 milliard dollars, a sum greater than the book value of the total shipping of the world in 1914. As a result of its activity the government owned about 8 million tons of ocean shipping. In the period of depression which followed the war fully half of this amount was idle, and the operation of ships by the government proved to be a losing venture. An act of 1920 directed that the ships be sold to private owners, but the close of the period left their future still in doubt.

787. Foreign exchange at the close of the war.—To understand the commercial position of the United States at the close of the war it is necessary to return again to questions of currency and foreign exchange. The situation appears in the following table.

The table signifies, for example, that the American in New York could buy in 1919 for $90 or in 1920 for $75 as many pounds sterling as had cost him $100 before the war; that he could pay a debt at Rome with half as many dollars in 1919, with a quarter as many dollars in 1920, as he would have had to pay in 1913. During the war the rate of exchange, like many other prices, was subject to government control; the figures for 1919 and 1920 show the tendency of the rates when they were left free to represent the actual value of the different currencies in international transactions.

788. Effect of depreciation in stimulating exports.—The table shows a great depreciation of the European currencies compared with the American. The United States had had a great expansion of bank credit during and after the war, but, after all, had in its enormous stock of gold the means to maintain the dollar on a gold basis, while the European countries had in circulation varying amounts of irredeemable paper. The reactions of this situation on international transactions were manifold, but two of them are worth particular attention.

When the issue of paper money continued, as in Germany for example, the value of the mark in foreign exchange fell more sharply than its purchasing power in the home market. An American importer would be able to buy more marks for the dollar. The mark would not buy as much as before in Germany, but the dollar’s worth of marks would buy more than before; and the importer would find a transaction profitable which previously he would have been unable to undertake. Unequal depreciation of this kind acted as a stimulus or premium on exports from Germany, which was seriously felt by competing producers in other countries.

789. Effect upon the international money market.—The situation had also an important effect on the course of international loans. Let us assume for example the case of Brazil, desiring to place a loan abroad. If it borrowed in New York it would get gold dollars and would feel assured that when it came to repay the loan it would repay it in the same currency, with units of approximately equal value. If, on the other hand, it borrowed in London, in terms of pounds sterling, it would get paper pounds, at a discount in comparison with gold, but must look forward to repaying the loan with gold units if in the interval the English had succeeded in putting their currency on a gold basis and thereby bringing their exchange to par. Even if Brazil desired to make the loan for financing some expenditure in the European market it would do better to buy dollar credit in the first instance, and buy with that the foreign currency that it needed; and to accomplish this end it would be willing to pay higher rates in New York than in London. It would be hazardous to assert that as a result of the war New York will replace London as the world’s money market, but it is clear that the position of London is seriously prejudiced so long as English currency is at a discount in comparison with gold.

QUESTIONS AND TOPICS

BIBLIOGRAPHY

TITLES OF BOOKS CITED BY ABBREVIATIONS

Note.—Books of which the full titles have already been given are not, in most cases, included in the following list, which is supplementary to the bibliographies and by no means a substitute for them. The list includes only titles of those books which have been cited so many times that a repetition of the full title would waste space, and which have been cited in so many different places that the reader’s time would be wasted in hunting for the entry of the full title. I have thought it unnecessary to give full titles of standard narrative histories, of current manuals in the allied subjects of history and economics, and of local sources in the history of the United States.