2. Shipping securities to London to be sold or borrowed against.
j. Using finance bills.
These are the principal methods resorted to in an endeavor to adjust an excess of imports over exports; if in spite of these the balance of payments remains adverse, gold is shipped.
3. "The United Staten in account with the world." —The exports of one country form the imports of an other, and a study of the foreign trade of different countries will show that the component items of the exports and imports vary only in degree. Dean Jo seph French Johnson in "Money and Currency" gives this statement of "The United States in Ac count with the World," the headings of which are comprehensive and self-explanatory and call for very little comment.
The exports of merchandise exceed the imports for the year under consideration (1904), as they did in 1913, and the difference was adjusted by the "invisible imports." The statement shows that gold was both exported and imported, indicating that in the course of the year it was found necessary to import gold to correct a falling rate and to export gold to adjust a rising rate. In these days of efficiency the necessity of shipping gold, with the attendant risk and expense, is a crude expedient and could easily be obviated by the use of some form of international gold certificate.
The invisible exports and imports can be consid ered under broader classifications as net balances off setting the excess of visible exports, as shown in the following statement : Excess of visible exports: Merchandise $440,000,000 Gold 30,000,000 Total excess of exports $476,000,000 Excess of invisible imports: Investments (3 and 4) $106,000,000 Interest and profits (5 and 6) 55,000,000 Tourists and embassies (9 and 10) 150,000,000 Ocean freight (11) 100,000,000 Special transactions (19.) 50,000,000 Balance due by foreign banks (7 and 8) 15,000,000 $476,000,000 The above statement shows that the United States paid $305,000,000 in goods for interest and services, took over $156,000,000 in investments, and still had a credit balance of $15,000,000 in foreign banks.
There is a very active exchange of stocks and bonds between New York and Europe. The volume of business is governed chiefly by the market rate of in terest and the opportunity offered for arbitrage transactions at the various financial centers.
European investors have, from time to time, sup plied large amounts of capital for the exploitation of business industries and utilities in the United States, and the interest on these investments consequently forms an item that offsets goods exported. The large
number of Americans traveling abroad calls for a steady supply of exchange in the form of letters of credit and travelers' checks and tho, for the time being, the war has practically ended the demand for such exchange, it will probably be greater than ever after the cessation of hostilities. Owing to the lack of a merchant marine the United States pays a heavy toll to foreign countries for freight, as prac tically all of her exports and imports are carried in foreign bottoms. Mention of finance bills is omitted because, being merely a temporary expedient of sixty to ninety days currency, they have no place in a statement of this nature. They are used principally between seasons to anticipate a favorable change in the exchange rate and are, as a rule, absorbed by the balances created in Europe by the fall shipments of cotton and wheat.
A study of the following average quotations for the successive months of the years shows that exchange is in favor of London during the first eight months of the year and in favor of New York during the last four months, and for this reason there are practically few bills of this nature outstanding at the end of the year.
January 4.872 February 4.875 March 4.8725 April 4.8715 May 4.875 June 4.876 July 4.872 August 4.8685 September 4.86G October 4.8665 November 4.8695 December 4.869 4. Commercial bills of exchange.—While, as we have seen, the movement of merchandise is not the ex clusive factor in the commercial relations of nations, which give rise to transactions in foreign exchange, none the less in the balance which has been studied they are the dominant element. The transactions which arise from them are therefore worthy of es pecial attention. It has already been noted that in the adjustment of commercial accounts, bills of ex change are drawn with documents attached. The chief of these documents is, of course, the bill of la ding, to which the others, consular, certificate, insur ance certificate and letter of hypothecation are sub sidiary. The nature of these documents needs no detailed explanation here, as the form and purpose of most of them have been fully explained in the Modern Business Text on "Foreign Trade and Ship ping," while the object of the letter of hypothecation has been referred to in Chapter VII, Section 3 note.