¹ This definition is similar to that of Cairnes' “fourth stage.” It differs from it only in so far as two alternative ways of financing the passive trade balance are considered jointly: (a) net capital earnings exceeding net capital exports; (b) net capital earnings combined with a net import (return flow) of capital. Cairnes' definition of the “fourth stage” considers alternative (a) only. A distinction between the two alternatives may be desirable where emphasis is put on the difference between repayments of principal and earnings of capital. This is not the case in the present paper. See Cairnes, J. E., Some Leading Principles of Political Economy, Newly Expounded, New York, Harper, 1874, pp. 360–62.Google Scholar

² The financing balance is the balance of private and governmental capital movements, capital earnings, unilateral government transfers, gold movements, personal and institutional remittances. Insurance transactions are included in the trade balance. Apart from errors and omissions in the balance of payments, the trade and financing balances as defined here are identical in size. U. S. for the year 1920,” Review of Economic Statistics (June 1921), p. 201.

1919–1939: U. S. Department of Commerce, The United States in the World Economy (1943)Google Scholar, Table I.

1940–1944: U. S. Department of Commerce, International Transactions of the United States During the War (1948), pp. 15Google Scholar, 61, 84, 85, 176.

1945–1948: Bureau of Foreign and Domestic Commerce, Survey of Current Business, June 1948 and June 1949.

³ Ward, Barbara, The West at Bay, New York, W. W. Norton, 1948, p. 107.Google Scholar

^* The chart “International Trade Balance of the United States as Percentage of Gross National Product” is based on data derived from the following sources.

Trade Balance: 1919–1948 from Table I; 1914–1918 annual figures based on Bullock, Williams, and Tucker, , “The Balance of Payments of the United States,” The Review of Economic Statistics, vol. I (1919), p. 235.Google Scholar

Gross National Product: 1929–1948 from Survey of Current Business, 1919–1928 values derived from Hoffenberg, M., “Estimates of National Output,” The Review of Economic Statistics, vol. XXV (1943), p. 108Google Scholar, by adjustment to the Department of Commerce GNP series. For 1914–1918, basic data from Kuznets, Simon, National Income Since 1869, New York, National Bureau of Economic Research, p. 119Google Scholar, prorated according to Mitchell, W. C., editor, Income in the United States, New York, National Bureau of Economic Research, 1922, p. 331.Google Scholar

⁴ The value of United States investments abroad minus foreign investments in the United States has been estimated by the Deparment of Commerce as $12.3 billion at the end of 1937. This is no more than 16 percent of net foreign financing during the preceding 34 years. The value of that investment to the nation of course will depend more on future developments in the world economy than on the amounts that now appear on the books.

⁵ Directly traceable effects of the export surplus and foreign financing on employment tend to be small in comparison with the magnitudes of the domestic economy. See Buchanan, Norman S., International Investment and Domestic Welfare, New York, Henry Holt, 1945, pp. 138, 143Google Scholar, and Calvin Hoover, B., International Trade and Domestic Employment, New York, McGraw-Hill, 1945, p. 14.Google Scholar But this does not exclude a strong impact on certain sections of the domestic economy at certain times, and on the whole of it via the political conditions that the foreign transactions help to create beyond our boundaries.

⁶ In the extreme, professional opinion has taken the recurrence of the active trade balance and foreign financing as an indication of perpetual waste and suffering on the part of this country. “For nearly three decades … the United States has been the principal sufferer … inasmuch as, to keep things going, it has been impelled, practically throughout the period, to subsidize the rest of the world on a very large scale.” Graham, Frank D., The Cause and Cure of the “Dollar Shortage,” Princeton, N. J., January, 1949, p. 14.Google Scholar

⁷ “The welfare of the World is now our responsibility,” President Truman in an address to new Senators and Congressmen, April 6, 1949.

⁸ In the economic literature the leadership problem usually is submerged under the recognition of the sheer quantitative weight of our economy in the world picture (“what we do is bound to affect the others”) or under the problems of compliance with certain trade rules (“we must play the game”). The combination of international leadership and foreign financing in the United States position seems to be more easily noticed by British or other foreign observers. See Crowther, Geoffrey, The Economic Reconstruction of Europe, Claremont, California, 1948Google Scholar, chapter III, and Perroux, François, Le Plan Marshall, Paris, 1948Google Scholar, second essay. The American literature on the other hand contains a few references to that combination in Britain's pre-1914 position. See Fetter, Frank W., “The United States and World Trade,” Annals of the American Academy of Political and Social Science (January 1948), p. 166.CrossRefGoogle Scholar

⁹ I should like to use this opportunity to draw attention to General Eisenhower's wise comments on the problems of leadership in an international enterprise. Cf., Eisenhower, Dwight D., Crusade in Europe, Garden City, Doubleday, 1948, pp. 29–30Google Scholar and passim.

¹⁰ This discussion is focused on the apparent unreadiness of the nation to undertake the economic adjustments required for transition to an “old creditor” status. It should not be overlooked, however, that such a transition would also call for far-reaching political and moral adjustments.

¹¹ See Lary, Hal B., The United States in the World Economy, Washington, D. C, U. S. Govt. printing office, 1943, p. 53.Google Scholar For a partial separation of income, price and tariff factors, see Adler, J. H., “United States Import Demand During the Interwar Period,” American Economic Review, vol. 35, no. 3 (June 1945), pp. 418 ff.Google Scholar

¹² See Kindleberger, C. P., “International Monetary Stabilization,” in Postwar EconomicProblems (Seymour Harris, E., ed.), New York, McGraw-Hill, 1943, pp. 375 ff.Google Scholar

¹³ Moulton, Harold G. and Pasvolsky, Leo, War Debts and World Prosperity, Washington, D. C, Brookings Institution, 1932, p. 598.Google Scholar

¹⁴ Ibid., p. 402.

¹⁵ The notion of a “gradually maturing creditor country” may indeed be quite meaningless for a leading industrial nation in the framework of world politics. Britain's modern history offers perhaps the least unfortunate example imaginable of such a transition. Yet even the favorable circumstances that cushioned the eclipse of London as the center of the world do not veil the loss of power and wealth that attended a half-century of retreats and pyrrhic victories.

¹⁶ See Hal B. Lary, op. cit., Table I.

¹⁷ That experience has left traces on the memory of many contemporaries. It still is alive in the thinking about British or European discrimination against American trade at some future time when America might again cease to lend. See the article by Balogh, Thomas, “The United States and International Economic Equilibrium,” in Foreign Economic Policy for the United States (Harris, Seymour E., ed.), Cambridge, Mass., Harvard Press, 1948, pp. 466 ff.Google Scholar

¹⁸ The rise of the active trade balance from 1937 to 1940 should not be considered adefinitive reversal. No political decision had yet been made. The balance of capital transactions remained passive. The export surplus was financed mainly by gold imports.

¹⁹ Stettinius, Edward R. Jr, Lend-Lease, Weapon for Victory, New York, Macmillan, 1944, pp. 4 and 72.Google Scholar

²⁰ But the facts of the nineteenth century were not. In particular, there was nothing in the 1920's to replace the British navy and the City of London as centers of world economy and power.

²¹ A letter from the Secretary of the Treasury to the President of the United States Chamber of Commerce of January 28, 1920, quoted in Lary, Hal B., op. cit., p. 139Google Scholar, is most revealing of this view.

²² Interview with Phillips, Cabell, New York Times Magazine, April 3, 1949.Google Scholar

²³ While debating whether foreign financing by government is “extraordinary” and that by business the only “normal” type we risk overlooking the quantitative and qualitative complementary of the two channels of financing. The division of tasks between government and business financing presents the real problem. See in this connection the report of the Brazilian delegation on “Foreign Investments in Brazil,” in Report of the Joint Brazil-United States Technical Commission, Department of State Publication No. 3487, Washington, D. C, June, 1949, pp. 288 ff.

²⁴ In the professional discussion, the late war and first postwar years produced valuable insights, in the first place, Hal Lary's classic The United States in the World Economy (1943). See also the papers on International Economic Relations by Kindleberger, C. P., Staley, Eugene, Rostów, Eugene V., Fetter, Frank W., Schoepperle, Victor, and discussions in the American Economic Review, Supplement, March 1943.Google Scholar In the field of policy statements, President Roosevelt's famous Lend-Lease press conference, President Truman's message to Congress calling for a European aid program (1947), General Marshall's speech at Harvard, and the “Point Four” paragraphs in the President's Inaugural Address of 1948. In connection with the latter, see the address by Steelman, John R., “Goals and Practical Problems of the Point-4 Program,” State Department Bulletin, June 12, 1949.Google Scholar

²⁵ For 1920 there is a message of Secretary of the Treasury David F. Houston, dated March 1, 1920, to Britain's Chancellor of the Exchequer, rejecting British suggestions for the cancellation of the intergovernmental debts of World War I. (Combined Annual Retorts of the World War Foreign Debt Commission, Washington, D. C, 1927, pp. 69–70.) Quotations from this message are supplemented by a paragraph from a letter of President Wilson to British Prime Minister Lloyd George of November 3, 1920, which deals with the same subject. (Moulton, H. G. and Pasvolsky, L., op. cit., p. 69.Google Scholar ) For 1947 there is President Truman's message to Congress calling for a European aid program (December 19, 1947). Quotations from this message are supplemented by passages from Secretary of State George C. Marshall's speech at Harvard of June 5, 1947, outlining the approach to a European recovery program.

²⁶ The italics in the text are the author's and have been used to indicate parallels and contrasts.

²⁷ While the adoption of Lend-Lease was preceded by considerable discussion and criticism of the War-Loan experience of World War I, the author is not aware of any discussion of the refusal of American help after that war in connection with the enact ment of ERP. But the change in the postwar approach was just as great as in the wartime approach, if not greater.

²⁸ Such designs do exist on the part of the ruling groups of certain underdeveloped countries. But their idleness and rapacity is likely to be more conquerable within the frame work of an international development effort than outside of it.

²⁹ International Trade, New York, Macmillan, 1927, p. 131.

³⁰ An attempt to outline this shift and to assess the magnitude of total net financing needed is contained in the author's forthcoming article in the November issue of the Review of Economics and Statistics.