Monetary and Economic Policy Problems Before, During, and After the Great War

Chapter 24. America and the Reconstruction of the European Economy

Chapter 24 America and the Reconstruction of the European Economy Politically, Europe can expect no help from America for the solving of its own problems. Even in purely economic policy matters it is a fantasy to expect a remedy from the United States for the plight of Europe. Until the final decade of the last century the United States was principally a supplier of raw materials and an importer of manufactured goods. For decades Europe constantly invested capital in the United States. The big factories that developed the wealth of the American economy had been financed by European capital. A generation ago three-fifths of all American railroads were controlled by London. Although in the last years of the nineteenth century America had already begun to buy back occasional parcels of American securities from Europe, the debt of the United States to Europe rose constantly until the outbreak of the World War. Even conservative estimates calculated that at the outbreak of the World War the debt of the United States to Europe amounted to more than five billion dollars. While England and the capitalist states of the West were in first place among the securities holders, even Austria participated, although with modest amounts. The United States paid the interest on these debts by its enormous, yearly rising balance-of-trade surplus, which no longer only 1. [This article originally was published in German in Mitteilungen des Hauptverbandes der Industrie [Reports of the Chief Association of German Industry], vol. 8 (1927). It was first delivered as a lecture at a meeting of the Austrian Industrial Association. During the three months from March 9 to May 31, 1926, Mises had toured the United States under the financial auspices of the Laura Spelman (the Rockefeller) Foundation, visiting and lecturing in a dozen cities.—Ed.] 2. [This would be approximately $109.4 billion in 2010 dollars. In 1913, U.S. Gross Domestic Product (GDP) was 39.1 billion, or $855.8 billion in 2010 dollars. Thus, U.S. debt to European creditors was about 12.8 percent of GDP.—Ed.] america and the reconstruction of the european economy  283 resulted from the export of raw materials but also, now, in large part from the export of staple commodities and manufactured goods. Even if the World War had not intervened, no doubt in the course of a number of years the rising surplus of the American balance of trade would have enabled the United States to pay off its debt to Europe and to change from the role of a capital-importing to that of a capitalexporting country. The war enormously accelerated this development. Within a few years—almost overnight, one could say—America became the great banker of the world. At the end of 1925 American capital investment abroad was estimated by the Department of Commerce to be $10.5 billion, in comparison to about $3 billion of foreign capital investments in the United States. This does not include, however, the debts among the Allies. The trade balance from interest and capital gains is put at $355 million by the U.S. Commerce Department, to which $160 million in interest on debt owed by the Allies must be added. If one includes the surplus trade balance of $660 million plus film rental charges of $75 million, it comes to a total of $1.424 billion on the credit side of the ledger. The counterentries in the American balance of payments are the expenditures of travelers in the amount of $560 million, $310 million sent back home by immigrants, and some smaller items coming to $63 million, adding up to a total of $922 million. The difference of about a half billion dollars is covered by the surplus of new investments of American capital abroad beyond the sum of the repayments of debts and the purchase of American securities by foreigners. It is estimated that in recent years new capital formation in the United States has amounted to about $10 billion, of which one to two billion are available for investment abroad. These are large amounts; they cannot, however, be fully counted upon. Against them one must put the mentioned repayments and purchases by foreigners. One must further consider that the limitation on immigration into America will finally bring about a reduction in the remittances of immigrants, since naturally the immigrants who have already been living in the United States for a long time and who have established families there hardly come into consideration in...