The History of Foreign Investment in the United States, 1914-1945 (review)

Wilkins describes this large book, the second of three magisterial volumes that she is writing about foreign investment in the United States, as "an economic, business, financial, technological, legal, and diplomatic history (xvi)." It succeeds admirably, providing a detailed look at the progress of foreign investment in the United States during the world wars and the uneasy truce that separated them.

This point may appear paradoxical, since the United States quickly moved from debtor to creditor status during World War I. It was the world's largest net lender during the remainder of the period. Wilkins' first chapter is a fine description of this rapid, radical transformation of the country's financial position, as swift as the reversal that took place in the 1980s in the opposite direction. In this chapter and throughout the book, Wilkins makes her first point, that net capital flows tell only part of the story. Capital flows both ways, and the recorded net positions are only the differences between the inward and outward flows. Just because the United States was a great lender, there is no reason to think that it was not also a great borrower.

As trade theorists in the last generation became aware, trade and capital flows move in both directions. The reason is that goods and financial assets are not the same in different countries. No matter how detailed we are in the division of, say, manufactured goods, there will be variations within categories that are often expressed differently elsewhere. Financial instruments are issued in different currencies and carry different macroeconomic risks in different countries. In Wilkins' account, all of these differences motivate the many specific cases of foreign investment that she describes.

The second point that runs through this detailed monograph is the distinction between Foreign Portfolio Investment (FPI)—paper transactions, purchases of stocks and bonds—and Foreign Direct Investment (FDI)—investments in plants and equipment, which are far more visible to contemporary observers. FPI is far more volatile than FDI, as some Asian countries learned, to their sorrow, in 1997. The same was true in the years after 1914, as the British and others sold their U.S. securities to raise funds to fight the war. It was true as well in the turbulent years of the Great Depression.

A third point, less emphasized by Wilkins, but suggestive for interdisciplinary historians, is that much of the FDI in the United States during this period was from Germany, which created a major problem for investors and legislators of both countries as they repeatedly went to war. Wilkins chronicles the fate of numerous German companies in America as their ownership, and often identity, changed.

This is an impressive book, well worth the study required to absorb its 1,000 pages. Business historians, its primary audience, will find much of interest in the detail provided. Other historians will find this book more useful as a reference tool when considering aspects of foreign presence in the United States. For everyone, the opening chapter is a vivid retelling of a familiar tale, the dramatic effect of wars on yet another aspect of life.