74 TEE SCIENTIFIC MONTHLY
m
settled^ yet only by such a syBtem oould his credit balance attain a mazimnm.
^^ How will Europe settle with ub ? If we examine the debit tide of our international account it appears that item 3 furnishes her only means in this time of her stress. Being too busy with war to make com- modities for us^ she must sell us her securities or sell us back our own securities or negotiate a loan from us. Each of these methods is at base a loan and on each Europe would have to pay interest.
Let us suppose that Europe has settled this half billion temporary balance by the transfer to us of the ownership of securities to that amount. And further let us suppose that after the war we are content to retain those securities and that Europe is unable to rebuy them. What permanent change has the war made in our trade balance and in whose favor is it? Clearly we shall be paying less interest and Europe more^ to do which we must send her less goods and she send us more. Our balance of exports will be reduced or turned into an import balance and the movement will be in our favor. The heavy dealings in item 3 having ceased with the settlement of the abnormal temporary balance of trade, the large running balance in item 2 on the credit side will be ofibet by a large running balance in item 1 on the debit side. Europe can not forever settle this running debt of interest by continually incur- ring more debt or selling securities. If she is not to totally impoverish herself, she will sooner or later have to settle by swelling our imports with the tangible results of her labor.
An excess of exports may mean that there is much American travel abroad. Some say that it is a drain upon the United States for Amer- icans to take their vacations abroad, because it gives the hotel business to Europeans instead of Americans. If this were true it would of course be an argument against the favorable balance of trade idea. As a matter of fact the travel abroad is neither a drain nor a benefit If it gives hotel bufiiness to Europeans, it also gives an equal business to manufacturers of exports in the United States. What the travelers get in Europe is paid for with exports from the United States. Or we may look upon it in this way. In serving travelers, Europeans are taken out of other fields of production in which they would otherwise have produced for their own consumption. Their own consumption is now satisfied by producers in America, who export to the European market more than they otherwise would export, to just the extent of the drafts on America presented by our travelers at the European exchanges. Or, prospective American travelers produce wealth in America which they save, and consume later in Europe. What they nominally take with them is a letter of credit, but what they take economically is a certain quantity of exports which the letter of credit or other instrument re- leases from the American shores.
�� �
