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>> The severity of the restrictions placed upon imports of finished products into the United States can be seen from the fact that the imports of finished manufactured goods (including manufactured food stuffs) are negligible compared with the domestic manufactures. In 1927 the imports of finished manufactured goods were only 2 per cent. of the domestic manufactures. And these imports have steadily decreased relative to domestic production. In 1850 the imports of finished goods constituted about 12 per cent. of the domestic output, in 1890 they had fallen below 4 per cent. and by 1927 to only 2 per cents It is evident that we are reaching a point where finished manufactured goods are all but excluded.
International Financial Strain. Now it is indeed possible that the world's trade and production will eventually be able to ad-just themselves to this situation, though that will leave the world poorer than it would otherwise be. It cannot be argued, as we shall show later, that the American war-debt and foreign-investment policy on the one hand, and the tariff policy on the other, are irreconcilably in conflict from the long-run point of view. Readjustments to this situation are indeed possible; but they take time, and they develop friction, strains, tensions-they are extremely painful and difficult.
Up to 1928 no strain developed because the annual sums owing to us were more than balanced by fresh loans. The foreign securities publicly placed in the United States mounted steadily higher from the beginning of 1925 to the middle of1928, ranging from $1,000,000,000 in 1925 to $1,800,000,000for the twelve-month period from July 1, 1927, to July 1,1928. These figures understate the volume of investment, since they do not include the direct purchase of foreign properties, or the investment made by American corporations in plants owned by them abroad. Beginning with the middle of 1928, foreign loans began to decline. The total for 1928 was 10 percent. below the total for 1927, and the 1929 figure was only$671,000,000, less than half that for 1927.
The decline in foreign lending was partly caused by forces operating in the United States and partly by forces operating abroad. At home the funds available for investment were being encroached, upon by the great drawing power of the stock market boom, which assumed its most gigantic proportions from the middle of 1928 to October, 1929. Abroad, notably Germany and the South American countries, were on the point of being "loaned up." Particularly was this the case with the governmental units. The German municipalities had neared the end of their spectacular borrowing and building of public works, which the cancellation of former indebtedness, resulting from the inflation, had released. And it is by now notorious that the South American governments had borrowed recklessly "up to the hilt." Many of the German industries were reaching a saturation point in the rationalization program which followed the wake of the World War, and were approaching the end of the major job of capital-rebuilding and the overhauling of industrial equipment. Thus both at home and abroad forces were working to produce a sharp decline in the volume of American investments abroad.
With the decline of foreign loans, strains and stresses began to accumulate. The sum of about $1,300,000,000 had to be paid to the United States annually. Foreign securities were no longer being sold in sufficient volume in this country to meet the requirements. The sale of goods could not readily be increased in view of the prohibitive American tariff. Thus gold began to pour into the United States, beginning with the middle of 1928.From June, 1928, to November, 1930, the gold holdings of the United States increased from $4,100,000,000 to $4,600,000,000. In the first part of the period the gold came largely from Germany, England, Canada, and Argentina; in the latter part largely from Japan, China, Brazil, and other Central and South American countries.
The first effect, then, of the conflicting investment and trade policies of the United States is to draw gold to this country from all parts of the world. This abnormal gold movement has had the effect of developing an increasing differential between the price level in the United States and that in the rest of the world. This is plainly evident in the events of the past few years. The world price level was being pressed down prior to the fall in prices in the United States. A combined price index for Germany, England, Scandinavia, Japan, Peru, South Africa, Canada, Hungary, and Egypt shows a rapid fall of prices from the beginning of 1925 to the middle of 1926, then a very slight downward drag to the middle of 1928; then a more rapid fall from the middle of 1928 to September, 1929; and finally a precipitate decline from then on through 1930 and into 1931. Wholesale prices in the United States fell less rapidly from 1925 to 1927, and from May, 1927, to September, 1929, rose 4 percent. in the face of a downward world trend. A simple average index of the price relatives for the United Kingdom, Germany, Italy, Scandinavia, Holland, Switzerland, Austria, Australia, New Zealand, South Africa, Japan, and India also shows a slow downward movement from 1927 to 1929, during which period prices in the United States were slowly rising.
The American tariff policy by drawing gold from the rest of the world has had the effect of placing the trade and production of the outside world in the deadly grip of credit contraction, and thus forcing the world commodity price level steadily downward. This is one of the causes contributing to the world depression of 1930. Under the pressure of credit contraction and falling prices the outside world was unable to buy the usual quantity of American exports. Our exports reached high point in the fall of 1928, and precipitately declined in 1930.<<
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