Economics and the Public Welfare. Benjamin M. Anderson
and borrowing from their banks to replenish it. The reflex action of all this on the American money market was very great. In the single year, from April 11, 1919, to April 9, 1920, the loans and investments of the reporting member banks of the Federal Reserve System increased 25.4 percent.
This expansion of bank credit occurred despite the fact that there was a reduction during this period in the holdings of government securities by the American banks. It was not government borrowing which did it.
Even Greater Rate of Bank Expansion in London, 1919-20. A similar story, intensified, appeared in England. From June 1919 to June 1920 there was an expansion of forty-one percent in “bills discounted” and “advances” of the twenty leading banks of the United Kingdom, despite the fact that their holdings of Treasury bills during this period were reduced. We were expanding to export to Europe, relying primarily on the credit of England. England was expanding bank credit in an even greater percentage as part of the same process, and also for the purpose of exporting British goods to the Continent.
The $3.5 Billion Unfunded Debt of Europe to Private American Creditors in September 1920. The unfunded debt of Europe to private creditors in the United States grew to an astounding total. The present writer estimated in October 1920 that on the fifteenth of the preceding September this unfunded debt stood at $3.5 billion. The following table, prepared at that time,2 shows the elements that entered into the growth of the unfunded debt.
GROWTH OF UNFUNDED DEBT OF EUROPE TO PRIVATE AMERICAN CREDITORS* January 1, 1919, to September 15, 1920 (In millions of dollars)
| Europe debtor | United States debtor | ||
| Commodity trade balance (Europe vs. United States), Jan. 1, 1919-July 31, 1920 | $6,350 | Relevant government advances, 1919 | $2,665 |
| Government advances, 1920, to Sept. 16 | 155 | ||
| Commodity trade balance (Europe vs. United States), Aug. 1, 1920-Sept. 15, 1920 (est.) | 250 | Credits granted by United States Grain Corporation | 60 |
| [print edition page 67] | |||
| Net silver imports from U. S., Jan. 1, 1919-Aug. 31, 1920 | 30 | Credits by United States Shipping Board for sales of ships | 3.6 |
| Net balance on shipping, 1919 | 73 | United States tourists | 75 |
| Immigrants’ remittances | 450 | ||
| Net shipping balance, 1920 | 52 | Insurance balance (small and uncertain) | 000 |
| Ships purchased, 1919 | 20 | New loans to Europe, 1919 | 265 |
| European securities maturing, 1919 | 466 | New loans to Europe, 1920, to Sept. 15 | 216 |
| European securities maturing in 1920, to Sept. 15 | 5 | American securities repurchased | 200 |
| Net interest to private creditors, 1919 | 79 | Internal European securities purchased | 155 |
| Net interest to private creditors, 1920, to Sept. 15 | 135 | Net gold brought in from Europe, Jan. 1, 1919-Aug. 31, 1920 | 50 |
| Interest actually paid to U. S. Treasury, Jan. 1, 1919-Sept. 9, 1920 | 177 | Japanese and Argentine securities purchased from Europe | 89 |
| Repayment of principal to U. S. Treasury, Jan. 1, 1919-Sept. 9, 1920 | 114 | Other securities purchased from Europe | 12 |
| Anglo-French 5’s approaching maturity | 500 | German gold held in custory by Bank of England for account of Federal Reserve bank | 111 |
| Argentine maturity of May 15, 1920, met by Great Britain | 50 | ||
| $8,301 | Gold from Hong Kong on British account, May 1920 | 22 | |
| $4,528.6 | |||
| Growth of the Unfunded Debt of Europe to the United States, Jan. 1, 1919-Sept. 15, 1920 | $3,772.4 | $4,528.6 | |
* The explanation of the items in this balance sheet will be found in Chase Economic Bulletin, October 5, 1920.
Europe had, as the result of loans made by the United States Treasury before January 1, 1919, a small credit of $200 or $300 million on current account. The actual credit in bank balances was larger, but a very substantial part of it was needed for meeting canceled war contracts. Subtracting $272 million from the figures for the growth of the unfunded debt January
[print edition page 68]
1, 1919, to September 15, 1920, gives the actual amount of the unfunded debt, namely, $3.5 billion.
Europe Current Account Debtor to Rest of World Also. Under ordinary conditions it would be pointless to compute relations of this kind between Europe and the United States alone. Under ordinary conditions Europe would have been building up credits in countries other than the United States, against which she could draw in settling her debts here. But in 1919 and 1920 this was not true. Europe was increasing her open account debt to all parts of the world, and nowhere was she building up credits with which to meet debts here. She was even drawing on us to meet some of her current debts in the outside world.
Our Adverse Trade Balance with Non-European Countries—Paid for with Cash. With the rest of the world the United States had an adverse trade balance. We were sending less goods to the non-European world than we were bringing in from it, and we were having to pay for these, not by drawing on European balance, but by sending out cash. The following table, covering a somewhat longer period, exhibits our trade relations with the world outside Europe.3
UNITED STATES TRADE BALANCE WITH COUNTRIES OUTSIDE EUROPE, GOLD AND SILVER SHIPMENTS INCLUDED
From January 1, 1919, to December 13, 1920
| Commodities | Exports | Imports | Balance |
| 1919 | $2,732,759,627 | $3,153,836,543 | -$421,076,916 |
| 1920 |