to

large amounts of foreign capital. Obviously the people who invested heavily, who supplied the money for the agricultural and commercial development of the countries were the ones who were in the best position to control the direction of their trade. The investment of millions of English and German capital in Argentina, for example, is made, not by sending gold coin to be expended in that country for the purchase of the supplies necessary carry on the industries started, for these supplies could not have been bought in Argentina; but by sending ship-loads of English and German goods to Argentina. In other words, the financing of the industries of a South American country, by the very nature of the processes involved, implies the development of trade with that country. For the things necessary for railroads, manufactories, and all other purposes for which the foreign loans are made, must be brought from abroad, and naturally come from the citizens of the countries in which the loans are placed. In other words, no student of economics needs to have it explained that these foreign loans are made, not in the form of money, but in the form of goods and services. In return, after the industries for which the concessions are granted, and the loans made, have become productive, part of their income goes as exports to pay the interest on the loans, usually to the country whose people advanced the capital. The financing of industries in an undeveloped country by the citizens of another country, therefore, is itself a cause of a certain amount of trade between the two countries. This cause of trade between ourselves and the people of South America has not been of very great moment, although of course a good many Americans, especially in recent years, have secured important concessions from foreign countries in the southern hemisphere.

Again, no explanation of the causes of the smallness of our trade with South American countries in the past, would be adequate without a comparison of the economic condition of those countries up to the present time, with that of our own. They have been and, indeed, still are, largely undeveloped. It is true that some kind of production has been carried on in certain parts of South America, for three centuries or more. been extracted from its mountains, crops have been produced, and cattle have been raised. In other words, all of them are countries which have been in a primitive economic condition, so far as they have been settled and exploited at all—and there

Minerals have

are large sections of them which are still unknown territorywhose products have been and are products of the soil. Only raw materials could be furnished by them. If we look at the returns of the articles produced in three or four of the larger ones, Brazil, Argentina, Chile, and Peru, we find coffee, wheat, corn, rubber, nitrates, some cotton and wool, and minerals. What these countries needed by way of exchange in foreign trade was therefore manufactured goods and materials for the exploitation of their natural resources.

If, now, we consider the past economic conditions in our own country, it is obvious at once that no trade of any magnitude would have been possible until a comparatively recent date. We ourselves, have been in the main, an agricultural country. Like our South American neighbors, we have been producing the materials and manufacturing a few of the necessaries of life. We have been exporting wheat, cotton, petroleum, tobacco, and other products of the extractive industries. Obviously there was no basis of exchange here. We could not sell these articles to the people of South America in exchange for their products, because their products are substantially the same. Naturally enough, therefore, the products of the South American countries, like our own, sought European markets in exchange for articles which they, like us, were either not producing at all at home, or were producing in quantities insufficient to meet the home demand on the existing level of prices. A certain change in our own conditions is doubtless one reason why the call for the promotion of South American trade has become louder and more insistent in the past ten or fifteen years. The proportion of our manufactures to our total production and the proportion of manufactured articles in our exports have both been increasing. In other words, we are having now a surplus of manufactured goods beyond what satisfies our home demand at existing prices. The reason for seeking new markets is therefore more urgent than it has ever been with us before.

But for us to have a surplus of manufactured goods is not of itself a sufficient basis for developing a trade with countries whose agricultural conditions and whose production of raw materials are similar to our own. We must not only have things to sell, which they want to buy, but we must also want to buy things which they want to sell; or else we must sell our goods at a sufficiently low price to justify them in purchasing in our market

rather than in the European markets, and still leave margin enough to settle their accounts with their European creditors. In other words, the cost of the triangular settlement must furnish profit over and above what they would get if they dealt directly with their European customers. To put the matter in another way, the people of South America have found in Europe customers for their products who could, in return, supply them directly with the manufactured articles they need. If they had attempted to trade with us we could not until recently have furnished the manufactured articles they wanted, and they would have found us unwilling to take their products. Therefore, even if we had succeeded in selling them our manufactured goods, they would have had to pay us for them by selling their own products in Europe and finding other goods which we would be willing to take from them in payment for what we had sold them. This would have been a more expensive trade than the direct trade between them and the people of Europe. The same reasons that have built up a direct trade between ourselves and Europe have built up a direct trade between South America and Europe. Now we are entering the field of competition with Europe to sell manufactured articles; we are, to certain extent, in the same position as Europe in our need for raw agricultural products and materials. The basis is laid for a direct trade.

Of some consequence, although by no means so important as is sometimes thought, is the feeling of prejudice that has existed between the peoples of South America and ourselves. They have felt, not altogether without justification, that our attitude was domineering, that we were lacking in culture, and that our personal and national ideals were so far different from their own that they and we could not get on well together. On the other hand, too many of us have been inclined to think of the people of South America as uncivilized, barbarous or even savage; and in so far as they were of European descent, to look upon them as degenerate scions of a race of cruel conquerors, who exploited the country. At the same time, many of our people have thought that the people of South American countries lack virility, resourcefulness, and the energy which we have been so long worshipping. Both views are wrong.

Yet the accusation that we

are domineering is not altogether without foundation. Occasional suggestions to change the significance and expand the scope of

the Monroe doctrine have not escaped the notice of our South American friends. From a simple statement that this country would not permit European nations to annex territory in the southern hemisphere, the Monroe doctrine has become, to the minds of some, an attempt to form a hegemony of American states, of which the United States shall be the principal and dominating factor. From an attempt to protect the weak and struggling states of the southern continent against the encroachments of Europe, we have passed, in the minds of some, even of our own citizens, to an attitude of attempting to influence, if not control, their actions. Many of the people in South America therefore have distrusted our purpose, and feared our power. That their distrust and fear are not altogether without foundation is shown, not only by the interpretation that many of our newspapers and fellow citizens sometimes give to the Monroe doctrine; but also by some of the utterances of some of our statesmen. Secretary Olney's famous but unwise and uncalled for statement at the time of the Venezuelan dispute, that the United States is the supreme power on this hemisphere, and that its fiat is law, has not been forgotten, nor altogether forgiven. Naturally enough, many people still ask what liberty of action would be left to the independent sister states of this hemisphere if that statement were true and acted upon.

It is further held by some of our South American friends that our diplomacy in the past has been at times unnecessarily "raw", and so has created a feeling of prejudice against Americans and things American. Without going into details on this point, it is sufficient to remember that with one or more of the countries of South America we have been at political cross-purposes for a good many years; and our diplomatic methods in these disputes have not always been those of the velvet glove over the mailed fist.

Still again, prejudice has been created against us on account of the character and conduct not only of some of our own representatives in the past, but also by a class of fellow citizens who, although in small numbers, have frequently drifted to those countries. The writer was told at one important place in South America, that until within a comparatively few years when an American appeared in their city as a settler, he was usually asked what his name used to be.

Of economic reasons for the paucity of our trade relations

9

with the countries south of us in the past, an important cause of difficulty is our method of doing bank business and the lack of banking facilities. As has been recently pointed out, we suffer in our foreign trade from the want of a discount market and the non-use of bank acceptances. Under our method of banking, importers cannot open credits with banks as can their English or German competitors, and consequently cannot finance their foreign purchases as easily as they can. The American importer is compelled either to pay for goods at once, by direct remittance of funds, or he must get the foreign consignor to provide funds to finance the shipment. Practically, in such transactions, the shipper draws on the American importer and turns his draft over to his bank for collection. As Mr. Jacobs points out in the article already referred to, such drafts are sent for collection because there is no general market for them; they are not drawn, as would be the case in foreign countries, on banks whose standing is well known. To quote Mr. Jacobs:

"Either of these two methods of financing our imports is expensive even when the time between the shipment and the receipt of the goods is short. When the time is much longer, as in the case of imports from South America and the Far East, the cost is almost prohibitivethat is, so great that we cannot compete on an even basis with foreign buyers. In fact, we might be practically excluded from these markets if a makeshift were not possible. Our importer gets around our lack of banking facilities by having his bank arrange a credit with its London correspondent. He receives an undertaking, called a commercial letter of credit, giving the terms of the credit-that is, the name of the London bank upon which the bills are to be drawn, the amount which may be drawn, the character of the goods which are to be purchased, the tenor of the bills and the documents which must accompany them. On the strength of such a letter of credit, the shipper in South America, for example, is able to dispose of his bills on London and thus receive immediate payment for his goods. The local bank, which buys the bills, sends them with the documents to its London correspondent, which presents the bills to the bank on

which they

are drawn that is, the bank with which the credit was

opened. Upon the acceptance of the bills the documents are delivered. They are then sent by the London accepting bank to the New York bank, which opened the credit, and the latter delivers them to the importer against his trust receipt. Twelve days prior to the maturity of the bills in London, the New York bank presents a state

See the admirable article on "Bank Acceptances", by Lawrence M. Jacobs,

published as a

Second Session, Senate Document No. 569.

report to the National Monetary Commission, 61st Congress,