International capital movements, domestic
capital markets, and American economic
Of the four frontier countries, the United States depended least on foreign capital. Although as late as the mid-1890s the annual net change in claims on foreigners was typically negative — on balance, foreigners were lending to the United States or acquiring American assets — the story had begun to change; the country was gradually becoming a creditor nation (Table 3:1–1). From 1897 until 1905 the United States, on net, exported capital in every year, and capital exports over the nine years totaled more than $1.5 billion. Over the years 1906 through 1913, however, the country briefly returned to its heretofore traditional role of capital importer. By the standard of these measures, the United States was a very modest net importer of capital in 1906, 1907, and 1909–1913, the inflows in all of these years but one amounting to less than 2 percent of domestic capital formation. Furthermore, even in the years before the mid-1890s, when Americans were frequently experiencing numerically large net capital imports, total foreign holdings of American assets and debts were probably never as large as 10 percent of the American domestic capital stock (Table 3:1–2). Compared with the cases of Australia, Argentina, and Canada, American development was largely a result of internal finance.
Nonetheless, it would be a major mistake to treat the American experience as though it had little relationship to the international capital flows of the nineteenth and early twentieth centuries. There are several reasons for such skepticism. First, the American economy was very large — roughly six times as large as the economies of the other three taken together — and it grew rapidly. Consequently, even though foreign capital represented a small fraction of total U.S. domestic investment, the United States was the object of a very large fraction of total international investment. The American economy, then, was important to foreign investors, particularly to the British.