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A TREATISE ON MONEY

BK. Ill

the corresponding amount expended by foreigners onthe purchase of our investments situated at home . 1

The reader will notice that there is a further itementering into the international balance-sheet, namely,movements of gold, which we have excluded fromthe Foreign Balance. Since the international balance-sheet must always balance, this item must accountfor any difference between the value of current ForeignLending and that of the current Foreign Balance; i.e.the former is equal to the latter plus the current ex-ports of gold . 2

Thus we use the term “foreign lending” to de-scribe the financial transactions of placing our owndomestic money or claims to it at the disposal of aforeigner in return for some kind of bond or title toproperty or future profits, and correspondingly with“ foreign borrowing ”. The “ foreign balance ”, on theother hand, arises out of the material transactionswhich take place when a part of the community’scurrent output, as defined above, is transferred intothe hands of foreigners, instead of being utilised athome.

By Home Investment we shall mean the incrementof total capital situated at home, exclusive of gold ;by Foreign Lending the increment of home-ownedcapital situated abroad, also exclusive of gold; andby Total Investment the sum of Home Investment,Foreign Lending and Imports of Gold. Since theForeign Balance is equal to the sum of the ForeignLending and the Imports of Gold, it is the amount ofthe Foreign Balance, rather than that of the ForeignLending, which it is convenient to call Foreign Invest-ment . For with this definition the Total Investmentis equal, as it ought to be, to the sum of the HomeInvestment and of the Foreign Investment .

1 Loan Capital must be regarded as situated in the country of the debtor(whatever currency it may be expressed in).

2 “ Ear-marked ” gold must be regarded as having been exported andbeing, therefore, situated abroad.