Expanding the trading unit from individual to intracountry local or regional commerce, the phenomenon of payments balance is still to be found. Common in the economic history of the westward movement in the United States is the frontier community's search for some commodity, valuable in relation to bulk, which might be "exported" to the settled East to provide the money--or, to continue the analogy, domestic "exchange"-with which to buy or "import" goods difficult or impossible to manufacture or grow at home. The several whisky rebellions and the continuous opposition to excise taxes on whisky are largely to be explained as a resentment against the taxation of one of the few commodities of the frontier and backwoods which could stand the cost of slow, primitive transportation to markets. Obviously such communities could buy from outside only if they could sell to or borrow from outside communities. Their "visible" or commodity balance could be a debit (i.e., purchases exceed sales) only if their "invisible" or noncommodity balance was a credit.
Nor is this true only of trade between frontier or isolated and more settled localities. The people in, say, Buffalo, N. Y., cannot continue to buy from the rest of the United States unless they (or their industries) sell goods and services beyond the city limits, or have income from investments outside the city, or borrow money from savers nonresident in Buffalo. If Buffalo income from all American sources outside the city chronically falls short of outpayments--i.e., if Buffalo's balance of "external" payments is persistently debit--Buffalo economy will become so heavily indebted to the rest of the country as to imperil its credit (we are not referring to municipal or governmental credit alone). Its banks will have continuously adverse clearing balances with out-of-town banks, and credit will be tight. In fact, Buffalo would experience most of the adversities met with by a country whose balance of international payments has been adverse over a period of time.
Suppose Buffalo, instead of experiencing a chronic adverse balance of payments, with all its accompanying tendencies toward deflation, sells much more in goods or services than it buys. It would now have a net credit balance of payments. If, as normally would occur, Buffalo citizens invested much of this surplus in other parts of the country (buying insurance, government bonds, non-Buffalo stocks, etc.) the total payments might be approximately in balance. But if Buffalo's citizens and financial institutions insisted in "bringing their money home" there would be an increase in Buffalo bank deposits, regional clearing balances in favor of Buffalo banks, easy credit, and so on. However, Buffalo's position in the economy of the United States would not be important enough for this lack of balance in her external financial transactions to have national consequences --to cause deflation in the rest of the country. Comparably, in international finance, the persistently net credit balance of international payments of a small country such as Latvia may pass almost unnoticed by other countries, while if the United States experiences such a balance the effects on the major trading countries might be considerable.
There is yet another similarity between domestic and international payments balances. Buffalo's balance of payments with any single city or locality--say, Toledo--may be indifferently a net credit or a net debit with no measurable consequences. Each city trades in so many directions, with so many communities, that only the aggregate balance of payments is of moment. So it is between nations. Great Britain has an adverse or debit balance of trade (and probably at times an adverse balance of payments) with the United States, but British India and British Malaya have heavy net credit trade and payments balances with this country. Other triangular and multiangular international payments relationships are so common that, as long as trade is reasonably untrammeled, only a country's balance of payments with the entire world is of much consequence. It must be admitted, however, that where by chance or design the trade relations between a pair of countries are pretty heavily canalized, a bi-country balance of payments has some meaning. A bi-city or bi-locality balance would have virtually none.
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