Beer and the Balance of Payments

A blog post from BEA Director Vipin Arora

Trade—what Adam Smith described as our intrinsic "propensity to truck, barter, and exchange one thing for another"—has helped to make today's world. It is hard to say how long trade has been with us, but certainly since the beginning of recorded history, and likely much longer. One of my favorite examples is beer, which was a very popular beverage in ancient Mesopotamia. As far back as 3500 BCE, there is evidence of Sumerians in the city of Uruk bartering with beer. The Babylonians apparently continued this tradition and brewed many types of beer, grouping them into roughly 20 classifications, which were traded regularly with the Egyptians.

Even beer traders need a way to measure what they are selling and what they are receiving—or they won't be in business for long. In Sumer this was apparently done on cuneiform tablets, and many tablets documenting records of the production and trade of beer (and other goods) still exist. From such measurement of trade between individuals, it's a short leap to envisioning the measurement of trade between countries. And from here many people naturally wonder about the differences between a country's total exports and imports—the so-called balance of trade .

The mercantilists—a loosely defined group of European writers on economic issues in the 17th and 18th centuries—often emphasized the importance of the balance of trade. While the balance of trade was an important point of focus for them, it wasn't the only one. Some mercantilists also recognized the importance of exchanges of "invisible" items between countries—trade in services, or income receipts or payments, for example. The concept of the balance of payments emerged from the marriage between these "invisible" and "non-invisible" items.

Instead of focusing on only the balance of trade or only on exchanges of "invisible" items between countries, the balance of payments is a conceptual framework that summarizes all the economic transactions of a country with the rest of the world. While this concept was well established by the late 1700s, the first estimates of the balance of payments within a consistent economic accounting framework did not emerge until the mid-1800s. Our first official estimates were published in 1923—The Balance of International Payments of the United States in 1922 .

These statistics—now called the International Transactions Accounts (ITAs) in the United States—have been an important economic indicator since that time. They were in great demand during World War II, for example, to help shed light on the flow of goods and services abroad during the war. The statistics received even greater attention during the 1940s and 1950s, as they helped to measure the financial assistance provided for economic reconstruction in Europe.

Over the last 100 years the ITAs have evolved in response to policy needs and to address new types of international transactions. Yet at their core they remain a source of comprehensive economic statistics that allow policymakers and others to understand the role of the United States in the global economy.

This blog was originally published on March 11, 2024 to bea.gov .