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This article reports that the exceedingly large amounts recorded as "errors and omissions" in the balance of payments statements of the U.S. in 1947, 1948, and 1949 have been taken in various quarters as indicative of a substantial volume of hidden capital movements to the U.S. The purpose of this article is to show that technically there is little quantitative relationship between the volume of capital flight and the amounts shown as "errors and omissions" in the balance of payments statements. It is informed that between 1947 and 1949, "errors and omissions" in the U.S. balance of payments always represented a drain on the supply of dollars. Ever since the fall of 1948, rumors about an impending devaluation of foreign currencies have been abroad. They certainly offered strong incentives to capital flight--which would have to appear as positive "errors and omissions" in the U.S. balance of payments. As a matter of fact, the positive "errors and omissions" declined considerably in the last quarter of 1948 and in the first two quarters of 1949, but it would be rather far-fetched to interpret this as indicating the occurrence of negative entries, offsetting in part the positive amounts.

The article presents comments of the author John H. Adler's views on the quantitative relationship between the volume of capital flight and the amount shown as errors and omissions in the U. S. balance of payments statements. According to the author, there may be a hidden capital inflow where the proceeds of American imports are deposited by the foreign seller in an account concealed under an American name or address, but where the import of goods or services is correctly recorded in U. S. import statistics. For example, when freight charges are paid to a foreign ship owner, this would appear as a debit for shipping service, even though the deposit of the ship owner's net dollar earnings might be concealed and fail to appear among foreign balances. The article also presents response of Aler to the comments made by the author on his views. According to Adler, the purpose of his note was to show that hidden capital movements can take such a form as to remain unrecorded in the capital as well as in the current account; He did not intend to "explain"the composition of "errors and omissions."