, 1922-05-17
Hoarded Stocks Of Gold and Cur
rency Make Appearance as
: Exchange Falls.
MOST vExED WAR PROBLEM
European Countries Flooded With
Cheap Money When Emergency Of
War Compelled Abandonment
Of Gold Standard.

NEUTRALITY-SUSPICIOUS. of interns-
tional finance and economics are
aware OF a new development in con-
nection with the deprecated currencies
of Europe. These cprrencies have con-
stituted n of the most vexed prob
lens brought on by the war.
The need for greatly increased sums
Of money, brought about by the wal
cost. was met by most of the nations
by the Issue of paper currency with
out relation to gold reserve. In nor
NAL times the paper currency of a ma
ton has a definite gold reserve. gen
orally about 40 per cent. The emer-
gency of war caused the abandonment
of this reserve by all belligerent ma
tons excepting the United States. be-
cause the national treasures of these
nations lacked adequate gold to main
tain the reserve ratio. In the United
States the treasury and the federal re-
serve banks discouraged use of gold
and gold certificates for general c.rcu-
lation and accumulated the greatest
stock of gold ever assembled in the
history OF the world. 1t was with
drawn gradually from circulation and
piled up in the treasury and the vaults
Of the federal reserve banks.
An inevitable result of this policy
was that during the war and following
the armistice the European printing
presses, being definitely cut loose
from the retarding element Of n gold
reserve. kept on running at high
speed. turning out reams of paper
money which went into circulation. 1t
is a natural rule that Che increase of
the supply of anything makes Il cheap
er. This is as true of money MS of
coal or potatoes. The result was that
this plentiful supply of paper money
made money cheap. in other words.
people who had consumable goods TO
sell would not exchange them for as
small a quantity of the cheap money
as OF the old-fashioned money, backed
by gold. This meant that prices rose.
The United States experienced infla-
ton of currency but Of a milder char
acter. The gold standard was not
abandoned here. Prices rose in this
country 100 or zoo per cent in some
cases, but in Europe they rose thou
sands of per cent.
Exchange Hurts Europe.
A further result was that European
money. being cheaper and more plenti-
full than American money. foreign ex-
change became ~unfavorable to Europe.
That is. European money would not
buy as much here MS American money
: would buy in Europe.
Thara fa 4. Les, - o.o.ON,tno lpnuyn
as Gresham's law, which lays down
the rule that where two kinds of
money are in circulation and one is
much inferior in value to the other.
the more valuable type will retire.
People who have 1t, believing II to be
OF greater value and therefore more
worth keeping. will hoard II away.
Ihis was done to a great extent all
over europe. AS the imitation pro-
crossed. people who had gold pieces or
silver money or paper money of ma
tons In better financial shape than
their own hid this wealth away and
used the more plentiful cheap paper
currency.
The extent to which European In
fation has gone is notorious. The
european news cables every day say
something OF the difficulties being ex-
perlenced as a result of the imitation.
The Russian ruDle and the German
mark are favorite comic picture and
vaudeville theater Jokes because they
nave become 40 cheap. 1t now costs
more than 100000 rubles to buy a
meal in Russia.
The German mark. which In normal