The Rock Island Argus and daily union. (Rock Island, Ill.) 1920-1923, 1922-04-13

Students of international finance
and economics are aware OF new
development in connection with the
deprecated cuFrencieS OF Europe
These currencies have constituted
one of the most vexed problems
brought on by the war
The need for greatly increased
sums of money. brought about By
the war cost. was met by most OF
the nations by the issue of paper
currency without relation to gold
reserve. In normal times the pa
per currency Of a nation has a
definite gold reserve, generaIly
about 40 per cent. The emergency
OF war caused the abandonment 81
this reserve by all helligerent ma
tons excepting the United States,
because the national treasures of
these nations lacked adequate gold
to maintain the reserve ratio. In
the United States the treasury and
the federal reserve banks discOur-
aged use of gold and gold certiff-
Gates for general circulation and
accumulated the greatest stock of
gold ever assembled in the history
Of the world. 1t was withdrawn
gradually from circulation and
piled up in the treasury and the
vaults Of the federal reserve banks.
An inevitable result of this pol
icy was that. during the war and
following the armistice, the Euro
pean printing presses, being def
nitely cut loose from the retarding
element of gold reserve, kept on
running at high speed, turning out
reams of paper money which went
into circulation. It is a natural
rule that the increase OF the supply
of anything makes it cheaper. This
is as true of money as 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 quantity of the
cheap money as of the old FASH
Toned money, backed by gold. This
meant that prices rose. The
United States experienced initiation
of currency but of a milder char
acter. The gold standard was not
abandoned here. Prices rose in
this country one or two hundred
per cent in some cases, but in Eu-
rope, they rose thousands of per
cent
Exchange Hurts Europe.
A further result was that Euro
pean money being cheaper and
more plentiful than American mon
ey, foreign exchange became un-
favorable to Europe. That is, Eu-
ropean money would not buy as
much here as American money
would buy in Europe
There is a law of economics,
known 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
it, believing it to be of greater val
ue and therefore more worth keep
ing, will hoard it away. This was
done to great extent all over Eu-
rope. AS the initiation progressed,
people who had gold pieces or sill
YER or paper money of nations in
better financial shape than their
OWN hid this wealth away and used
the more plentiful cheap paper
currency.
The extent to which European
initiation has gone is notorious. The
European news cables every day
say something Of the difficulties
being experienced as a result of
the initiation. The Russian ruble
and the German mark are favorite
comic picture and vaudeville the
atre jokes because they have be-
come so cheap. 1t now costs more /
han 100000 rubles to buy a meal |
n Russia.
The German mark, which in nor
nal times was worth, at what is !
called the par of exchange, nearly t
/ quarter in American money, now I
S so cheapened that you can buy |
.hree marks for an American pen
ny. The Austrian crown has been |
Is cheap as 5000 for 81. A $40
bill OF American money in Russia |
would exchange for enough rubles
% make what would have been a |
Russian fortune before the war. |
Trade especiaIIy international /