,libraries47       ,,the ,,paper        
,,moneys ,,of ,,europe  ,,their ,,moral 
,,and ,,economic ,,significance    ,by  
,,francis ,w4 ,,hirst    ,,boston ,,and 
,,new ,,york ,,houghton ,,mifflin       
,,company ,the ,riverside ,press        
,cambridge #aibb  ,,copyright1 #aibb1   
,,by ,,the ,,regents ,,of ,,the         
,,university ,,of ,,california  ,,all   
,,rights ,,reserved  ,the ,riverside    
,press ,,cambridge  ,,massachusetts     
,,printed ,,in ,,the ,u4,s4,a4          
,,barbara ,,weinstock ,,lectures ,,on   
,,the ,,morals ,,of ,,trade  ,this      
series will contain essays by           
representative scholars and men of      
affairs dealing with the various phases 
of the moral law in its bearing on      
business life under the new economic    
order1 first delivered at the           
,university of ,california on the       
,weinstock foundation4     ,,the ,,paper
 ,,moneys ,,of ,,europe     ,,their     
,,moral ,,and ,,economic ,,significance 
,no more severe reflection could be     

passed upon the moral and political     
capacity of the human species than this3
 ,five thousand years after the         
invention of writing1 three thousand    
after the invention of money1 and       
7nearly7 five hundred since the         
invention of printing1 governments all  
over the world are employing the third  
invention for the purpose of debasing   
the second2 thereby robbing millions of 
innocent individuals of their property  
on a scale so extensive that previous   
public confiscations of private property
 through the adulteration of money--in  
ancient ,rome1 in ,ireland under ,james 
the ,second1 in ,prussia during the     
,seven ,years' ,war1 in the ,american   
colonies and the ,united ,states1 in    
,portugal1 in ,greece1 in various       
republics of ,central and ,south        
,america1 even the assignats of the     
,french ,revolution--seem pigmy frauds  
in comparison with the present vast     
inundation of counterfeit paper money4  
,in these times1 when so much attention 

is given to what ,i may call the        
prehistoric history of mankind1 it would
 ill become me1 a mere adventurer in    
anthropology1 to discuss the origin of  
money or to attempt an explanation of   
the curious fact that the art of coining
 money was invented and perfected a     
thousand years before the art of        
printing4 ,the coins struck by the best 
cities of ancient ,greece are a model   
and a reproach to our modern mints2 and 
being for the most part of good silver1 
they fulfilled the two main functions of
 currency--as a measure of value and a  
medium of exchange4  ,silver was well   
adapted for the purposes of currency by 
its ductility1 durability1 divisibility1
 portability1 and value4 ,its value     
depended on three things4 ,in the first 
place1 it was scarce2 in the second1 it 
was much in demand for the arts and     
manufactures2 and in the third place1   
its intrinsic value was increased and   
stabilized by the needs and demands of  
the mints4  ,gold had similar           

qualifications1 but it was too scarce   
and too precious until the nineteenth   
century1 in the course of which 7for    
reasons which ,i need not enter upon    
here71 most of the great commercial     
nations adopted a gold standard4 ,copper
 possessed in a less degree the         
qualifications of gold and silver1 but  
it was the first metal to be coined into
 money in ancient ,rome4 ,the ,roman as 
or pondo weighed a ,roman pound of good 
copper1 therefore possessed the two     
principal attributes of good money1 a   
definite weight and a definite fineness4
 ,it was divided like our troy pound    
into twelve ounces of good copper4  ,the
 ,english ,troyes or ,troy pound was    
first used in the ,english mint in the  
time of ,henry the ,eighth4 ,edward the 
,first's pound sterling was a ,tower    
pound of silver of a definite fineness4 
,charlemagne's livre was a ,troyes#a    
pound of silver of definite fineness4   
,the old ,english ,scotch pence or      
pennies contained originally a real     

pennyweight of silver1 one twentieth of 
an ounce and one two hundred and        
fortieth of a pound4 ,the famous pre-war
 ,english sovereign1 now demonetized and
 misrepresented by the depreciated paper
 pound1 was itself also a weight2 but   
the twenty shillings and two hundred and
 forty pence which exchanged for it were
 token coins depending for their value  
upon the gold sovereign4        #a ,the 
,fair of ,troyes in ,champaign was at   
that time frequented       by all the   
nations of ,europe1 and the weights and 
measures of so       famous a market    
were generally known and esteemed4      
7,adam ,smith1       ,wealth of         
,nations1 ,book ,i1 chap1 ,,iv47        
,from the time of ,charlemagne among the
 ,french1 and from that of     ,william 
the ,conqueror among the ,english wrote 
,adam ,smith in #aggf1     the          
proportion between the pound1 the       
shilling and the penny1 seems     to    
have been uniformly the same as at      
present1 though the value of     each   

has been very different2 for in every   
country of the world1 ,i     believe1   
the avarice and injustice of princes and
 sovereign states1     abusing the      
confidence of their subjects1 have by   
degrees     diminished the real quantity
 of metal which had been originally     
contained in their coins4 ,the ,roman   
as1 in the latter ages of the           
republic1 was reduced to the            
twenty-fourth part of its original      
value1 and1 instead of weighing a pound1
 came to weigh only half an     ounce4  
,the ,english pound and penny contain at
 present about a third     only2 the    
,scots pound and penny about a          
thirty-sixth2 and the     ,french pound 
and penny about a sixty-sixth part of   
their original     value4 ,by means of  
those operations1 the princes and       
sovereign     states which performed    
them were enabled1 in appearance1 to pay
     their debts and fulfil their       
engagements with a smaller quantity of  
silver than would otherwise have been   

requisite4 ,it was indeed in            
appearance only2 for their creditors    
were really defrauded of a     part of  
what was due to them4 ,all other debtors
 in the state were     allowed the same 
privilege1 and might pay with the same  
nominal sum     of the new and debased  
coin whatever they had borrowed in the  
old4     ,such operations1 therefore1   
have always proved favourable to the    
debtor1 and ruinous to the creditor1 and
 have sometimes produced a     greater  
and more universal revolution in the    
fortunes of private     persons1 than   
could have been occasioned by a very    
great public     calamity4#b        #b  
,wealth of ,nations1 ,book ,i1 chap4    
,,iv4  ,john ,stuart ,mill follows his  
master in exposing and denouncing what  
he calls this least covert of all forms 
of knavery which consists in calling a  
shilling a pound4 ,but the opinions of  
,mill1 the saint of rationalism1 deserve
 and demand citation as they bring us   
directly to our subject4 ,he writes3    

,when gold and silver had become        
virtually a medium of exchange1 by      
becoming the things for which people    
generally sold1 and with which     they 
generally bought1 whatever they had to  
sell or buy2 the     contrivance of     
coining obviously suggested itself4 ,by 
this process     the metal was divided  
into convenient portions1 of any degree 
of     smallness1 and bearing a         
recognised proportion to one another2   
and     the trouble was saved of        
weighing and assaying at every change of
     possessors1 an inconvenience which 
on the occasion of small     purchases  
would soon have become insupportable4   
,governments found it their interest to 
take the operation into     their own   
hands1 and to interdict all coining by  
private persons2     indeed1 their      
guarantee was often the only one which  
would have     been relied on1 a        
reliance however which very often it ill
     deserved2 profligate governments   
having until a very modern period       

seldom scrupled1 for the sake of robbing
 their creditors1 to confer     on all  
other debtors a licence to rob theirs1  
by the shallow and     impudent artifice
 of lowering the standard2 that least   
covert of     all modes of knavery1     
which consists in calling a shilling a  
pound1     that a debt of a hundred     
pounds may be cancelled by the payment  
of     a hundred shillings4 ,it would   
have been as simple a plan1 and would   
have answered just as well1 to have     
enacted that a hundred should     always
 be interpreted to mean five1 which     
would have effected the     same        
reduction in all pecuniary contracts1   
and would not have been     at all more 
shameless4 ,such strokes of policy have 
not wholly     ceased to be recommended1
 but they have ceased to be practised1  
except occasionally through the medium  
of paper money1 in which     case the   
character of the transaction1 from the  
greater obscurity     of the subject is 
a little less barefaced4#c        #c    

,mill1 ,political ,economy1 ,book ,,iii1
 chap4 ,,vii4  ,a few illustrations from
 the past may help us to a critical     
contemplation of the present monetary   
conditions on the continent of ,europe1 
which constitute fraud and robbery on   
the most wholesale scale ever practised 
by governments 7with the style and title
 of democracies67 upon the miserable    
victims1 called citizens1 and supposed  
to be endowed with the blessings of     
self-determination4  ,those who believe 
that war1 if not a divine institution1  
is at least an inevitable feature of    
human society may plead in extenuation  
of this species of fraud that it is     
usually the last desperate resource of a
 government which has pledged all its   
taxes and credit for war or armaments4  
,i remember reading in the ,roman       
historian ,sallust of a financial crisis
 which was ended by debts contracted in 
silver being paid off in                
copper--argentum re solutum est4  ,a few
 years before ,adam ,smith wrote his    

chapter on money1 ,frederick the ,great1
 during the ,seven ,years' ,war1        
resorted to the ,jew1 ,ephraim1 who     
coined tin silver3      ,outside noble1 
inside slim1     ,outside ,frederick1   
inside ,ephraim4  ,but ,frederick1 wiser
 and more honest than our ,european     
belligerents1 made it his first care    
after the peace to restore an honest    
silver coinage4  ,a lively example from 
,english1 or rather ,irish1 history is  
supplied by ,macaulay and belongs to the
 year #afhi4 ,it is one of the incidents
 in ,james the ,second's brief and      
luckless government of ,ireland3        
,it is remarkable that while the ,king  
,james ,,ii was losing the              
confidence and good will of the ,irish  
,commons by faintly defending           
against them1 in one quarter1 the       
institution of property1 he was         
himself1 in another quarter1 attacking  
that institution with a     violence1 if
 possible more reckless than theirs4    
,he soon found that no money came into  

his ,exchequer4 ,the cause was          
sufficiently obvious4 ,trade was at an  
end4 ,floating capital had     been     
withdrawn in great masses from the      
island4 ,of the fixed     capital much  
had been destroyed1 and the rest was    
lying idle4     ,thousands of those     
,protestants who were the most          
industrious and     intelligent part of 
the population had emigrated to         
,england4     ,thousands had taken      
refuge in the places which still held   
out for     ,william and ,mary4 ,of the 
,roman ,catholic peasantry1 who were in 
the     vigor of life1 the majority had 
enlisted in the army or had joined      
gangs of plunderers4 ,the poverty of the
 treasury was the necessary     effect  
of the poverty of the country3 public   
prosperity could be     restored only by
 the restoration of private prosperity2 
and private     prosperity could be     
restored only by years of peace and     
security4     ,james was absurd enough  
to imagine that there was a more speedy 

and     efficacious remedy4 ,he could1  
he conceived1 at once extricate         
himself from his financial difficulties 
by the simple process of     calling a  
farthing a shilling4      ,the right of 
coining was undoubtedly a flower of the 
prerogative2     and1 in his view1 the  
right of coining included the right of  
debasing the coin4 ,pots1 pans1 knockers
 of doors1 pieces of     ordnance which 
had long been past use1 were carried to 
the mint4 ,in     a short time lumps of 
base metal1 nominally worth near a      
million     sterling1 intrinsically     
worth about a sixtieth part of that sum1
     were in circulation4 ,a royal edict
 declared these pieces to be     legal  
tender in all cases whatsoever4 ,a      
mortgage for a thousand     pounds was  
cleared off by a bag of counters made   
out of old     kettles4 ,the creditors  
who complained to the ,court of         
,chancery were     told by ,fitton to   
take their money and be gone4      ,but 
of all classes1 the tradesmen of        

,dublin1 who were generally             
,protestants1 were the greatest losers4 
,at first1 of course1 they     raised   
their demands2 but the magistrates of   
the city took on     themselves to meet 
this heretical inclination by putting   
forth a     tariff regulating prices4   
,any man who belonged to the caste now  
dominant might walk into a shop1 lay on 
the counter a bit of brass     worth    
threepence1 and carry off goods to the  
value of half a     guinea4 ,legal      
remedies were out of the question4      
,indeed the     sufferers thought       
themselves happy if1 by the sacrifice of
 their     stock in trade1 they could   
redeem their limbs and their lives4     
,there was not a baker's shop in the    
city round which twenty or     thirty   
soldiers were not constantly prowling4  
,some persons who     refused the base  
money were arrested by troopers and     
carried before     the ,provost         
,marshal1 who cursed them1 swore at     
them1 locked them up     in dark cells1 

and1 by threatening to hang them at     
their own doors1     soon overcame their
 resistance4 ,of all the plagues of that
 time     none made a deeper or a more  
lasting impression on the minds of the  
,protestants of ,dublin than the plague 
of brass money4 ,to the     recollection
 of the confusion and misery which had  
been produced by     ,james' coin must  
be in part ascribed the strenuous       
opposition     which1 thirty-five years 
later1 large classes firmly attached to 
the ,house of ,hanover1 offered to the  
government of ,george the ,first     in 
the affair of ,woods' ,patent4#d        
#d ,macaulay1 ,history of ,england1 ,i1 
chap4 ,,xii4 ,the ,affair of            
,woods' ,patent is celebrated in        
,swift's ,drapier letters4  ,but paper  
money offers far more extensive         
facilities to knavery than a metallic   
currency4 ,in his ,essays on the        
,monetary ,history of the ,united       
,states1#e ,mr4 ,charles ,j4 ,bullock   
has described in sufficient detail the  

carnival of fraud and corruption which  
attended the paper money coined or      
rather printed by most of the ,american 
colonies in the century preceding the   
,american ,revolution4 ,thus1 about the 
middle of the eighteenth century1 the   
paper money of ,massachusetts fell to an
 eighth of its original value4 ,people  
were driven to barter1 and one writer   
observed that the morals of the people  
depreciate with the currency4 ,parties  
were divided into debtors and creditors1
 and a ,new ,england writer in #agdi    
noted3 ,the ,debtor side has had the    
ascendant ever since anno #agda to the  
almost utter ruin of the country4#f ,to 
this writer belongs the credit of       
discerning1 at a time when even         
,benjamin ,franklin was in error1 that  
the repeated large emissions of ,paper  
,money were responsible for its         
depreciation4        #e ,macmillan1     
#aijj4        #f ,douglass4  ,not worth 
a ,continental is an expression which   
brings us to the next chapter in        

,american experience of inconvertible   
paper currencies4 ,the so-called        
,continental money was the means by     
which the ,continental ,congress and the
 individual colonies--too timid to      
tax--endeavored to finance the          
,revolutionary ,war4 ,by #agha1 a paper 
dollar was worth less than two cents in 
specie1 and soon afterward it became    
practically worthless4#g ,robbery was   
legalized2 rogues flourished2 and their 
frauds were encouraged and protected by 
a government whose policy enabled       
debtors to pay their debts in valueless 
money4 ,we hear of creditors running    
away from their debtors and being paid  
off without mercy4 ,stories were told of
 creditors in ,rhode ,island leaping out
 of back windows to escape the          
attentions of their debtors4#h ,in      
short1 the law became an engine of      
oppression and destroyed the fortunes of
 thousands who had put their confidence 
in it4 ,in the words of ,breck1 a       
friendly critic1 444 the old debts were 

paid when the paper money was more than 
seventy to one 444 widows1 orphans and  
others were paid for money lent in      
specie with depreciated paper4        #g
 ,bullock1 ,monetary ,history of the    
,united ,states1 chap4 ,v4        #h    
,ibid41 chap4 ,v4 ,in #aghj ,congress   
actually adopted a plan to       redeem 
its paper issues at one fortieth of     
their pretended or       nominal value4 
,the astonishing thing is that all this 
knavery was devised1 or winked at1 not  
only by low class politicians but by    
statesmen of renown4 ,the maxim salus   
populi suprema lex was relied upon not  
for the first or last time as a         
sufficient excuse for a crime far more  
pernicious than that of a private       
forger4 ,but we have not yet realized1  
in our minds or in our penal codes1 that
 public vices ought to be punished at   
least as vigorously as private crimes4  
,that1 even as a desperate last resort  
for financing war1 a flood of paper     
money defeats its own object was        

conclusively proved a few years later   
during the ,french ,revolution4 ,the    
,french assignats have taken their place
 in history as the classical example of 
paper money made worthless by           
over-issue4 ,after their final collapse 
in #agif1 ,french finance reverted      
perforce to a metallic basis4 ,so ,mr4  
,hawtrey1 a ,british ,treasury official1
 who has given us recently a lucid and  
sufficiently detailed account of this   
extraordinary incident--extraordinary   
but no longer singular1 for the same    
course with the same results has been   
pursued during and since the war of     
#aiad-aiah by ,russia and ,poland1 and  
in a greater or less degree by most of  
the ,european belligerents4  ,the issue 
of ,french assignats began in #aghi     
because the assembly would not vote     
adequate taxation1 and ,necker1 the     
minister of finance1 was unable to      
borrow enough to cover the deficit4 ,in 
the two years from #aghi to #agia1 the  
public revenue was #dgj millions1 and   

the public expenditures1 #agai millions1
 of livres4 ,the deficit was covered by 
assignats1 or paper livres1 bearing     
interest1 in denominations varying from 
#ajjj to #e livres4 ,thus the assignats 
may be regarded as a floating debt      
currency4 ,in ,november1 #agia1 the     
assignats were worth #eb per cent of    
their face value4 ,in ,june1 #agib1     
after the declaration of war on         
,austria1 they rose to #eg4 ,after the  
victory of ,valmy1 in ,september1 they  
rose to #gb and remained there till     
,december4 ,in ,january1 #agic1 the king
 was guillotined1 and war was declared  
on ,england4 ,by ,august1 after violent 
fluctuations1 the assignat had fallen to
 #ae per cent of its face value4        
,thereafter the laws enforcing the      
acceptance of assignats were            
strengthened4      ,it became an offence
 to sell coin1 or to differentiate      
between coin     and assignats in any   
transaction1 or to refuse payment in    
assignats1 or to negotiate assignats at 

a discount4 ,by a decree of     the #eth
 of ,september the death penalty itself 
was imposed4 ,here was     a forced     
currency indeed4#i        #i ,r4 ,g4    
,hawtrey1 ,currency and ,credit4        
,longmans ,green  ,co41       ,london1  
#aiai4  ,for a few months an artificial 
improvement was effected in the value of
 the assignat by these ferocious        
measures2 but in #agie1 after the       
,terror1 the system and the paper money 
collapsed4 ,the gold and silver money1  
which had been hoarded1 returned to     
circulation4 ,in ,june1 #agie1 the      
quotation of the assignat oscillated    
violently4 ,on one day a louis of #bd   
livres would buy #dej paper livres1 on  
another1 #ajjj4aj ,paper notes which    
fluctuated so violently were useless as 
money4 ,they could not serve either as a
 medium of exchange or as a measure of  
value4 ,country people expressed their  
contempt for the assignats by calling   
them l'argent de ,paris4  ,a new        
currency of mandats was tried1 into     

which assignats were made convertible4  
,it was a complete failure4 ,the        
assignats were wound up in #agif1 and in
 ,february1 #agig1 there was a general  
demonetisation of paper money4#aa ,the  
holders got practically nothing4 ,france
 returned to hard cash1 as ,mexico has  
done recently4 ,in #aiah1 when ,mr4     
,hawtrey wrote1 he was able to describe 
the decline and full of the assignats as
 an 'almost unique' instance of the     
currency of a great nation fading away  
into nothing4 ,the ,russian paper rouble
 has performed the same feat since      
#aiah4 ,so has the ,polish mark4 ,and   
now 7,december1 #aiba7 the ,german paper
 mark is also fading into               
nothingness4#ab ,in ,austria and in most
 of the new states of ,europe1 the      
inconvertible paper legal tender        
currency has lost almost the whole of   
its value1 in comparison with the       
pre-war coin which it pretends to       
represent4        #aj ,hawtrey1 op4     
cit41 chap4 ,,xv4        #aa ,a turn    

which even a ,polish ,chancellor of the 
,exchequer       might envy4        #ab 
,in the second week of ,november the    
mark fell to #acjj to the       paper   
pound1 recovering a day or two later    
7,wednesday1 ,november       #i7 to     
#ihj4  ,the real difference between the 
present monetary conditions and the     
,american continentals1 or the ,french  
assignats1 is a difference not of kind1 
but of degree and extent4 ,the causes   
and the consequences1 the motives of    
those who work the mint1 the ruin and   
demoralization of the victims1 the      
effects upon public and private debts   
and credit are the same4 ,but a whole   
continent populated by four hundred     
millions of people is concerned4 ,the   
commercial and moral fabric of ,european
 civilization is tottering4 ,three years
 have passed since the war ended2 but   
the currencies and exchanges of ,europe 
are in a much worse condition than when 
peace was being negotiated4  ,at the end
 of ,june1 #aiba1 ,i walked from my     

office in the ,strand down to ,messrs4  
,hands  ,co41 who deal in foreign money 
at ,charing ,cross4 ,on the way ,i      
passed the shop of a tailor1 who had    
placarded on his shop window the        
announcement that he would give a       
hundred thousand roubles to every       
customer who bought a suit of clothes   
from him4 ,he added that at the pre-war 
rate of exchange the one hundred        
thousand roubles would be worth ten     
thousand pounds4 ,he did not add that   
they were at that time worth only two   
shillings4#ac ,on arriving at my        
destination1 ,i asked to see specimens  
of the most debased currencies and      
eventually laid out ten shillings1#ad   
or1 to be exact1 #is_/#aj;d4 ,here is   
the bill3      ,ten ,german marks       
cost me one shilling     ,a hundred     
,austrian crowns            cost me one 
and sixpence     ,a hundred ,polish     
marks               cost me sixpence    
,twenty-five ,russian 7,czar7#ae        
roubles 7#aiji7                     cost

 me sixpence     ,two ,italian lire     
cost me eightpence     ,two ,greek      
drachmas                   cost me      
eightpence     ,two ,roumanian lei      
cost me sixpence     ,five ,yugoslav    
dinars#af             cost me one       
shilling     ,ten ,czechoslovakian      
crowns           cost me one shilling   
,five ,bulgarian levas                  
cost me sixpence     ,five ,finnish     
marks                   cost me one     
shilling     ,five ,esthonian marks     
cost me one shilling     ,five ,latvian 
roubles                 cost me sixpence
        #ac ,a month or two later they  
were not worth a shilling4 ,the         
,russian ,soviet ,government was        
offering two hundred thousand           
roubles for one pre-war silver rouble6  
#ad ,two dollars4        #ae            
,twenty-five ,soviet roubles would have 
been dear at a       farthing4          
#af ,on this note is stamped #bj ,kruna 
to indicate that five       dinars      
exchanged for twenty ,austrian crowns4  

,to show that my friend1 the exchange   
dealer1 made a decent profit out of this
 retail transaction1 ,i quote some of   
his selling rates for the day on which  
he based his charges3                   
,rates of                               
,exchange         ,june #bi1 #aiba      
,austrian paper crowns      #bdjj-bfjj  
for #a     ,finnish marks               
#bbj-bdj               for #a           
,german marks                #bfe-bge   
for #a     ,polish marks                
#fjjj 7selling rate7    for #a          
,greek drachmas               #fb-fe    
for #a     ,italian lire                
#gf-gg                for #a            
,roumanian lei               #bcj-bej   
for #a  ,the last ,i heard from ,vienna 
was that they had been varying from ten 
thousand to fifteen thousand to the     
paper pound6  ,the difference in the    
rates depended1 of course1 upon whether 
the customer was buying or selling the  
foreign money4 ,if he was buying        
,austrian notes1 he would get           

twenty-four hundred paper crowns for a  
pound4 ,if he was selling them1 he would
 receive a pound in exchange for        
twenty-six hundred paper crowns4  ,all  
these paper notes are called after1 and 
profess to represent1 silver coins1     
which were themselves before the war1   
tokens1 and passed current at more than 
their intrinsic value because of their  
relation to gold4  ,thus the pre-war    
parity of marks was about twenty to the 
gold pound2 of ,austrian crowns1 about  
twenty-four2 of francs1 lire1 etc41     
about twenty-five4 ,on the day of my    
purchase1 therefore1 the exchange value 
of the ,german mark was less than one   
thirteenth1 of the ,austrian crown less 
than one one hundredth1 and of the      
,polish mark1 one two hundredth1 of its 
pre-war status4 ,but this underestimates
 the depreciation2 for the ,british     
pound is no longer a gold sovereign1 and
 even gold has been depreciated4#ag ,the
 paper pound in ,june1 #aiba1 was1 ,i   
think1 about the equivalent of twelve   

pre-war shillings in purchasing power4  
,the gold dollar1 which would only buy a
 little more than four shillings before 
the war1 would buy five at the beginning
 of ,december1 #aiba4        #ag        
,to-day1 ,november #cj1 #aiba1 the paper
 pound is worth about       four fifths 
of a gold pound4 ,the purchasing power  
of gold--say1       the gold dollar--is 
perhaps about two thirds of what it was 
before the war4  ,although an           
inconvertible paper currency has no     
intrinsic value1 it can 7in accordance  
with the quantity theory of money7 be   
maintained at a fairly stable ratio to  
gold or commodities by an honest        
government if the total issue is fixed1 
or kept between reasonable maximum and  
minimum limits4 ,the rise of prices     
since the war1 in each country where    
reliable statistics are available1 has  
been in proportion to the expansion of  
the paper currency1 allowance being made
 for the scarcity of commodities4 ,of   
course a decline in purchasing power    

follows an expansion of circulation4    
,the stability of the ,british paper    
pound since a limit was imposed         
illustrates the correctness of the      
quantity theory of money4 ,its increase 
in purchasing power 7like that of the   
gold dollar7 during the first half of   
#aiba is1 of course1 due to the fact    
that the supply of utilities had        
overtaken the demand4  ,at first sight  
it seems difficult to understand how any
 government1 however bad1 can           
deliberately issue flood upon flood of  
inconvertible paper money1 seeing that  
its printing operations are ruinous to  
both public and private credit4 ,to     
obtain the same amount of revenue1 each 
new issue1 each new dose1 has to be much
 larger than the preceding4 ,in the     
course of twelve months1 for example1   
the exchange value of the ,polish mark  
was divided by ten1 that is1 at the end 
of the period1 ten times as much paper  
money had to be printed as at the       
beginning1 to get the same revenue4 ,yet

 the ,polish ,government continued upon 
its course with the approval and support
 of the ,polish ,diet4  ,the following  
quotation is from the ,warsaw           
correspondent of the ,london ,economist1
 who wrote on ,july #bh1 #aiba3         
,the effects of the last collapse of the
 exchanges are beginning to     make    
themselves felt1 and the ,diet is       
already preparing fresh     ground for  
new currency inflation4 ,by its last    
vote the limit on     the note          
circulation has been increased to #aah  
milliards1 and on     the advances of   
the ,polish ,national ,bank to the      
,government to #aej     milliards4      
,the depreciation of the ,polish mark in
 ,june was followed by a rise     of    
prices1 and this led immediately to a   
strike movement in almost     all       
industries4 ,in the ,lodz district      
#dj1jjj workmen have gone on     strike1
 demanding a wage increase of #abj per  
cent6 ,the     manufacturers declare    
that they cannot raise wages by more    

than #bj     per cent2 that even under  
present conditions the ,polish textile  
industry is in a most difficult position
 on the foreign markets1     especially 
in ,roumania1 the ,baltic ,states1 etc4 
,posnania was     menaced by an agrarian
 strike1 but a settlement has been      
reached4     ,the strike of the         
municipal workers in ,warsaw was        
short-lived4     ,everywhere1 however1  
wages have been increased by more than  
#ej per     cent4 ,this naturally will  
entail a new wave of rising prices1 the 
,government will be obliged to double   
the salaries of its officials1     and  
the printing press will work again under
 a higher pressure4     ,this is the    
vicious circle round which the country  
has been     travelling for three years4
  ,ex uno disce omnes4 ,the monetary    
policy of the ,polish ,government is    
merely a flagrant example of the recent 
monetary history of all the states of   
,europe northeast1 southeast1 east1 of  
the ,rhine and of the ,alps4 ,there is  

only one real remedy1 the restablishment
 of complete peace1 disarmament1 the    
abolition of conscription1 the drastic  
reduction of bloated bureaucracies1 and 
a wholesale lowering of tariffs1 which  
will allow the miserable and            
half-starved populations to renew the   
arts of peace and the exchange of their 
agricultural products and manufactures4 
,,appendix  ,,the ,,brussels            
,,conference#ah   ,if all countries were
 included1 a general and proportionate  
reduction of the military and naval     
establishments to one half of their     
present cost would set free a fund of   
probably at least #c1jjj1jjj1jjj to     
#d1jjj1jjj1jjj annually for the purchase
 of food and useful commodities1 for the
 stabilization and partial restoration  
of debased paper currencies1 for the    
payment of debt1 the removal of public  
deficits1 the revival of credit1 and the
 reduction of taxes4 ,thus the road to  
recovery lies plain before us4 ,will it 
be taken by the statesmen to whose hands

 the peoples have intrusted their lives 
and fortunes8        #ah ,taken by      
permission from an article by the author
 in the       ,saturday ,evening ,post  
of ,november #ab1 #aiba4   ,,deficits   
,,the ,,rule  ,in order to show that    
this view is in conformity with the     
conclusions of experts1 and even of     
officials delegated for the purpose of  
examining world finance by the          
governments themselves1 ,i turn to the  
conclusions unanimously arrived at by   
the ,brussels conference a year ago1    
after eighty-six financial experts from 
thirty-nine countries had presented the 
accounts and balance sheets of their    
respective governments4 ,in a general   
review of the situation they point out  
that the total external debt of the     
,european belligerents1 converted into  
dollars at par1 amounts to about #aee   
milliard dollars1 compared with about   
#ag milliard dollars in #aiac4 ,they say
 that the government expenditures of the
 ,european belligerents amount to       

between #bj and #dj per cent of the     
total incomes of the peoples4 ,they say 
emphatically that the restoration of    
real peace1 with disarmament1 is the    
first condition for the world's         
recovery4  ,four commissions were       
appointed4 ,the first dealt with public 
finance1 and its resolutions were       
adopted unanimously by the conference4  
,the following extract from its         
resolutions deserves attention3         
,thirty-nine nations have in turn placed
 before the ,international              
,financial ,conference a statement of   
their financial position4 ,the          
examination of these statements brings  
out the extreme gravity of     the      
general situation of public finance     
throughout the world1 and               
particularly in ,europe4 ,their import  
may be summed up in the     statement   
that three out of every four of the     
countries represented     at this       
conference and eleven out of twelve of  
the ,european     countries anticipate a

 budget deficit in the present year4    
,public     opinion is largely          
responsible for this situation4 ,the    
close     connection between these      
budget deficits and the cost of living1 
which is causing such suffering and     
unrest throughout the world1 is     far 
from being grasped4 ,nearly every       
government is being pressed to     incur
 fresh expenditure2 largely on          
palliatives which aggravate the     very
 evils against which they are directed4 
,the first step is to     bring public  
opinion in every country to realize the 
essential     facts of the situation and
 particularly the need for restablishing
     public finances on a sound basis as
 a preliminary to the execution     of  
those social reforms which the world    
demands4      ,public attention should  
be especially drawn to the fact that the
     reduction of prices and the        
restoration of prosperity is dependent  
on the increase of production1 and that 
the continual excess of     government  

expenditure over revenue represented by 
budget deficits     is one of the most  
serious obstacles to such increase of   
production1 as it must sooner or later  
involve the following     consequences3 
7a7 ,a further inflation of credit and  
currency4      7b7 ,a further           
depreciation in the purchasing power of 
the     domestic currency1 and a still  
greater instability of the foreign      
exchanges4      7c7 ,a further rise in  
prices and in the cost of living4       
,the country which accepts the policy of
 budget deficits is treading     the    
slippery path which leads to general    
ruin2 to escape from that     path no   
sacrifice is too great4 ,it is therefore
 imperative that     every government   
should1 as the first social and         
financial reform1     on which all      
others depend3      7a7 ,restrict its   
ordinary recurrent expenditure1         
including the     service of the debt1  
to such an amount as can be covered by  
its     ordinary revenue4      7b7      

,rigidly reduce all expenditure on      
armaments in so far as such             
reduction is compatible with the        
preservation of national security4      
7c7 ,abandon all unproductive           
extraordinary expenditure4      7d7     
,restrict even productive extraordinary 
expenditure to the     lowest possible  
amount4      ,the ,supreme ,council of  
the ,allied ,powers in its pronouncement
 on     the eighth of ,march declared   
that armies should everywhere be        
reduced to a peace footing2 that        
armaments should be limited to the      
lowest possible figure compatible with  
national security and that     the      
,league of ,nations should be invited to
 consider1 as soon as     possible1     
proposals to this end4      ,the        
statements presented to the conference  
show that1 on an     average1 some #bj  
per cent of the national expenditure is 
still     being devoted to the          
maintenance of armaments and the        
preparations     for war4 ,the          

conference desires to affirm with the   
utmost emphasis     that the world      
cannot afford this expenditure4 ,only by
 a frank     policy of mutual coperation
 can the nations hope to regain their   
old prosperity1 and in order to secure  
that result1 the whole     resources of 
each country must be devoted to strictly
 productive     purposes4      ,the     
conference accordingly recommends most  
earnestly to the ,council     of the    
,league of ,nations the desirability of 
conferring at once     with the several 
governments concerned1 with a view to   
securing a     general and agreed       
reduction of the crushing burdens which 
on their     existing scale armaments   
still impose on the impoverished peoples
     of the world1 sapping their        
resource and imperiling their recovery  
from the ravages of war4 ,the conference
 hopes that the ,assembly of     the    
,league1 which is about to meet1 will   
take energetic action to     this end4  
,the above recommendations were ignored 

by the ,league of ,nations and by       
practically all the governments         
concerned4 ,consequently the debts and  
deficits of most ,european countries are
 larger at the present time than they   
were a year ago1 and most of the paper  
currencies have depreciated--some very  
heavily--during the last twelve months4 
,,the ,,dangers ,,of ,,inflation  ,i    
turn next to the resolutions proposed by
 the second commission which had to     
examine problems of currency and foreign
 exchange4  ,from its resolutions1 which
 also were adopted unanimously by the   
conference1 ,i extract the following3   
,the currencies of all belligerent and  
of many other countries1     though in  
greatly varying degrees1 have since the 
beginning of the     war been expanded  
artificially1 regardless of the usual   
restraints     upon such expansion--to  
which we refer later--and without any   
corresponding increase in the real      
wealth upon which their     purchasing  
power was based2 indeed in most cases in

 spite of a     serious reduction in    
such wealth4      ,it should be clearly 
understood that this artificial and     
unrestrained expansion1 or inflation1 as
 it is called1 of the     currency or of
 the titles to immediate purchasing     
power does not     and cannot add to the
 total real purchasing power in         
existence1 so     that its effect must  
be to reduce the purchasing power of    
each unit     of the currency4 ,it is in
 fact a form of debasing the currency4  
,the effect of it has been to intensify1
 in terms of the inflated               
currencies1 the general rise in prices1 
so that a greater amount of     such    
currency is needed to procure the       
accustomed supply of goods     and      
services4 ,where this additional        
currency was procured by     further    
inflation--that is1 by printing more    
paper money or     creating fresh       
credit--there arose what has been called
 a vicious     spiral of constantly     
rising prices and wages and constantly  

increasing inflation1 with the resulting
 disorganization of all     business1   
dislocation of the exchanges1 a         
progressive increase in     the cost of 
living1 and consequent labor unrest4    
,it is of the utmost importance that the
 growth of inflation should     be      
stopped2 and this1 although no doubt    
very difficult to do     immediately in 
some countries1 could quickly be        
accomplished by     abstaining from     
increasing the currency--in its broadest
 sense1 as     defined above--and by    
increasing the real wealth upon which   
such     currency is based4      ,the   
cessation of increase in the currency   
should not be achieved     merely by    
restricting the issue of legal tender4  
,such a step1 if     unaccompanied by   
other measures1 would be apt to         
aggravate the     situation by causing a
 monetary crisis4 ,it is necessary to   
attack     the causes which lead to the 
necessity for the additional currency4  
,the chief cause in most countries is   

that the governments1 finding           
themselves unable to meet their         
expenditures out of revenue1 have       
been tempted to resort to the artificial
 creation of fresh     purchasing power1
 either by the direct issue of          
additional     legal-tender money or    
more frequently by obtaining--especially
 from     the banks of issue1 which in  
some cases are unable and in others     
unwilling to refuse them--credits which 
must themselves be     satisfied in     
legal-tender money4 ,we say1 therefore1 
that     governments must limit their   
expenditure to their revenue4  ,here    
again we have excellent doctrines and   
good practical advice from these        
financial experts to the governments    
which appointed them4 ,but the doctrines
 have remained unapplied1 and the advice
 has been honored in the breach instead 
of in the observance4   ,,wise ,,counsel
 ,,ignored  ,i pass next to the         
resolutions proposed by the commission  
on international trade and adopted      

unanimously by the conference1 from     
which the first two paragraphs will be  
quoted3      ,the ,international        
,financial ,conference affirms that the 
first     condition for the resumption  
of international trade is the           
restoration of real peace1 the          
conclusion of the wars which are        
still being waged and the assured       
maintenance of peace for the     future4
 ,the continuance of the atmosphere of  
war and of     preparations for war is  
fatal to the development of that mutual 
trust which is essential to the         
resumption of normal trading            
relations4 ,the security of internal    
conditions is scarcely less             
important1 as foreign trade cannot      
prosper in a country whose     internal 
conditions do not inspire confidence4   
,the conference     trusts that the     
,league of ,nations will lose no        
opportunity to     secure the full      
restoration and continued maintenance of
 peace4      ,the ,international        

,financial ,conference affirms that the 
improvement     of the financial        
position largely depends on the general 
restoration as soon as possible of good 
will between the various     nations2   
and in particular it indorses the       
declaration of the     ,supreme ,council
 of the eighth ,march last that the     
,states which     have been created or  
enlarged as a result of the war should  
at once     restablish full and friendly
 coperation and arrange for the         
unrestricted interchange of commodities 
in order that the essential     unity of
 ,european economic life may not be     
impaired by the erection     of         
artificial economic barriers4  ,here    
again there is a full recognition of the
 fact that peace is necessary to the    
renewal of prosperity1 and that the     
atmosphere of war preparations is fatal 
to the growth of trade4 ,but neither the
 ,league of ,nations nor the ,supreme   
,council1 so far as ,i am aware1 has    
made any effective response to these    

appeals4  ,fourthly and lastly1 ,i come 
to the commission on international      
credits4 ,this commission passed a      
number of resolutions1 all of which were
 adopted unanimously by the conference2 
but it will suffice to cite the first   
two3      ,the conference recognizes in 
the first place that the difficulties   
which at present lie in the way of      
international credit operations         
arise almost exclusively out of the     
disturbance caused by the war1     and  
that the normal working of financial    
markets cannot be     completely        
restablished unless peaceful relations  
are restored     between all peoples and
 the outstanding financial questions    
resulting from the war are made the     
subject of a definite     settlement    
which is put into execution4      ,the  
conference is1 moreover1 of opinion that
 the revival of credit     requires as  
primary conditions the restoration of   
order in public     finance1 the        
cessation of inflation1 the purging of  

currencies1 and     the freedom of      
commercial transactions4 ,the           
resolutions of the     commission on    
international credits are therefore     
based on the     resolutions of the     
other commissions4  ,my argument then is
 fully endorsed by the experts at       
,brussels4 ,all the facts and figures   
set forth in the voluminous records of  
that remarkable conference indicate the 
urgency of peace and disarmament4 ,a    
year has passed4  ,the ,brussels        
recommendations have been ignored1 and  
conditions in ,europe as regards its    
currencies1 debts1 trade and credit have
 deteriorated4 ,the ,naval limitations  
proposed by ,mr4 ,hughes at ,washington1
 even if they are ratified1 will give   
practically no relief to ,europe4