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+Project Gutenberg's The Paper Moneys of Europe, by Francis W. Hirst
+
+This eBook is for the use of anyone anywhere at no cost and with
+almost no restrictions whatsoever.  You may copy it, give it away or
+re-use it under the terms of the Project Gutenberg License included
+with this eBook or online at www.gutenberg.org
+
+
+Title: The Paper Moneys of Europe
+       Their Moral and Economic Significance
+
+Author: Francis W. Hirst
+
+Release Date: July 23, 2009 [EBook #29499]
+
+Language: English
+
+Character set encoding: ASCII
+
+*** START OF THIS PROJECT GUTENBERG EBOOK THE PAPER MONEYS OF EUROPE ***
+
+
+
+
+Produced by The Online Distributed Proofreading Team at
+https://www.pgdp.net (This file was produced from images
+generously made available by The Internet Archive/American
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+
+
+
+
+
+
+THE PAPER MONEYS OF EUROPE
+
+THEIR MORAL AND ECONOMIC SIGNIFICANCE
+
+
+
+By
+
+FRANCIS W. HIRST
+
+
+
+BOSTON AND NEW YORK
+HOUGHTON MIFFLIN COMPANY
+The Riverside Press Cambridge
+1922
+
+COPYRIGHT, 1922, BY THE REGENTS OF THE
+UNIVERSITY OF CALIFORNIA
+
+ALL RIGHTS RESERVED
+
+The Riverside Press
+CAMBRIDGE . MASSACHUSETTS
+PRINTED IN THE U.S.A.
+
+
+
+
+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 order, first delivered at the
+University of California on the Weinstock foundation.
+
+
+
+
+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 this: Five thousand years after the
+invention of _writing_, three thousand after the invention of _money_,
+and (nearly) five hundred since the invention of _printing_,
+governments all over the world are employing the third invention for
+the purpose of debasing the second; 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 Rome, in Ireland under James the
+Second, in Prussia during the Seven Years' War, in the American
+colonies and the United States, in Portugal, in Greece, in various
+republics of Central and South America, even the assignats of the
+French Revolution--seem pigmy frauds in comparison with the present
+vast inundation of counterfeit paper money.
+
+In these times, when so much attention is given to what I may call the
+prehistoric history of mankind, it would ill become me, a mere
+adventurer in anthropology, 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
+printing. The coins struck by the best cities of ancient Greece are a
+model and a reproach to our modern mints; and being for the most part
+of good silver, they fulfilled the two main functions of currency--as a
+measure of value and a medium of exchange.
+
+Silver was well adapted for the purposes of currency by its ductility,
+durability, divisibility, portability, and value. Its value depended on
+three things. In the first place, it was scarce; in the second, it was
+much in demand for the arts and manufactures; and in the third place,
+its intrinsic value was increased and stabilized by the needs and
+demands of the mints.
+
+Gold had similar qualifications, but it was too scarce and too precious
+until the nineteenth century, in the course of which (for reasons which
+I need not enter upon here), most of the great commercial nations
+adopted a gold standard. Copper possessed in a less degree the
+qualifications of gold and silver, but it was the first metal to be
+coined into money in ancient Rome. The Roman _as_ or _pondo_ weighed a
+Roman pound of _good_ copper, therefore possessed the two principal
+attributes of good money, a definite weight and a definite fineness. It
+was divided like our troy pound into twelve ounces of good copper.
+
+The English Troyes or Troy pound was first used in the English mint in
+the time of Henry the Eighth. Edward the First's pound sterling was a
+Tower pound of silver of a definite fineness. Charlemagne's livre was a
+Troyes[1] pound of silver of definite fineness. The old English Scotch
+pence or pennies contained originally a real pennyweight of silver, one
+twentieth of an ounce and one two hundred and fortieth of a pound. The
+famous pre-war English sovereign, now demonetized and misrepresented by
+the depreciated paper pound, was itself also a weight; but the twenty
+shillings and two hundred and forty pence which exchanged for it were
+token coins depending for their value upon the gold sovereign.
+
+      [1] "The Fair of Troyes in Champaign was at that time frequented
+      by all the nations of Europe, and the weights and measures of so
+      famous a market were generally known and esteemed." (Adam Smith,
+      _Wealth of Nations_, Book I, chap, IV.)
+
+    From the time of Charlemagne among the French, and from that of
+    William the Conqueror among the English [wrote Adam Smith in 1776],
+    the proportion between the pound, the shilling and the penny, seems
+    to have been uniformly the same as at present, though the value of
+    each has been very different; for in every country of the world, I
+    believe, the avarice and injustice of princes and sovereign states,
+    abusing the confidence of their subjects, have by degrees
+    diminished the real quantity of metal which had been originally
+    contained in their coins. The Roman as, in the latter ages of the
+    republic, was reduced to the twenty-fourth part of its original
+    value, and, instead of weighing a pound, came to weigh only half an
+    ounce. The English pound and penny contain at present about a third
+    only; the Scots pound and penny about a thirty-sixth; and the
+    French pound and penny about a sixty-sixth part of their original
+    value. By means of those operations, the princes and sovereign
+    states which performed them were enabled, in appearance, to pay
+    their debts and fulfil their engagements with a smaller quantity of
+    silver than would otherwise have been requisite. It was indeed in
+    appearance only; for their creditors were really defrauded of a
+    part of what was due to them. All other debtors in the state were
+    allowed the same privilege, and might pay with the same nominal sum
+    of the new and debased coin whatever they had borrowed in the old.
+    Such operations, therefore, have always proved favourable to the
+    debtor, and ruinous to the creditor, and have sometimes produced a
+    greater and more universal revolution in the fortunes of private
+    persons, than could have been occasioned by a very great public
+    calamity.[2]
+
+      [2] _Wealth of Nations_, Book I, chap. IV.
+
+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 pound." But the opinions of Mill, the saint of
+rationalism, deserve and demand citation as they bring us directly to
+our subject. He writes:
+
+    When gold and silver had become virtually a medium of exchange, by
+    becoming the things for which people generally sold, and with which
+    they generally bought, whatever they had to sell or buy; the
+    contrivance of coining obviously suggested itself. By this process
+    the metal was divided into convenient portions, of any degree of
+    smallness, and bearing a recognised proportion to one another; and
+    the trouble was saved of weighing and assaying at every change of
+    possessors, an inconvenience which on the occasion of small
+    purchases would soon have become insupportable.
+
+    Governments found it their interest to take the operation into
+    their own hands, and to interdict all coining by private persons;
+    indeed, their guarantee was often the only one which would have
+    been relied on, a reliance however which very often it ill
+    deserved; profligate governments having until a very modern period
+    seldom scrupled, for the sake of robbing their creditors, to confer
+    on all other debtors a licence to rob theirs, by the shallow and
+    impudent artifice of lowering the standard; that least covert of
+    all modes of knavery, which consists in calling a shilling a pound,
+    that a debt of a hundred pounds may be cancelled by the payment of
+    a hundred shillings. It would have been as simple a plan, and would
+    have answered just as well, to have enacted that "a hundred" should
+    always be interpreted to mean five, which would have effected the
+    same reduction in all pecuniary contracts, and would not have been
+    at all more shameless. Such strokes of policy have not wholly
+    ceased to be recommended, but they have ceased to be practised,
+    except occasionally through the medium of paper money, in which
+    case the character of the transaction, from the greater obscurity
+    of the subject is a little less barefaced.[3]
+
+      [3] Mill, _Political Economy_, Book III, chap. VII.
+
+A few illustrations from the past may help us to a critical
+contemplation of the present monetary conditions on the continent of
+Europe, which constitute fraud and robbery on the most wholesale scale
+ever practised by governments (with the style and title of
+democracies!) upon the miserable victims, called citizens, and supposed
+to be endowed with the blessings of self-determination.
+
+Those who believe that war, if not a divine institution, 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
+armaments.
+
+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 aere solutum est_.
+
+A few years before Adam Smith wrote his chapter on money, Frederick the
+Great, during the Seven Years' War, resorted to the Jew, Ephraim, who
+coined tin silver:
+
+    Outside noble, inside slim,
+    Outside Frederick, inside Ephraim.
+
+But Frederick, wiser and more honest than our European belligerents,
+made it his first care after the peace to restore an honest silver
+coinage.
+
+A lively example from English, or rather Irish, history is supplied by
+Macaulay and belongs to the year 1689. It is one of the incidents in
+James the Second's brief and luckless government of Ireland:
+
+    It is remarkable that while the King [James II] was losing the
+    confidence and good will of the Irish Commons by faintly defending
+    against them, in one quarter, the institution of property, he was
+    himself, in another quarter, attacking that institution with a
+    violence, if possible more reckless than theirs.
+
+    He soon found that no money came into his Exchequer. The cause was
+    sufficiently obvious. Trade was at an end. Floating capital had
+    been withdrawn in great masses from the island. Of the fixed
+    capital much had been destroyed, and the rest was lying idle.
+    Thousands of those Protestants who were the most industrious and
+    intelligent part of the population had emigrated to England.
+    Thousands had taken refuge in the places which still held out for
+    William and Mary. Of the Roman Catholic peasantry, who were in the
+    vigor of life, the majority had enlisted in the army or had joined
+    gangs of plunderers. The poverty of the treasury was the necessary
+    effect of the poverty of the country: public prosperity could be
+    restored only by the restoration of private prosperity; and private
+    prosperity could be restored only by years of peace and security.
+    James was absurd enough to imagine that there was a more speedy and
+    efficacious remedy. He could, he conceived, at once extricate
+    himself from his financial difficulties by the simple process of
+    calling a farthing a shilling.
+
+    The right of coining was undoubtedly a flower of the prerogative;
+    and, in his view, the right of coining included the right of
+    debasing the coin. Pots, pans, knockers of doors, pieces of
+    ordnance which had long been past use, were carried to the mint. In
+    a short time lumps of base metal, nominally worth near a million
+    sterling, intrinsically worth about a sixtieth part of that sum,
+    were in circulation. A royal edict declared these pieces to be
+    legal tender in all cases whatsoever. A mortgage for a thousand
+    pounds was cleared off by a bag of counters made out of old
+    kettles. The creditors who complained to the Court of Chancery were
+    told by Fitton to take their money and be gone.
+
+    But of all classes, the tradesmen of Dublin, who were generally
+    Protestants, were the greatest losers. At first, of course, they
+    raised their demands; but the magistrates of the city took on
+    themselves to meet this heretical inclination by putting forth a
+    tariff regulating prices. Any man who belonged to the caste now
+    dominant might walk into a shop, lay on the counter a bit of brass
+    worth threepence, and carry off goods to the value of half a
+    guinea. Legal remedies were out of the question. Indeed the
+    sufferers thought themselves happy if, by the sacrifice of their
+    stock in trade, they could redeem their limbs and their lives.
+    There was not a baker's shop in the city round which twenty or
+    thirty soldiers were not constantly prowling. Some persons who
+    refused the base money were arrested by troopers and carried before
+    the Provost Marshal, who cursed them, swore at them, locked them up
+    in dark cells, and, by threatening to hang them at their own doors,
+    soon overcame their resistance. 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 money. To the
+    recollection of the confusion and misery which had been produced by
+    James' coin must be in part ascribed the strenuous opposition
+    which, thirty-five years later, large classes firmly attached to
+    the House of Hanover, offered to the government of George the First
+    in the affair of Woods' Patent.[4]
+
+      [4] Macaulay, _History of England_, I, chap. XII. "The Affair of
+      Woods' Patent" is celebrated in Swift's Drapier letters.
+
+But paper money offers far more extensive facilities to knavery than a
+metallic currency. In his _Essays on the Monetary History of the United
+States_,[5] Mr. Charles J. 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 Revolution. Thus, about the middle of
+the eighteenth century, the paper money of Massachusetts fell to an
+eighth of its original value. People were driven to barter, and one
+writer observed that "the morals of the people depreciate with the
+currency." Parties were divided into debtors and creditors, and a New
+England writer in 1749 noted: "The Debtor side has had the ascendant
+ever since anno 1741 to the almost utter ruin of the country."[6] To
+this writer belongs the credit of discerning, at a time when even
+Benjamin Franklin was in error, that "the repeated large emissions of
+Paper Money" were responsible for its depreciation.
+
+      [5] Macmillan, 1900.
+
+      [6] Douglass.
+
+"Not worth a Continental" is an expression which brings us to the next
+chapter in American experience of inconvertible paper currencies. 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 War. By 1781, a paper dollar was worth less
+than two cents in specie, and soon afterward it became practically
+worthless.[7] Robbery was legalized; rogues flourished; and their
+frauds were encouraged and protected by a government whose policy
+enabled debtors to pay their debts in valueless money. We hear of
+creditors running away from their debtors and being paid off "without
+mercy." Stories were told of creditors in Rhode Island leaping out of
+back windows to escape the attentions of their debtors.[8] In short,
+the law became an engine of oppression and destroyed the fortunes of
+thousands who had put their confidence in it. In the words of Breck, a
+friendly critic, "... the old debts were paid when the paper money was
+more than seventy to one ... widows, orphans and others were paid for
+money lent in specie with depreciated paper."
+
+      [7] Bullock, _Monetary History of the United States_, chap. V.
+
+      [8] _Ibid._, chap. V. In 1780 Congress actually adopted a plan to
+      redeem its paper issues at one fortieth of their pretended or
+      nominal value.
+
+The astonishing thing is that all this knavery was devised, or winked
+at, not only by low class politicians but by statesmen of renown. 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 forger. But we have not yet realized, in our
+minds or in our penal codes, that public vices ought to be punished at
+least as vigorously as private crimes.
+
+That, even as a desperate last resort for financing war, a flood of paper
+money defeats its own object was conclusively proved a few years later
+during the French Revolution. The French assignats "have taken their
+place in history as the classical example of paper money made worthless
+by over-issue. After their final collapse in 1796, French finance
+reverted perforce to a metallic basis." So Mr. Hawtrey, a British
+Treasury official, who has given us recently a lucid and sufficiently
+detailed account of this extraordinary incident--extraordinary but no
+longer singular, for the same course with the same results has been
+pursued during and since the war of 1914-1918 by Russia and Poland, and
+in a greater or less degree by most of the European belligerents.
+
+The issue of French assignats began in 1789 because the assembly would
+not vote adequate taxation, and Necker, the minister of finance, was
+unable to borrow enough to cover the deficit. In the two years from
+1789 to 1791, the public revenue was 470 millions, and the public
+expenditures, 1719 millions, of livres. The deficit was covered by
+assignats, or paper livres, bearing interest, in denominations varying
+from 1000 to 5 livres. Thus the assignats may be regarded as a floating
+debt currency. In November, 1791, the assignats were worth 52 per cent
+of their face value. In June, 1792, after the declaration of war on
+Austria, they rose to 57. After the victory of Valmy, in September,
+they rose to 72 and remained there till December. In January, 1793, the
+king was guillotined, and war was declared on England. By August, after
+violent fluctuations, the assignat had fallen to 15 per cent of its
+face value. Thereafter the laws enforcing the acceptance of assignats
+were strengthened.
+
+    It became an offence to sell coin, or to differentiate between coin
+    and assignats in any transaction, or to refuse payment in
+    assignats, or to negotiate assignats at a discount. By a decree of
+    the 5th of September the death penalty itself was imposed. Here was
+    a forced currency indeed.[9]
+
+      [9] R. G. Hawtrey, _Currency and Credit_. Longmans Green & Co.,
+      London, 1919.
+
+For a few months an artificial improvement was effected in the value of
+the assignat by these ferocious measures; but in 1795, after the
+Terror, the system and the paper money collapsed. The gold and silver
+money, which had been hoarded, returned to circulation. In June, 1795,
+the quotation of the assignat oscillated violently. On one day a louis
+of 24 livres would buy 450 paper livres, on another, 1000.[10] Paper
+notes which fluctuated so violently were useless as money. They could
+not serve either as a medium of exchange or as a measure of value.
+Country people expressed their contempt for the assignats by calling
+them _l'argent de Paris_.
+
+A new currency of _mandats_ was tried, into which assignats were made
+convertible. It was a complete failure. The _assignats_ were wound up
+in 1796, and in February, 1797, there was "a general demonetisation of
+paper money."[11] The holders got practically nothing. France returned
+to hard cash, as Mexico has done recently. In 1918, when Mr. Hawtrey
+wrote, 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 nothing." The Russian paper rouble has performed the same
+feat since 1918. So has the Polish mark. And now (December, 1921) the
+German paper mark is also fading into nothingness.[12] In Austria and
+in most of the new states of Europe, the inconvertible paper legal
+tender currency has lost almost the whole of its value, in comparison
+with the pre-war coin which it pretends to represent.
+
+      [10] Hawtrey, _op. cit._, chap. XV.
+
+      [11] A _turn_ which even a Polish Chancellor of the Exchequer
+      might envy.
+
+      [12] In the second week of November the mark fell to 1300 to the
+      paper pound, recovering a day or two later (Wednesday, November
+      9) to 980.
+
+The real difference between the present monetary conditions and the
+American _continentals_, or the French assignats, is a difference not
+of kind, but of degree and extent. The causes and the consequences, the
+motives of those who work the mint, the ruin and demoralization of the
+victims, the effects upon public and private debts and credit are the
+same. But a whole continent populated by four hundred millions of
+people is concerned. The commercial and moral fabric of European
+civilization is tottering. Three years have passed since the war ended;
+but the currencies and exchanges of Europe are in a much worse
+condition than when peace was being negotiated.
+
+At the end of June, 1921, I walked from my office in the Strand down to
+Messrs. Hands & Co., who deal in foreign money at Charing Cross. On the
+way I passed the shop of a tailor, 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 him. He added that at the
+pre-war rate of exchange the one hundred thousand roubles would be
+worth ten thousand pounds. He did not add that they were at that time
+worth only two shillings.[13] On arriving at my destination, I asked to
+see specimens of the most debased currencies and eventually laid out
+ten shillings,[14] or, to be exact, 9_s_/10_d_. Here is the bill:
+
+    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 (_Czar_)[15]
+      roubles (1909)                     cost me sixpence
+    Two Italian lire                     cost me eightpence
+    Two Greek drachmas                   cost me eightpence
+    Two Roumanian lei                    cost me sixpence
+    Five Yugoslav dinars[16]             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
+
+      [13] A month or two later they were not worth a shilling. The
+      Russian Soviet Government was offering two hundred thousand
+      roubles for one pre-war silver rouble!
+
+      [14] Two dollars.
+
+      [15] Twenty-five Soviet roubles would have been dear at a
+      farthing.
+
+      [16] On this note is stamped 20 _Kruna_ to indicate that five
+      dinars exchanged for twenty Austrian crowns.
+
+To show that my friend, the exchange dealer, made a decent profit out
+of this retail transaction, I quote some of his selling rates for the
+day on which he based his charges:
+
+                               _Rates of
+                                Exchange_         _June 29, 1921_
+    Austrian paper crowns      2400-2600              for L1
+    Finnish marks               220-240               for L1
+    German marks                265-275               for L1
+    Polish marks               6000 (selling rate)    for L1
+    Greek drachmas               62-65                for L1
+    Italian lire                 76-77                for L1
+    Roumanian lei               230-250               for L1
+
+The last I heard from Vienna was that they had been varying from ten
+thousand to fifteen thousand to the paper pound!
+
+The difference in the rates depended, of course, upon whether the
+customer was buying or selling the foreign money. If he was buying
+Austrian notes, he would get twenty-four hundred paper crowns for a
+pound. If he was selling them, he would receive a pound in exchange for
+twenty-six hundred paper crowns.
+
+All these paper notes are called after, and profess to represent,
+silver coins, which were themselves before the war, tokens, and passed
+current at more than their intrinsic value because of their relation to
+gold.
+
+Thus the pre-war parity of marks was about twenty to the gold pound; of
+Austrian crowns, about twenty-four; of francs, lire, etc., about
+twenty-five. On the day of my purchase, therefore, the exchange value
+of the German mark was less than one thirteenth, of the Austrian crown
+less than one one hundredth, and of the Polish mark, one two hundredth,
+of its pre-war status. But this underestimates the depreciation; for
+the British pound is no longer a gold sovereign, and even gold has been
+depreciated.[17] The paper pound in June, 1921, was, I think, about the
+equivalent of twelve pre-war shillings in purchasing power. The gold
+dollar, which would only buy a little more than four shillings before
+the war, would buy five at the beginning of December, 1921.
+
+      [17] To-day, November 30, 1921, the paper pound is worth about
+      four fifths of a gold pound. The purchasing power of gold--say,
+      the gold dollar--is perhaps about two thirds of what it was
+      before the war.
+
+Although an inconvertible paper currency has no intrinsic value, it can
+(in accordance with the quantity theory of money) be maintained at a
+fairly stable ratio to gold or commodities by an honest government if
+the total issue is fixed, or kept between reasonable maximum and
+minimum limits. The rise of prices since the war, in each country where
+reliable statistics are available, has been in proportion to the
+expansion of the paper currency, allowance being made for the scarcity
+of commodities. Of course a decline in purchasing power _follows_
+an expansion of circulation. The stability of the British paper pound
+since a limit was imposed illustrates the correctness of the quantity
+theory of money. Its increase in purchasing power (like that of the
+gold dollar) during the first half of 1921 is, of course, due to the
+fact that the supply of utilities had overtaken the demand.
+
+At first sight it seems difficult to understand how any government,
+however bad, can _deliberately_ issue flood upon flood of inconvertible
+paper money, seeing that its printing operations are ruinous to both
+public and private credit. To obtain the same amount of revenue, each
+new issue, each new dose, has to be much larger than the preceding. In
+the course of twelve months, for example, the exchange value of the
+Polish mark was divided by ten, that is, at the end of the period, ten
+times as much paper money had to be printed as at the beginning, to get
+the same revenue. Yet the Polish Government continued upon its course
+with the approval and support of the Polish Diet.
+
+The following quotation is from the Warsaw correspondent of the
+_London Economist_, who wrote on July 28, 1921:
+
+    The effects of the last collapse of the exchanges are beginning to
+    make themselves felt, and the Diet is already preparing fresh
+    ground for new currency inflation. By its last vote the limit on
+    the note circulation has been increased to 118 milliards, and on
+    the advances of the Polish National Bank to the Government to 150
+    milliards.
+
+    The depreciation of the Polish mark in June was followed by a rise
+    of prices, and this led immediately to a strike movement in almost
+    all industries. In the Lodz district 40,000 workmen have gone on
+    strike, demanding a wage increase of 120 per cent! The
+    manufacturers declare that they cannot raise wages by more than 20
+    per cent; that even under present conditions the Polish textile
+    industry is in a most difficult position on the foreign markets,
+    especially in Roumania, the Baltic States, etc. Posnania was
+    menaced by an agrarian strike, but a settlement has been reached.
+    The strike of the municipal workers in Warsaw was short-lived.
+    Everywhere, however, wages have been increased by more than 50 per
+    cent. This naturally will entail a new wave of rising prices, the
+    Government will be obliged to double the salaries of its officials,
+    and the printing press will work again under a higher pressure.
+    This is the vicious circle round which the country has been
+    travelling for three years.
+
+_Ex uno disce omnes._ The monetary policy of the Polish Government is
+merely a flagrant example of the recent monetary history of all the
+states of Europe northeast, southeast, east, of the Rhine and of the
+Alps. There is only one real remedy, the reestablishment of complete
+peace, disarmament, the abolition of conscription, the drastic
+reduction of bloated bureaucracies, and a wholesale lowering of
+tariffs, which will allow the miserable and half-starved populations to
+renew the arts of peace and the exchange of their agricultural products
+and manufactures.
+
+
+
+
+APPENDIX
+
+THE BRUSSELS CONFERENCE[18]
+
+
+If all countries were included, 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 $3,000,000,000 to
+$4,000,000,000 annually for the purchase of food and useful
+commodities, for the stabilization and partial restoration of debased
+paper currencies, for the payment of debt, the removal of public
+deficits, the revival of credit, and the reduction of taxes. Thus the
+road to recovery lies plain before us. Will it be taken by the
+statesmen to whose hands the peoples have intrusted their lives and
+fortunes?
+
+      [18] Taken by permission from an article by the author in the
+      _Saturday Evening Post_ of November 12, 1921.
+
+
+DEFICITS THE RULE
+
+In order to show that this view is in conformity with the conclusions
+of experts, and even of officials delegated for the purpose of
+examining world finance by the governments themselves, I turn to the
+conclusions unanimously arrived at by the Brussels conference a year
+ago, after eighty-six financial experts from thirty-nine countries had
+presented the accounts and balance sheets of their respective
+governments. In a general review of the situation they point out that
+"the total external debt of the European belligerents, converted into
+dollars at par, amounts to about 155 milliard dollars, compared with
+about 17 milliard dollars in 1913." They say that the government
+expenditures of the European belligerents amount to between 20 and 40
+per cent of the total incomes of the peoples. They say emphatically
+that the restoration of real peace, with disarmament, is "the first
+condition for the world's recovery."
+
+Four commissions were appointed. The first dealt with public finance,
+and its resolutions were adopted unanimously by the conference. The
+following extract from its resolutions deserves attention:
+
+    Thirty-nine nations have in turn placed before the International
+    Financial Conference a statement of their financial position. The
+    examination of these statements brings out the extreme gravity of
+    the general situation of public finance throughout the world, and
+    particularly in Europe. 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 year. Public
+    opinion is largely responsible for this situation. The close
+    connection between these budget deficits and the cost of living,
+    which is causing such suffering and unrest throughout the world, is
+    far from being grasped. Nearly every government is being pressed to
+    incur fresh expenditure; largely on palliatives which aggravate the
+    very evils against which they are directed. The first step is to
+    bring public opinion in every country to realize the essential
+    facts of the situation and particularly the need for reestablishing
+    public finances on a sound basis as a preliminary to the execution
+    of those social reforms which the world demands.
+
+    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 production, 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
+    production, as it must sooner or later involve the following
+    consequences:
+
+    (_a_) A further inflation of credit and currency.
+
+    (_b_) A further depreciation in the purchasing power of the
+    domestic currency, and a still greater instability of the foreign
+    exchanges.
+
+    (_c_) A further rise in prices and in the cost of living.
+
+    The country which accepts the policy of budget deficits is treading
+    the slippery path which leads to general ruin; to escape from that
+    path no sacrifice is too great. It is therefore imperative that
+    every government should, as the first social and financial reform,
+    on which all others depend:
+
+    (_a_) Restrict its ordinary recurrent expenditure, including the
+    service of the debt, to such an amount as can be covered by its
+    ordinary revenue.
+
+    (_b_) Rigidly reduce all expenditure on armaments in so far as such
+    reduction is compatible with the preservation of national security.
+
+    (_c_) Abandon all unproductive extraordinary expenditure.
+
+    (_d_) Restrict even productive extraordinary expenditure to the
+    lowest possible amount.
+
+    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 footing; that armaments should be limited to the
+    lowest possible figure compatible with national security and that
+    the League of Nations should be invited to consider, as soon as
+    possible, proposals to this end."
+
+    The statements presented to the conference show that, on an
+    average, some 20 per cent of the national expenditure is still
+    being devoted to the maintenance of armaments and the preparations
+    for war. The conference desires to affirm with the utmost emphasis
+    that the world cannot afford this expenditure. Only by a frank
+    policy of mutual cooperation can the nations hope to regain their
+    old prosperity, and in order to secure that result, the whole
+    resources of each country must be devoted to strictly productive
+    purposes.
+
+    The conference accordingly recommends most earnestly to the Council
+    of the League of Nations the desirability of conferring at once
+    with the several governments concerned, 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 world, sapping their resource and imperiling their recovery
+    from the ravages of war. The conference hopes that the Assembly of
+    the League, which is about to meet, will take energetic action to
+    this end.
+
+The above recommendations were ignored by the League of Nations and by
+practically all the governments concerned. Consequently the debts and
+deficits of most European countries are larger at the present time than
+they were a year ago, and most of the paper currencies have
+depreciated--some very heavily--during the last twelve months.
+
+
+THE DANGERS OF INFLATION
+
+I turn next to the resolutions proposed by the second commission which
+had to examine problems of currency and foreign exchange.
+
+From its resolutions, which also were adopted unanimously by the
+conference, I extract the following:
+
+    The currencies of all belligerent and of many other countries,
+    though in greatly varying degrees, have since the beginning of the
+    war been expanded artificially, 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 based; indeed in most cases in spite of a
+    serious reduction in such wealth.
+
+    It should be clearly understood that this artificial and
+    unrestrained expansion, or inflation, as it is called, of the
+    currency or of the titles to immediate purchasing power does not
+    and cannot add to the total real purchasing power in existence, so
+    that its effect must be to reduce the purchasing power of each unit
+    of the currency. It is in fact a form of debasing the currency.
+
+    The effect of it has been to intensify, in terms of the inflated
+    currencies, the general rise in prices, so that a greater amount of
+    such currency is needed to procure the accustomed supply of goods
+    and services. Where this additional currency was procured by
+    further inflation--that is, 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 inflation, with the resulting disorganization of all
+    business, dislocation of the exchanges, a progressive increase in
+    the cost of living, and consequent labor unrest.
+
+    It is of the utmost importance that the growth of inflation should
+    be stopped; and this, although no doubt very difficult to do
+    immediately in some countries, could quickly be accomplished by
+    abstaining from increasing the currency--in its broadest sense, as
+    defined above--and by increasing the real wealth upon which such
+    currency is based.
+
+    The cessation of increase in the currency should not be achieved
+    merely by restricting the issue of legal tender. Such a step, if
+    unaccompanied by other measures, would be apt to aggravate the
+    situation by causing a monetary crisis. It is necessary to attack
+    the causes which lead to the necessity for the additional currency.
+
+    The chief cause in most countries is that the governments, finding
+    themselves unable to meet their expenditures out of revenue, have
+    been tempted to resort to the artificial creation of fresh
+    purchasing power, either by the direct issue of additional
+    legal-tender money or more frequently by obtaining--especially from
+    the banks of issue, which in some cases are unable and in others
+    unwilling to refuse them--credits which must themselves be
+    satisfied in legal-tender money. We say, therefore, that
+    governments must limit their expenditure to their revenue.
+
+Here again we have excellent doctrines and good practical advice from
+these financial experts to the governments which appointed them. But
+the doctrines have remained unapplied, and the advice has been honored
+in the breach instead of in the observance.
+
+
+WISE COUNSEL IGNORED
+
+I pass next to the resolutions proposed by the commission on
+international trade and adopted unanimously by the conference, from
+which the first two paragraphs will be quoted:
+
+    The International Financial Conference affirms that the first
+    condition for the resumption of international trade is the
+    restoration of real peace, the conclusion of the wars which are
+    still being waged and the assured maintenance of peace for the
+    future. 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
+    relations. The security of internal conditions is scarcely less
+    important, as foreign trade cannot prosper in a country whose
+    internal conditions do not inspire confidence. The conference
+    trusts that the League of Nations will lose no opportunity to
+    secure the full restoration and continued maintenance of peace.
+
+    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
+    nations; 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
+    reestablish full and friendly cooperation 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 barriers."
+
+Here again there is a full recognition of the fact that peace is
+necessary to the renewal of prosperity, and that the atmosphere of war
+preparations is fatal to the growth of trade. But neither the League of
+Nations nor the Supreme Council, so far as I am aware, has made any
+effective response to these appeals.
+
+Fourthly and lastly, I come to the commission on international credits.
+This commission passed a number of resolutions, all of which were
+adopted unanimously by the conference; but it will suffice to cite the
+first two:
+
+    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 war,
+    and that the normal working of financial markets cannot be
+    completely reestablished 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 execution.
+
+    The conference is, moreover, of opinion that the revival of credit
+    requires as primary conditions the restoration of order in public
+    finance, the cessation of inflation, the purging of currencies, and
+    the freedom of commercial transactions. The resolutions of the
+    commission on international credits are therefore based on the
+    resolutions of the other commissions.
+
+My argument then is fully endorsed by the experts at Brussels. All the
+facts and figures set forth in the voluminous records of that
+remarkable conference indicate the urgency of peace and disarmament. A
+year has passed.
+
+The Brussels recommendations have been ignored, and conditions in
+Europe as regards its currencies, debts, trade and credit have
+deteriorated. The Naval limitations proposed by Mr. Hughes at
+Washington, even if they are ratified, will give practically no relief
+to Europe.
+
+
+
+
+
+End of Project Gutenberg's The Paper Moneys of Europe, by Francis W. Hirst
+
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