{"collection":"philosophy-ethics","full_text_available":true,"graph_url":"https://unchartedknowledge.5gfusion.net/v2/api/page/gutenberg_29499/graph","html_url":"https://unchartedknowledge.5gfusion.net/v2/page/gutenberg_29499","id":"gutenberg_29499","license":"Public Domain (US)","rights_basis":"gutenberg_metadata_copyright_false","source":"gutenberg","source_url":"https://www.gutenberg.org/ebooks/29499","summary":null,"tags":["Category: Economics","Category: History - European","Category: Philosophy & Ethics","Currency question","Paper money"],"text":"Produced by The Online Distributed Proofreading Team at\nhttps://www.pgdp.net (This file was produced from images\ngenerously made available by The Internet Archive/American\nLibraries.)\n\n\n\n\n\n\nTHE PAPER MONEYS OF EUROPE\n\nTHEIR MORAL AND ECONOMIC SIGNIFICANCE\n\n\n\nBy\n\nFRANCIS W. HIRST\n\n\n\nBOSTON AND NEW YORK\nHOUGHTON MIFFLIN COMPANY\nThe Riverside Press Cambridge\n1922\n\nCOPYRIGHT, 1922, BY THE REGENTS OF THE\nUNIVERSITY OF CALIFORNIA\n\nALL RIGHTS RESERVED\n\nThe Riverside Press\nCAMBRIDGE . MASSACHUSETTS\nPRINTED IN THE U.S.A.\n\n\n\n\nBARBARA WEINSTOCK\nLECTURES ON THE MORALS OF TRADE\n\nThis series will contain essays by representative scholars and men of\naffairs dealing with the various phases of the moral law in its bearing\non business life under the new economic order, first delivered at the\nUniversity of California on the Weinstock foundation.\n\n\n\n\nTHE PAPER MONEYS OF EUROPE\n\n\n\n\nTHEIR MORAL AND ECONOMIC SIGNIFICANCE\n\n\nNo more severe reflection could be passed upon the moral and political\ncapacity of the human species than this: Five thousand years after the\ninvention of _writing_, three thousand after the invention of _money_,\nand (nearly) five hundred since the invention of _printing_,\ngovernments all over the world are employing the third invention for\nthe purpose of debasing the second; thereby robbing millions of\ninnocent individuals of their property on a scale so extensive that\nprevious public confiscations of private property through the\nadulteration of money--in ancient Rome, in Ireland under James the\nSecond, in Prussia during the Seven Years' War, in the American\ncolonies and the United States, in Portugal, in Greece, in various\nrepublics of Central and South America, even the assignats of the\nFrench Revolution--seem pigmy frauds in comparison with the present\nvast inundation of counterfeit paper money.\n\nIn these times, when so much attention is given to what I may call the\nprehistoric history of mankind, it would ill become me, a mere\nadventurer in anthropology, to discuss the origin of money or to\nattempt an explanation of the curious fact that the art of coining\nmoney was invented and perfected a thousand years before the art of\nprinting. The coins struck by the best cities of ancient Greece are a\nmodel and a reproach to our modern mints; and being for the most part\nof good silver, they fulfilled the two main functions of currency--as a\nmeasure of value and a medium of exchange.\n\nSilver was well adapted for the purposes of currency by its ductility,\ndurability, divisibility, portability, and value. Its value depended on\nthree things. In the first place, it was scarce; in the second, it was\nmuch in demand for the arts and manufactures; and in the third place,\nits intrinsic value was increased and stabilized by the needs and\ndemands of the mints.\n\nGold had similar qualifications, but it was too scarce and too precious\nuntil the nineteenth century, in the course of which (for reasons which\nI need not enter upon here), most of the great commercial nations\nadopted a gold standard. Copper possessed in a less degree the\nqualifications of gold and silver, but it was the first metal to be\ncoined into money in ancient Rome. The Roman _as_ or _pondo_ weighed a\nRoman pound of _good_ copper, therefore possessed the two principal\nattributes of good money, a definite weight and a definite fineness. It\nwas divided like our troy pound into twelve ounces of good copper.\n\nThe English Troyes or Troy pound was first used in the English mint in\nthe time of Henry the Eighth. Edward the First's pound sterling was a\nTower pound of silver of a definite fineness. Charlemagne's livre was a\nTroyes[1] pound of silver of definite fineness. The old English Scotch\npence or pennies contained originally a real pennyweight of silver, one\ntwentieth of an ounce and one two hundred and fortieth of a pound. The\nfamous pre-war English sovereign, now demonetized and misrepresented by\nthe depreciated paper pound, was itself also a weight; but the twenty\nshillings and two hundred and forty pence which exchanged for it were\ntoken coins depending for their value upon the gold sovereign.\n\n      [1] \"The Fair of Troyes in Champaign was at that time frequented\n      by all the nations of Europe, and the weights and measures of so\n      famous a market were generally known and esteemed.\" (Adam Smith,\n      _Wealth of Nations_, Book I, chap, IV.)\n\n    From the time of Charlemagne among the French, and from that of\n    William the Conqueror among the English [wrote Adam Smith in 1776],\n    the proportion between the pound, the shilling and the penny, seems\n    to have been uniformly the same as at present, though the value of\n    each has been very different; for in every country of the world, I\n    believe, the avarice and injustice of princes and sovereign states,\n    abusing the confidence of their subjects, have by degrees\n    diminished the real quantity of metal which had been originally\n    contained in their coins. The Roman as, in the latter ages of the\n    republic, was reduced to the twenty-fourth part of its original\n    value, and, instead of weighing a pound, came to weigh only half an\n    ounce. The English pound and penny contain at present about a third\n    only; the Scots pound and penny about a thirty-sixth; and the\n    French pound and penny about a sixty-sixth part of their original\n    value. By means of those operations, the princes and sovereign\n    states which performed them were enabled, in appearance, to pay\n    their debts and fulfil their engagements with a smaller quantity of\n    silver than would otherwise have been requisite. It was indeed in\n    appearance only; for their creditors were really defrauded of a\n    part of what was due to them. All other debtors in the state were\n    allowed the same privilege, and might pay with the same nominal sum\n    of the new and debased coin whatever they had borrowed in the old.\n    Such operations, therefore, have always proved favourable to the\n    debtor, and ruinous to the creditor, and have sometimes produced a\n    greater and more universal revolution in the fortunes of private\n    persons, than could have been occasioned by a very great public\n    calamity.[2]\n\n      [2] _Wealth of Nations_, Book I, chap. IV.\n\nJohn Stuart Mill follows his master in exposing and denouncing what he\ncalls this \"least covert of all forms of knavery which consists in\ncalling a shilling a pound.\" But the opinions of Mill, the saint of\nrationalism, deserve and demand citation as they bring us directly to\nour subject. He writes:\n\n    When gold and silver had become virtually a medium of exchange, by\n    becoming the things for which people generally sold, and with which\n    they generally bought, whatever they had to sell or buy; the\n    contrivance of coining obviously suggested itself. By this process\n    the metal was divided into convenient portions, of any degree of\n    smallness, and bearing a recognised proportion to one another; and\n    the trouble was saved of weighing and assaying at every change of\n    possessors, an inconvenience which on the occasion of small\n    purchases would soon have become insupportable.\n\n    Governments found it their interest to take the operation into\n    their own hands, and to interdict all coining by private persons;\n    indeed, their guarantee was often the only one which would have\n    been relied on, a reliance however which very often it ill\n    deserved; profligate governments having until a very modern period\n    seldom scrupled, for the sake of robbing their creditors, to confer\n    on all other debtors a licence to rob theirs, by the shallow and\n    impudent artifice of lowering the standard; that least covert of\n    all modes of knavery, which consists in calling a shilling a pound,\n    that a debt of a hundred pounds may be cancelled by the payment of\n    a hundred shillings. It would have been as simple a plan, and would\n    have answered just as well, to have enacted that \"a hundred\" should\n    always be interpreted to mean five, which would have effected the\n    same reduction in all pecuniary contracts, and would not have been\n    at all more shameless. Such strokes of policy have not wholly\n    ceased to be recommended, but they have ceased to be practised,\n    except occasionally through the medium of paper money, in which\n    case the character of the transaction, from the greater obscurity\n    of the subject is a little less barefaced.[3]\n\n      [3] Mill, _Political Economy_, Book III, chap. VII.\n\nA few illustrations from the past may help us to a critical\ncontemplation of the present monetary conditions on the continent of\nEurope, which constitute fraud and robbery on the most wholesale scale\never practised by governments (with the style and title of\ndemocracies!) upon the miserable victims, called citizens, and supposed\nto be endowed with the blessings of self-determination.\n\nThose who believe that war, if not a divine institution, is at least an\ninevitable feature of human society may plead in extenuation of this\nspecies of fraud that it is usually the last desperate resource of a\ngovernment which has pledged all its taxes and credit for war or\narmaments.\n\nI remember reading in the Roman historian Sallust of a financial crisis\nwhich was ended by debts contracted in silver being paid off in\ncopper--_argentum aere solutum est_.\n\nA few years before Adam Smith wrote his chapter on money, Frederick the\nGreat, during the Seven Years' War, resorted to the Jew, Ephraim, who\ncoined tin silver:\n\n    Outside noble, inside slim,\n    Outside Frederick, inside Ephraim.\n\nBut Frederick, wiser and more honest than our European belligerents,\nmade it his first care after the peace to restore an honest silver\ncoinage.\n\nA lively example from English, or rather Irish, history is supplied by\nMacaulay and belongs to the year 1689. It is one of the incidents in\nJames the Second's brief and luckless government of Ireland:\n\n    It is remarkable that while the King [James II] was losing the\n    confidence and good will of the Irish Commons by faintly defending\n    against them, in one quarter, the institution of property, he was\n    himself, in another quarter, attacking that institution with a\n    violence, if possible more reckless than theirs.\n\n    He soon found that no money came into his Exchequer. The cause was\n    sufficiently obvious. Trade was at an end. Floating capital had\n    been withdrawn in great masses from the island. Of the fixed\n    capital much had been destroyed, and the rest was lying idle.\n    Thousands of those Protestants who were the most industrious and\n    intelligent part of the population had emigrated to England.\n    Thousands had taken refuge in the places which still held out for\n    William and Mary. Of the Roman Catholic peasantry, who were in the\n    vigor of life, the majority had enlisted in the army or had joined\n    gangs of plunderers. The poverty of the treasury was the necessary\n    effect of the poverty of the country: public prosperity could be\n    restored only by the restoration of private prosperity; and private\n    prosperity could be restored only by years of peace and security.\n    James was absurd enough to imagine that there was a more speedy and\n    efficacious remedy. He could, he conceived, at once extricate\n    himself from his financial difficulties by the simple process of\n    calling a farthing a shilling.\n\n    The right of coining was undoubtedly a flower of the prerogative;\n    and, in his view, the right of coining included the right of\n    debasing the coin. Pots, pans, knockers of doors, pieces of\n    ordnance which had long been past use, were carried to the mint. In\n    a short time lumps of base metal, nominally worth near a million\n    sterling, intrinsically worth about a sixtieth part of that sum,\n    were in circulation. A royal edict declared these pieces to be\n    legal tender in all cases whatsoever. A mortgage for a thousand\n    pounds was cleared off by a bag of counters made out of old\n    kettles. The creditors who complained to the Court of Chancery were\n    told by Fitton to take their money and be gone.\n\n    But of all classes, the tradesmen of Dublin, who were generally\n    Protestants, were the greatest losers. At first, of course, they\n    raised their demands; but the magistrates of the city took on\n    themselves to meet this heretical inclination by putting forth a\n    tariff regulating prices. Any man who belonged to the caste now\n    dominant might walk into a shop, lay on the counter a bit of brass\n    worth threepence, and carry off goods to the value of half a\n    guinea. Legal remedies were out of the question. Indeed the\n    sufferers thought themselves happy if, by the sacrifice of their\n    stock in trade, they could redeem their limbs and their lives.\n    There was not a baker's shop in the city round which twenty or\n    thirty soldiers were not constantly prowling. Some persons who\n    refused the base money were arrested by troopers and carried before\n    the Provost Marshal, who cursed them, swore at them, locked them up\n    in dark cells, and, by threatening to hang them at their own doors,\n    soon overcame their resistance. Of all the plagues of that time\n    none made a deeper or a more lasting impression on the minds of the\n    Protestants of Dublin than the plague of brass money. To the\n    recollection of the confusion and misery which had been produced by\n    James' coin must be in part ascribed the strenuous opposition\n    which, thirty-five years later, large classes firmly attached to\n    the House of Hanover, offered to the government of George the First\n    in the affair of Woods' Patent.[4]\n\n      [4] Macaulay, _History of England_, I, chap. XII. \"The Affair of\n      Woods' Patent\" is celebrated in Swift's Drapier letters.\n\nBut paper money offers far more extensive facilities to knavery than a\nmetallic currency. In his _Essays on the Monetary History of the United\nStates_,[5] Mr. Charles J. Bullock has described in sufficient detail\nthe \"carnival of fraud and corruption\" which attended the paper money\ncoined or rather printed by most of the American colonies in the\ncentury preceding the American Revolution. Thus, about the middle of\nthe eighteenth century, the paper money of Massachusetts fell to an\neighth of its original value. People were driven to barter, and one\nwriter observed that \"the morals of the people depreciate with the\ncurrency.\" Parties were divided into debtors and creditors, and a New\nEngland writer in 1749 noted: \"The Debtor side has had the ascendant\never since anno 1741 to the almost utter ruin of the country.\"[6] To\nthis writer belongs the credit of discerning, at a time when even\nBenjamin Franklin was in error, that \"the repeated large emissions of\nPaper Money\" were responsible for its depreciation.\n\n      [5] Macmillan, 1900.\n\n      [6] Douglass.\n\n\"Not worth a Continental\" is an expression which brings us to the next\nchapter in American experience of inconvertible paper currencies. The\nso-called Continental money was the means by which the Continental\nCongress and the individual colonies--too timid to tax--endeavored to\nfinance the Revolutionary War. By 1781, a paper dollar was worth less\nthan two cents in specie, and soon afterward it became practically\nworthless.[7] Robbery was legalized; rogues flourished; and their\nfrauds were encouraged and protected by a government whose policy\nenabled debtors to pay their debts in valueless money. We hear of\ncreditors running away from their debtors and being paid off \"without\nmercy.\" Stories were told of creditors in Rhode Island leaping out of\nback windows to escape the attentions of their debtors.[8] In short,\nthe law became an engine of oppression and destroyed the fortunes of\nthousands who had put their confidence in it. In the words of Breck, a\nfriendly critic, \"... the old debts were paid when the paper money was\nmore than seventy to one ... widows, orphans and others were paid for\nmoney lent in specie with depreciated paper.\"\n\n      [7] Bullock, _Monetary History of the United States_, chap. V.\n\n      [8] _Ibid._, chap. V. In 1780 Congress actually adopted a plan to\n      redeem its paper issues at one fortieth of their pretended or\n      nominal value.\n\nThe astonishing thing is that all this knavery was devised, or winked\nat, not only by low class politicians but by statesmen of renown. The\nmaxim _salus populi suprema lex_ was relied upon not for the first\nor last time as a sufficient excuse for a crime far more pernicious\nthan that of a private forger. But we have not yet realized, in our\nminds or in our penal codes, that public vices ought to be punished at\nleast as vigorously as private crimes.\n\nThat, even as a desperate last resort for financing war, a flood of paper\nmoney defeats its own object was conclusively proved a few years later\nduring the French Revolution. The French assignats \"have taken their\nplace in history as the classical example of paper money made worthless\nby over-issue. After their final collapse in 1796, French finance\nreverted perforce to a metallic basis.\" So Mr. Hawtrey, a British\nTreasury official, who has given us recently a lucid and sufficiently\ndetailed account of this extraordinary incident--extraordinary but no\nlonger singular, for the same course with the same results has been\npursued during and since the war of 1914-1918 by Russia and Poland, and\nin a greater or less degree by most of the European belligerents.\n\nThe issue of French assignats began in 1789 because the assembly would\nnot vote adequate taxation, and Necker, the minister of finance, was\nunable to borrow enough to cover the deficit. In the two years from\n1789 to 1791, the public revenue was 470 millions, and the public\nexpenditures, 1719 millions, of livres. The deficit was covered by\nassignats, or paper livres, bearing interest, in denominations varying\nfrom 1000 to 5 livres. Thus the assignats may be regarded as a floating\ndebt currency. In November, 1791, the assignats were worth 52 per cent\nof their face value. In June, 1792, after the declaration of war on\nAustria, they rose to 57. After the victory of Valmy, in September,\nthey rose to 72 and remained there till December. In January, 1793, the\nking was guillotined, and war was declared on England. By August, after\nviolent fluctuations, the assignat had fallen to 15 per cent of its\nface value. Thereafter the laws enforcing the acceptance of assignats\nwere strengthened.\n\n    It became an offence to sell coin, or to differentiate between coin\n    and assignats in any transaction, or to refuse payment in\n    assignats, or to negotiate assignats at a discount. By a decree of\n    the 5th of September the death penalty itself was imposed. Here was\n    a forced currency indeed.[9]\n\n      [9] R. G. Hawtrey, _Currency and Credit_. Longmans Green & Co.,\n      London, 1919.\n\nFor a few months an artificial improvement was effected in the value of\nthe assignat by these ferocious measures; but in 1795, after the\nTerror, the system and the paper money collapsed. The gold and silver\nmoney, which had been hoarded, returned to circulation. In June, 1795,\nthe quotation of the assignat oscillated violently. On one day a louis\nof 24 livres would buy 450 paper livres, on another, 1000.[10] Paper\nnotes which fluctuated so violently were useless as money. They could\nnot serve either as a medium of exchange or as a measure of value.\nCountry people expressed their contempt for the assignats by calling\nthem _l'argent de Paris_.\n\nA new currency of _mandats_ was tried, into which assignats were made\nconvertible. It was a complete failure. The _assignats_ were wound up\nin 1796, and in February, 1797, there was \"a general demonetisation of\npaper money.\"[11] The holders got practically nothing. France returned\nto hard cash, as Mexico has done recently. In 1918, when Mr. Hawtrey\nwrote, he was able to describe the decline and full of the assignats as\nan 'almost unique' instance of \"the currency of a great nation fading\naway into nothing.\" The Russian paper rouble has performed the same\nfeat since 1918. So has the Polish mark. And now (December, 1921) the\nGerman paper mark is also fading into nothingness.[12] In Austria and\nin most of the new states of Europe, the inconvertible paper legal\ntender currency has lost almost the whole of its value, in comparison\nwith the pre-war coin which it pretends to represent.\n\n      [10] Hawtrey, _op. cit._, chap. XV.\n\n      [11] A _turn_ which even a Polish Chancellor of the Exchequer\n      might envy.\n\n      [12] In the second week of November the mark fell to 1300 to the\n      paper pound, recovering a day or two later (Wednesday, November\n      9) to 980.\n\nThe real difference between the present monetary conditions and the\nAmerican _continentals_, or the French assignats, is a difference not\nof kind, but of degree and extent. The causes and the consequences, the\nmotives of those who work the mint, the ruin and demoralization of the\nvictims, the effects upon public and private debts and credit are the\nsame. But a whole continent populated by four hundred millions of\npeople is concerned. The commercial and moral fabric of European\ncivilization is tottering. Three years have passed since the war ended;\nbut the currencies and exchanges of Europe are in a much worse\ncondition than when peace was being negotiated.\n\nAt the end of June, 1921, I walked from my office in the Strand down to\nMessrs. Hands & Co., who deal in foreign money at Charing Cross. On the\nway I passed the shop of a tailor, who had placarded on his shop window\nthe announcement that he would give a hundred thousand roubles to every\ncustomer who bought a suit of clothes from him. He added that at the\npre-war rate of exchange the one hundred thousand roubles would be\nworth ten thousand pounds. He did not add that they were at that time\nworth only two shillings.[13] On arriving at my destination, I asked to\nsee specimens of the most debased currencies and eventually laid out\nten shillings,[14] or, to be exact, 9_s_/10_d_. Here is the bill:\n\n    Ten German marks                     cost me one shilling\n    A hundred Austrian crowns            cost me one and sixpence\n    A hundred Polish marks               cost me sixpence\n    Twenty-five Russian (_Czar_)[15]\n      roubles (1909)                     cost me sixpence\n    Two Italian lire                     cost me eightpence\n    Two Greek drachmas                   cost me eightpence\n    Two Roumanian lei                    cost me sixpence\n    Five Yugoslav dinars[16]             cost me one shilling\n    Ten Czechoslovakian crowns           cost me one shilling\n    Five Bulgarian levas                 cost me sixpence\n    Five Finnish marks                   cost me one shilling\n    Five Esthonian marks                 cost me one shilling\n    Five Latvian roubles                 cost me sixpence\n\n      [13] A month or two later they were not worth a shilling. The\n      Russian Soviet Government was offering two hundred thousand\n      roubles for one pre-war silver rouble!\n\n      [14] Two dollars.\n\n      [15] Twenty-five Soviet roubles would have been dear at a\n      farthing.\n\n      [16] On this note is stamped 20 _Kruna_ to indicate that five\n      dinars exchanged for twenty Austrian crowns.\n\nTo show that my friend, the exchange dealer, made a decent profit out\nof this retail transaction, I quote some of his selling rates for the\nday on which he based his charges:\n\n                               _Rates of\n                                Exchange_         _June 29, 1921_\n    Austrian paper crowns      2400-2600              for L1\n    Finnish marks               220-240               for L1\n    German marks                265-275               for L1\n    Polish marks               6000 (selling rate)    for L1\n    Greek drachmas               62-65                for L1\n    Italian lire                 76-77                for L1\n    Roumanian lei               230-250               for L1\n\nThe last I heard from Vienna was that they had been varying from ten\nthousand to fifteen thousand to the paper pound!\n\nThe difference in the rates depended, of course, upon whether the\ncustomer was buying or selling the foreign money. If he was buying\nAustrian notes, he would get twenty-four hundred paper crowns for a\npound. If he was selling them, he would receive a pound in exchange for\ntwenty-six hundred paper crowns.\n\nAll these paper notes are called after, and profess to represent,\nsilver coins, which were themselves before the war, tokens, and passed\ncurrent at more than their intrinsic value because of their relation to\ngold.\n\nThus the pre-war parity of marks was about twenty to the gold pound; of\nAustrian crowns, about twenty-four; of francs, lire, etc., about\ntwenty-five. On the day of my purchase, therefore, the exchange value\nof the German mark was less than one thirteenth, of the Austrian crown\nless than one one hundredth, and of the Polish mark, one two hundredth,\nof its pre-war status. But this underestimates the depreciation; for\nthe British pound is no longer a gold sovereign, and even gold has been\ndepreciated.[17] The paper pound in June, 1921, was, I think, about the\nequivalent of twelve pre-war shillings in purchasing power. The gold\ndollar, which would only buy a little more than four shillings before\nthe war, would buy five at the beginning of December, 1921.\n\n      [17] To-day, November 30, 1921, the paper pound is worth about\n      four fifths of a gold pound. The purchasing power of gold--say,\n      the gold dollar--is perhaps about two thirds of what it was\n      before the war.\n\nAlthough an inconvertible paper currency has no intrinsic value, it can\n(in accordance with the quantity theory of money) be maintained at a\nfairly stable ratio to gold or commodities by an honest government if\nthe total issue is fixed, or kept between reasonable maximum and\nminimum limits. The rise of prices since the war, in each country where\nreliable statistics are available, has been in proportion to the\nexpansion of the paper currency, allowance being made for the scarcity\nof commodities. Of course a decline in purchasing power _follows_\nan expansion of circulation. The stability of the British paper pound\nsince a limit was imposed illustrates the correctness of the quantity\ntheory of money. Its increase in purchasing power (like that of the\ngold dollar) during the first half of 1921 is, of course, due to the\nfact that the supply of utilities had overtaken the demand.\n\nAt first sight it seems difficult to understand how any government,\nhowever bad, can _deliberately_ issue flood upon flood of inconvertible\npaper money, seeing that its printing operations are ruinous to both\npublic and private credit. To obtain the same amount of revenue, each\nnew issue, each new dose, has to be much larger than the preceding. In\nthe course of twelve months, for example, the exchange value of the\nPolish mark was divided by ten, that is, at the end of the period, ten\ntimes as much paper money had to be printed as at the beginning, to get\nthe same revenue. Yet the Polish Government continued upon its course\nwith the approval and support of the Polish Diet.\n\nThe following quotation is from the Warsaw correspondent of the\n_London Economist_, who wrote on July 28, 1921:\n\n    The effects of the last collapse of the exchanges are beginning to\n    make themselves felt, and the Diet is already preparing fresh\n    ground for new currency inflation. By its last vote the limit on\n    the note circulation has been increased to 118 milliards, and on\n    the advances of the Polish National Bank to the Government to 150\n    milliards.\n\n    The depreciation of the Polish mark in June was followed by a rise\n    of prices, and this led immediately to a strike movement in almost\n    all industries. In the Lodz district 40,000 workmen have gone on\n    strike, demanding a wage increase of 120 per cent! The\n    manufacturers declare that they cannot raise wages by more than 20\n    per cent; that even under present conditions the Polish textile\n    industry is in a most difficult position on the foreign markets,\n    especially in Roumania, the Baltic States, etc. Posnania was\n    menaced by an agrarian strike, but a settlement has been reached.\n    The strike of the municipal workers in Warsaw was short-lived.\n    Everywhere, however, wages have been increased by more than 50 per\n    cent. This naturally will entail a new wave of rising prices, the\n    Government will be obliged to double the salaries of its officials,\n    and the printing press will work again under a higher pressure.\n    This is the vicious circle round which the country has been\n    travelling for three years.\n\n_Ex uno disce omnes._ The monetary policy of the Polish Government is\nmerely a flagrant example of the recent monetary history of all the\nstates of Europe northeast, southeast, east, of the Rhine and of the\nAlps. There is only one real remedy, the reestablishment of complete\npeace, disarmament, the abolition of conscription, the drastic\nreduction of bloated bureaucracies, and a wholesale lowering of\ntariffs, which will allow the miserable and half-starved populations to\nrenew the arts of peace and the exchange of their agricultural products\nand manufactures.\n\n\n\n\nAPPENDIX\n\nTHE BRUSSELS CONFERENCE[18]\n\n\nIf all countries were included, a general and proportionate reduction\nof the military and naval establishments to one half of their present\ncost would set free a fund of probably at least $3,000,000,000 to\n$4,000,000,000 annually for the purchase of food and useful\ncommodities, for the stabilization and partial restoration of debased\npaper currencies, for the payment of debt, the removal of public\ndeficits, the revival of credit, and the reduction of taxes. Thus the\nroad to recovery lies plain before us. Will it be taken by the\nstatesmen to whose hands the peoples have intrusted their lives and\nfortunes?\n\n      [18] Taken by permission from an article by the author in the\n      _Saturday Evening Post_ of November 12, 1921.\n\n\nDEFICITS THE RULE\n\nIn order to show that this view is in conformity with the conclusions\nof experts, and even of officials delegated for the purpose of\nexamining world finance by the governments themselves, I turn to the\nconclusions unanimously arrived at by the Brussels conference a year\nago, after eighty-six financial experts from thirty-nine countries had\npresented the accounts and balance sheets of their respective\ngovernments. In a general review of the situation they point out that\n\"the total external debt of the European belligerents, converted into\ndollars at par, amounts to about 155 milliard dollars, compared with\nabout 17 milliard dollars in 1913.\" They say that the government\nexpenditures of the European belligerents amount to between 20 and 40\nper cent of the total incomes of the peoples. They say emphatically\nthat the restoration of real peace, with disarmament, is \"the first\ncondition for the world's recovery.\"\n\nFour commissions were appointed. The first dealt with public finance,\nand its resolutions were adopted unanimously by the conference. The\nfollowing extract from its resolutions deserves attention:\n\n    Thirty-nine nations have in turn placed before the International\n    Financial Conference a statement of their financial position. The\n    examination of these statements brings out the extreme gravity of\n    the general situation of public finance throughout the world, and\n    particularly in Europe. Their import may be summed up in the\n    statement that three out of every four of the countries represented\n    at this conference and eleven out of twelve of the European\n    countries anticipate a budget deficit in the present year. Public\n    opinion is largely responsible for this situation. The close\n    connection between these budget deficits and the cost of living,\n    which is causing such suffering and unrest throughout the world, is\n    far from being grasped. Nearly every government is being pressed to\n    incur fresh expenditure; largely on palliatives which aggravate the\n    very evils against which they are directed. The first step is to\n    bring public opinion in every country to realize the essential\n    facts of the situation and particularly the need for reestablishing\n    public finances on a sound basis as a preliminary to the execution\n    of those social reforms which the world demands.\n\n    Public attention should be especially drawn to the fact that the\n    reduction of prices and the restoration of prosperity is dependent\n    on the increase of production, and that the continual excess of\n    government expenditure over revenue represented by budget deficits\n    is one of the most serious obstacles to such increase of\n    production, as it must sooner or later involve the following\n    consequences:\n\n    (_a_) A further inflation of credit and currency.\n\n    (_b_) A further depreciation in the purchasing power of the\n    domestic currency, and a still greater instability of the foreign\n    exchanges.\n\n    (_c_) A further rise in prices and in the cost of living.\n\n    The country which accepts the policy of budget deficits is treading\n    the slippery path which leads to general ruin; to escape from that\n    path no sacrifice is too great. It is therefore imperative that\n    every government should, as the first social and financial reform,\n    on which all others depend:\n\n    (_a_) Restrict its ordinary recurrent expenditure, including the\n    service of the debt, to such an amount as can be covered by its\n    ordinary revenue.\n\n    (_b_) Rigidly reduce all expenditure on armaments in so far as such\n    reduction is compatible with the preservation of national security.\n\n    (_c_) Abandon all unproductive extraordinary expenditure.\n\n    (_d_) Restrict even productive extraordinary expenditure to the\n    lowest possible amount.\n\n    The Supreme Council of the Allied Powers in its pronouncement on\n    the eighth of March declared that \"armies should everywhere be\n    reduced to a peace footing; that armaments should be limited to the\n    lowest possible figure compatible with national security and that\n    the League of Nations should be invited to consider, as soon as\n    possible, proposals to this end.\"\n\n    The statements presented to the conference show that, on an\n    average, some 20 per cent of the national expenditure is still\n    being devoted to the maintenance of armaments and the preparations\n    for war. The conference desires to affirm with the utmost emphasis\n    that the world cannot afford this expenditure. Only by a frank\n    policy of mutual cooperation can the nations hope to regain their\n    old prosperity, and in order to secure that result, the whole\n    resources of each country must be devoted to strictly productive\n    purposes.\n\n    The conference accordingly recommends most earnestly to the Council\n    of the League of Nations the desirability of conferring at once\n    with the several governments concerned, with a view to securing a\n    general and agreed reduction of the crushing burdens which on their\n    existing scale armaments still impose on the impoverished peoples\n    of the world, sapping their resource and imperiling their recovery\n    from the ravages of war. The conference hopes that the Assembly of\n    the League, which is about to meet, will take energetic action to\n    this end.\n\nThe above recommendations were ignored by the League of Nations and by\npractically all the governments concerned. Consequently the debts and\ndeficits of most European countries are larger at the present time than\nthey were a year ago, and most of the paper currencies have\ndepreciated--some very heavily--during the last twelve months.\n\n\nTHE DANGERS OF INFLATION\n\nI turn next to the resolutions proposed by the second commission which\nhad to examine problems of currency and foreign exchange.\n\nFrom its resolutions, which also were adopted unanimously by the\nconference, I extract the following:\n\n    The currencies of all belligerent and of many other countries,\n    though in greatly varying degrees, have since the beginning of the\n    war been expanded artificially, regardless of the usual restraints\n    upon such expansion--to which we refer later--and without any\n    corresponding increase in the real wealth upon which their\n    purchasing power was based; indeed in most cases in spite of a\n    serious reduction in such wealth.\n\n    It should be clearly understood that this artificial and\n    unrestrained expansion, or inflation, as it is called, of the\n    currency or of the titles to immediate purchasing power does not\n    and cannot add to the total real purchasing power in existence, so\n    that its effect must be to reduce the purchasing power of each unit\n    of the currency. It is in fact a form of debasing the currency.\n\n    The effect of it has been to intensify, in terms of the inflated\n    currencies, the general rise in prices, so that a greater amount of\n    such currency is needed to procure the accustomed supply of goods\n    and services. Where this additional currency was procured by\n    further inflation--that is, by printing more paper money or\n    creating fresh credit--there arose what has been called a vicious\n    spiral of constantly rising prices and wages and constantly\n    increasing inflation, with the resulting disorganization of all\n    business, dislocation of the exchanges, a progressive increase in\n    the cost of living, and consequent labor unrest.\n\n    It is of the utmost importance that the growth of inflation should\n    be stopped; and this, although no doubt very difficult to do\n    immediately in some countries, could quickly be accomplished by\n    abstaining from increasing the currency--in its broadest sense, as\n    defined above--and by increasing the real wealth upon which such\n    currency is based.\n\n    The cessation of increase in the currency should not be achieved\n    merely by restricting the issue of legal tender. Such a step, if\n    unaccompanied by other measures, would be apt to aggravate the\n    situation by causing a monetary crisis. It is necessary to attack\n    the causes which lead to the necessity for the additional currency.\n\n    The chief cause in most countries is that the governments, finding\n    themselves unable to meet their expenditures out of revenue, have\n    been tempted to resort to the artificial creation of fresh\n    purchasing power, either by the direct issue of additional\n    legal-tender money or more frequently by obtaining--especially from\n    the banks of issue, which in some cases are unable and in others\n    unwilling to refuse them--credits which must themselves be\n    satisfied in legal-tender money. We say, therefore, that\n    governments must limit their expenditure to their revenue.\n\nHere again we have excellent doctrines and good practical advice from\nthese financial experts to the governments which appointed them. But\nthe doctrines have remained unapplied, and the advice has been honored\nin the breach instead of in the observance.\n\n\nWISE COUNSEL IGNORED\n\nI pass next to the resolutions proposed by the commission on\ninternational trade and adopted unanimously by the conference, from\nwhich the first two paragraphs will be quoted:\n\n    The International Financial Conference affirms that the first\n    condition for the resumption of international trade is the\n    restoration of real peace, the conclusion of the wars which are\n    still being waged and the assured maintenance of peace for the\n    future. The continuance of the atmosphere of war and of\n    preparations for war is fatal to the development of that mutual\n    trust which is essential to the resumption of normal trading\n    relations. The security of internal conditions is scarcely less\n    important, as foreign trade cannot prosper in a country whose\n    internal conditions do not inspire confidence. The conference\n    trusts that the League of Nations will lose no opportunity to\n    secure the full restoration and continued maintenance of peace.\n\n    The International Financial Conference affirms that the improvement\n    of the financial position largely depends on the general\n    restoration as soon as possible of good will between the various\n    nations; and in particular it indorses the declaration of the\n    Supreme Council of the eighth March last \"that the States which\n    have been created or enlarged as a result of the war should at once\n    reestablish full and friendly cooperation and arrange for the\n    unrestricted interchange of commodities in order that the essential\n    unity of European economic life may not be impaired by the erection\n    of artificial economic barriers.\"\n\nHere again there is a full recognition of the fact that peace is\nnecessary to the renewal of prosperity, and that the atmosphere of war\npreparations is fatal to the growth of trade. But neither the League of\nNations nor the Supreme Council, so far as I am aware, has made any\neffective response to these appeals.\n\nFourthly and lastly, I come to the commission on international credits.\nThis commission passed a number of resolutions, all of which were\nadopted unanimously by the conference; but it will suffice to cite the\nfirst two:\n\n    The conference recognizes in the first place that the difficulties\n    which at present lie in the way of international credit operations\n    arise almost exclusively out of the disturbance caused by the war,\n    and that the normal working of financial markets cannot be\n    completely reestablished unless peaceful relations are restored\n    between all peoples and the outstanding financial questions\n    resulting from the war are made the subject of a definite\n    settlement which is put into execution.\n\n    The conference is, moreover, of opinion that the revival of credit\n    requires as primary conditions the restoration of order in public\n    finance, the cessation of inflation, the purging of currencies, and\n    the freedom of commercial transactions. The resolutions of the\n    commission on international credits are therefore based on the\n    resolutions of the other commissions.\n\nMy argument then is fully endorsed by the experts at Brussels. All the\nfacts and figures set forth in the voluminous records of that\nremarkable conference indicate the urgency of peace and disarmament. A\nyear has passed.\n\nThe Brussels recommendations have been ignored, and conditions in\nEurope as regards its currencies, debts, trade and credit have\ndeteriorated. The Naval limitations proposed by Mr. Hughes at\nWashington, even if they are ratified, will give practically no relief\nto Europe.","title":"The Paper Moneys of Europe: Their Moral and Economic Significance","tradition":"philosophy-ethics","translated_text":null,"word_count":6739}