America's Money Machine

W INDS
14.
The Path of Retreat
ALWAYS RISE in the unexpected quarter. This is true of
the early years of the Federal Reserve. All the monetary intelligence
of the country, all the debates in Congress and in the pages of the
journals, were devoted to devising a monetary system that would meet
unexpected monetary stringency, a shortage of cash. That sort of crisis
arose and was solved well before the new institution had gotten its sea
legs. The problem it now had to deal with was of the very opposite-an
unexpected plethora of funds.
The panic that had overtaken the markets with the outbreak ofwar had
been followed by a dazzlingrecovery and boom as the U. S. became the
supplier of all sorts of war materials to the Allied combatants. Merchandise
exports, which had amounted to $2.6 billion in the yearjust preceding
the outbreak of war, rose to $6.3 billion in the year ended June 30,
1917. U. S. exports went not only to meet European shortages but to fill
the gap created by the withdrawal of European exporters from other
foreign markets. Within three years the U. S. had piled up credits from
exports of $6 billion. Some $2 billion of this was met by sales by Europeans
oftheir holdings ofAmerican securities; of the balance, some $1.1
billion was settled in gold. Thus, the year 1914 had seen an export of
$165 million of gold but in 1915 the tide returned with $420 million.
Most of this went to the banks and from them in turn to the Federal
Reserve banks, whose gold stock increased from $227 million to $542
million. At the end of 1916 the total gold stock was $2,556 million, of
which $1,574 million was in circulation in the form of gold coin or gold
certificates, and $736 million in the Federal Reserve banks.
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