America's Money Machine

Wading in the Big Pond 129
acquired Ways and Means Advances,* Treasury bills, and even long-term
government bonds-an intersting but unfortunate parallel with Federal
Reserve practice in these same years.
"Thus," says Feavearyear, the English monetary authority, "the original
inflation was continued, and the reserves ofthe other banks remained
high. This lending power being proportionally increased, they soon
found means of using it, particularly when the large war loans came to
be floated. "2
Feavearyear points out that there was no definite legal abandonment
of the gold standard while the war was in progress, but the increase in
bank credit, and eventually ofthe note issue also, meant that the effectiveness
of the link with gold was destroyed slowly and insidiously. By 1916
a premium on gold began to appear, and an act was passed forbidding
the melting down or defacing ofgold coin. While the war lasted there was
no specific prohibition on the export of gold. This was a facade maintained
only by assistance ofthe United States. When this country entered
the war it began extending large credits to its alliest by which they were
able to maintain the stability of their foreign exchange. The dollar-sterling
rate was pegged at $4.76 7/16, or slightly less than par, until March,
1919, after which the pound began to drop steadily, falling to a low of
$3.195 in February, 1920.
After U. S. financial assistance ceased, the British currency was not the
only currency to sink under the weight ofexcessive war-time issues. The
French francdropped in the international exchange to around a third of
its pre-war value, and the German mark, which at the time that Paul
Warburg was preaching the benefits ofthe German system ofcommercial
acceptances and flexible note issue was even stronger than the pound
sterling, had depreciated by the end of 1923 to a rate of42 billion for one
cent.
By the end of 1921, there was general talk ofan international economic
conference to solve the post-war problems of war-bred dislocations: it
always seems easier to reform the world around a horseshoe table than
in the market place and in the fields. Samuel Gompers, head of the
American Federation of Labor, with world prestige in the labor movement,
was among the first to broach the idea: it was advanced also by the
*Temporary borrowings authorized in the first instance by the House ofCommons Ways
and Means Committee.
tTotalling $9,647419,494.84 by November 15, 1919.