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Amenan batang crues à eral assurance that i god were 7: New York to Lose TD is equilibrium of the Feters Reseres move such as the rising of the

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of arbitrary stopping the got exp

This general assurance has presun obtained. Both the Treasury and Reserve are aware that resumpt payments in Great Britain espel. tated elsewhere in Europe, would r tate our own foreign inance ani that the huge mass of superiorus United States was a potential mez... ican credit inflation, and that relu. stantial part of it would be for t ests of all concerned. With Cor rope the case is not so clear, beca ments, unlike the United States. restrictions and official control movements. It is conceivable t existing supervision over geld Great Britain might be conting

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outpour of gold from the ates, which began with last d exceeded $150,000,000 in has been for many reasons table financial occurrence of the day. It was so, in the first place, because it gave a distinctly new turn to an economic movement which had attained so extraordinary a character as to baffle financial regarding its economic conseNothing at all like the import nto the United States, during and e war, had ever before occurred cial history. Before the European exports and imports of gold were than those of any other country. either export nor import in any sinar had ever run much above $100,oo, and a few consecutive years of gold imports had always been fold by as many years of equally large exports; so that in the long run the ntry neither increased nor decreased stock of gold, except through its own ld production.

When the war began we lost gold in ry large amounts; Europe was calling me the capital which it had invested broad. Between the beginning of June, 1914, and the end of the year our gold exports were $203,500,000. Then the movement reversed itself in a highly spectacular way. First because of the rush of foreign capital into this country-the only powerful neutral state where the gold standard had been maintained and later because of our immense exports of

The Economic Our Gold Imports

Cause of

since the war to so many astounding events, economic as well as political, that this heaping up of the world's treasure in our country came to be as much a matter of every-day experience as the recourse to paper money by Great Britain in 1914 or the rise of German prices in 1923, under Germany's wholesale issue of depreciated paper money, to a billion or a trillion times what they had been before the war. There was, indeed, an obvious logic in the rush of gold from the outside world into the United States. That the use of "bad money" in any country drives out "good money," and that the good money goes to such other countries

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the end of January a reserve of $3,082,000,000, almost entirely gold, and this was double the $1,460,000,000 required against the existing total of deposits and circulation, on the basis of the percentage which the law prescribes.

It is not possible to predict with assurance exactly how long this gold export movement will continue, or what total sum it will reach, or exactly where the "reserve ratio" of the Federal banks will stand when it has run its course. That will undoubtedly depend in some degree on the actual machinery invoked for European gold resumption, on the continuance or halt of American investment in European securities, on the scope of home trade revival and its requisitions on home capital and credit. But the outstanding fact of the moment is that two problems which have baffled the economic world since the war ended-how gold resumption in Europe could possibly be effected, and how the United States could avoid being submerged in a continuous flood of foreign gold which it did not need and could not use are at least in the way of practical solution.

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The United States Begins to
Redistribute Its Gold

A NEW TURN IN AN UNPRECEDENTED ECONOMIC SITUATION-PREDIC-
TION AND EXPLANATION WHICH DID NOT FIT THE FACTS-THE
VARYING INFLUENCES ON AN INTERNATIONAL BALANCE

THE

BY ALEXANDER DANA NOYES

HE sudden outpour of gold from the United States, which began with last December and exceeded $150,000,000 in three months, has been for many reasons the most notable financial occurrence of the day. It was so, in the Change first place, because it gave a in the distinctly new turn to an ecoAmerican Gold nomic movement which had Movement attained so extraordinary a character as to baffle financial judgment regarding its economic consequences. Nothing at all like the import of gold into the United States, during and after the war, had ever before occurred in financial history. Before the European war our exports and imports of gold were greater than those of any other country. But neither export nor import in any single year had ever run much above $100,

000,000, and a few consecutive years of large gold imports had always been followed by as many years of equally large gold exports; so that in the long run the country neither increased nor decreased its stock of gold, except through its own gold production.

When the war began we lost gold in very large amounts; Europe was calling home the capital which it had invested abroad. Between the beginning of June, 1914, and the end of the year our gold exports were $203,500,000. Then the movement reversed itself in a highly spectacular way. First because of the rush of foreign capital into this country-the only powerful neutral state where the gold standard had been maintained and later because of our immense exports of

food and war materials to belligerent Europe, the gold of the outside world began pouring in a torrent into the United States. Between the beginning of 1915 and the armistice of November, 1918, we imported $1,137,000,000 more gold than we exported. In the first year of peace we began to export gold again; in eleven months we had sent out $393,000,000. But with the spring of 1920 the direction of the movement once more changed, and before the end of 1924 no less than $2,000,000,000 more of foreign gold had been added to the American holdings. The United States had actually got possession of half the estimated stock of monetary gold in the civilized world, and it was adding to those holdings at the rate of nearly $300,000,000 annually.

WE had grown accustomed during and

The Economic Cause of

Our Gold Imports

since the war to so many astounding events, economic as well as political, that this heaping up of the world's treasure in our country came to be as much a matter of every-day experience as the recourse to paper money by Great Britain in 1914 or the rise of German prices in 1923, under Germany's wholesale issue of depreciated paper money, to a billion or a trillion times what they had been before the war. There was, indeed, an obvious logic in the rush of gold from the outside world into the United States. That the use of "bad money" in any country drives out "good money," and that the good money goes to such other countries

as have kept their own currencies sound, all of us were taught in our earliest lessons in political economy, and when the whole world except the United States, after 1914, had adopted and was continuing to use depreciated paper money, this simple and old-fashioned economic principle might seem to have foreshadowed everything that happened with the gold movement into the United States.

That this accumulation of gold had also its awkward side, however, all of us have long been aware. We were getting reserve money which we did not need, which we saw no way to use, and which might upset our monetary equilibrium. It is true, the warnings which were uttered as to the probable consequences did not seem to reach fulfilment. Some people told us that Europe and the rest of the outside world, after having exchanged

their gold for our goods or services, would

decide never again to use gold for money, thus leaving in the lurch the United States and its hoard of gold, which would no longer serve even for international settlement. But we have learned by this time, even in the worst episodes of European paper inflation, that every one of the depreciated-paper states clung to what gold it could obtain as a standard and store of value, and that as fast as they "stabilized" their paper currencies, they did so on the basis of a gold reserve obtained from foreign countries.

WE

E were assured that possession of an increasing stock of gold would force up American prices proportionately, create a wild speculation and inflation, and bring the country to eventual disaster.

Unfulfilled

But this did not happen at Some all. The disastrous inflation Predictions of credit and prices came in 1919 and 1920, but it did not affect the United States, which had been accumulating gold, any more than it affected Europe, which had been parting with it, and, moreover, the height of the price inflation occurred during the one interval in which, as I have shown, we were exporting and not importing gold.

prolonged and total absence of the predicted "price inflation" so far baffled the philosophers who had said it could not be escaped, that they invented an explanation whereby it was argued that the Federal Reserve authorities had "sterilized” the gold and had arbitrarily prevented it from "taking effect on the price level." How this was done the philosophers never told us, and the Reserve banks could not guess. These Reserve banks continued to lend when private banks offered the lawful collateral, and the private banks continued to expand their loans on the basis of the increased reserve which the gold imports had provided. But there was no wild rise in prices; the only obvious fact was that the experts' prediction had gone wrong.

THERE was left one other warning; in

Theory of

the perplexing situation that existed, it seemed in a way to be fulfilled. Mr. Keynes, who had been among the strongest believers in the "sterilization" theory, very lately prophesied that unless we "allowed" our re- The dundant gold to drive up "Sterilized prices, "the United States Gold" must look forward more or less permanently to receiving additional gold at the rate of between, say, $150,o00,000 and $300,000,000 per annum on the average.' Before this specific warning had been put in print, however, and without a "price inflation," gold exports from the United States were under way at the rate of $50,000,000 a month-an outgo wholly unprecedented in our history, except for the three months' period ending with August, 1919.

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This outflow of gold on so great a scale, during the past three or four months, has been the subject of varying theories by economists and, as usually happens with economic movements in the present complicated world situation, the explanations are conflicting. At London, even among practical bankers, our market's sudden change from a gold-importer on an enormous scale to an equally large gold-exporter has been set down to the course of prices, and that presumption has resulted in some curious theories. Thus Mr. McKenna, speaking at the annual meeting of the Midland Bank of London on (Financial Situation, continued on page 69)

After that particular episode was over and when, as we have seen, gold imports into the United States were resumed on a scale not reached even in war-time, the

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