§ 5. Redistribution of European gold stooks. The net gain of gold, expressed in terms of American dollars, in lead ing European banks and central treasuries was approximately as follows (not including Russia, the data for which are un certain) : Year Amount in 31,000,000 1914 329 gain 1915 890 gain 1916 190 loss 1917 89 gain 1918 214 gain Total (5 years) 1132 net gain Classified by groups of countries,' it appears that in the war period the Central Empires gained net about 6 per cent (Austria losing nearly all and Germany more than doubling its stock), the Allies (England, France, and Italy) gained net 28 per cent (France and Italy, which had large stock at the beginning, losing little, and England, which had a small stock, more than trebling), and European neutrals gained net 66 per cent, of which Spain got $338,000,000, Holland $216,000,000, the Scandinavian countries $102,000,000, and Switzerland $47,000,000 value.
It is apparent that the gold that was collected by the belligerents did not, as it is often assumed, serve "to support" the value of the paper money which had been issued in ex cess. Indeed, it may be said that it did not in the least so serve. What it did do was to give to these countries a valuable exportable commodity to exchange with neutrals for much-needed supplies of goods, and to afford the readiest of assets for post-war financing. Error will be avoided by clearly recognizing that these European stocks of gold had ceased to be money for domestic purposes, and that their essential use was to be found only in international trade as long as specie payments were suspended.
§ 6. The flood of gold to America 1915-1917. The United States lost some gold to EuIrope in the first months of the war; but thereafter, while it remained neutral, it received large quantities of gold from Europe. In the first month of the war, August, 1914, and increasingly in the following months, contracts for food and supplies of all kinds were placed in America by European countries, and soon a large and steadily swelling stream of exports was moving toward Europe. The Central Empires were prevented by the Allied blockade from getting many of these goods directly, 2 These figures are from a different source; the relatively small dis crepancy in the total does not necessarily indicate an error, but a slight difference in the data, or the inclusion of some minor countries in the figures.
but large amounts got into Germany and Austria through bor dering neutral countries, which profited greatly by this trade. As England and France accumulated rapidly large debits in America, they not only floated loans of various kinds to satisfy these for the time, but also shipped here gold in un precedented amounts. For two years our gold stock had been almost unchanging; but between July 1, 1915, and the end of June, 1917, the net increase of gold stocks in the United States was about one and a quarter billion dollars—a veritable "flood of gold" borne upon which prices rapidly rose.
This inflow contnued until after our entry into the war (in April, 1917), w 'len our large loans to the Allies reduced their need of sending us gold, and at the same time our increasing purchases from Spain, South America, and Asiatic countries made some net exports of gold necessary, first in May, and then after June in increasing amount. The movement of gold by years is shown graphically in Figure 5, chapter 6.
§ 7. The gold embargo in the United States. Moved by mistaken fear, the Federal Reserve Board imposed an embargo on the export of gold (made its export illegal). This pol icy of gold-fetichism, which remained in force from Septem ber, 1917, to June, 1919, involved a deplorable lapse from sound monetary principles. The gold embargo had the evil effect of introducing into conditions already bad, a new and artificial element of inflation. However, trade conditions were such that the general world balance of gold payments would, on the whole, have been little away from America, otherwise the embargo would have been still more difficult to enforce. As far as it was enforceable (which it was probably, for the time, in large part), the embargo could have only the evil effects of disrupting the exchange rates (as it did) with countries to which we had international balances, notably Argentine, Spain, and Japan. Indeed, in principle, it is suspension of specie payments in international trade, and this is an abandonment of the international gold standard. Our exchanges with a few foreign countries that were selling us largely were thrown into disorder. In the twenty-month period of the embargo, our net loss of gold was only $5,000,000. Just as the embargo was removed these conditions were already changing. In the next ten months (June 1, 1919, to April 1, 1920) OM net exports of gold were more than $400,000,000, which served to restore the value of the dollar in those countries where it had depreciated. Then, again, after a few months of fluctuating balances, began, in September, 1920, a new flood of gold to the United States, which by the end of May, 1921, amounted to more than $480,000,000. The exports of gold from the United States between November, 1918, and August, 1920, have gone largely to Japan, China, British India, Hongkong, Spain, Argentine, and Mexico. Imports since September, 1920, however, have been largely sent by England, France, Sweden, and Canada, not merely to pay their trade balances, but because the United States has become the most important free gold market in the world, and "dollar exchange," the best international currency, is eagerly desired by producers and owners of gold every where.