The solution consisted first in the adoption of a emoratoriumS on payment of debts. In countries affected by these conditions payment of certain maturing obligations was by law de ferred to a future date. Next, notably in the case of England, the matter was dealt with through the assumption by the National Bank of non-collectible foreign bills of international bankers, the government pledging its own credit to support the bank in the matter. The mora torium on debts lasted in most cases only dur ing a few months. The assumption of non collectible bills of exchange continued through out the war.
In addition to these expedients, and indeed in advance of them, the London Stock Ex change was closed down. Further liquidation of securities, whether by home or foreign holders, and further demoralization of prices were thereby prevented, and this was followed by similar action on thepart of all other stock exchanges in the world, whether located at belligerent or neutral centres. That action pro vided a temporary solution of one problem of the neutrals; for there had been apprehension, not only of enemy markets selling securities on stock exchanges of belligerents, but of belligerents selling on neutral stock exchanges. But the direct recall of capital in the form of bank credits from neutral markets became at once an extremely disquieting problem. The first result, in the case especially of the United States; was an export of gold, even before the declaration of war, which threatened to exhaust New York bank reserves.
Then, while control of the seas for a week or so was in doubt and gold could consequently not be shipped, exchange rates of the neutral markets on Europe — especially New York ex change — rose to quite unprecedented heights, measuring the urgency of demand for remit tance of capital to belligerent markets. When the ocean highway was available again, practically all neutral markets established a moratorium on payments for their own ac count. The United States was the conspicuous exception. There was only a brief period of hestitation, after which the bankers of this country united to provide all the gold which should be required to meet the markets and maturing foreign obligations.
There remained for solution in the bellig erent states the problem of money hoarding and of disappearance of currency. This was instantly met by issues of paper money, some times (as in England) under government auspices, sometimes (as in Germany) through so-called bureaus,* to whose notes the government gave the right to circulate as money.
These various drastic measures were of a purely protective character. They met, as they were designed to meet, the problems which were instantaneously created by the outbreak of the war and the breakdown of international finance. All markets, after passing with these
emergency safeguards through the period of immediate panic, regained a certain stability; in virtue of which they proceeded, in due course, to deal with the equally problems which arose as the economic situation and the gov ernmental requirements for war on its present scale unfolded themselves. The problems which then arose — some of them at once, others not until after two or three years of exhausting economic strain — had to do in the main with the following considerations.
How was the money to be raised to pay the expenses of war on the present enormous scale? How were the currencies of the various states to be managed in order to maintain the circulating medium, to prevent the exhaustion of gold supplies, and at the same time to facili tate financial operations of such magnitude as were foreshadowed? What would be the result, whether on ordinary trade or on the prices of materials, of governmental requisitions from productive industry for war purposes; requisi tions which presently rose to an almost un believable magnitude? What would happen to the transportation industry and its usual cus tomers, on land or on sea, when governments were using the railways to move troops and military supplies, and were seizing merchant ships to act as naval convoys? Finally, how would the world be provided with food, when some of the most populous states were de pendent on imports from foreign producing countries, and yet when some of the largest grain producers, such as Russia, were shut off from other markets through the enemy's block ade, when the supply of farm labor in every belligerent state was depleted by military con scription, and when some of the most fertile districts of continental Europe were being devastated by the hostile armies? These questions, though by no means com prising the whole of the difficulties created by the war, may be taken as fairly summing up the main problems which arose in the course of the war itself, and as a result of the steadily increasing absorption of financial, physical and industrial energies in providing means for prosecuting the war. In meeting the war ex penditure, all of the belligerent nations relied on loans to an extent wholly unprecedented in history. Prior to this war the largest loan ever raised in a sin le limited subscription pe riod was the ,000,000 British government loan in the second year of the Boer War in 1901. In February 1917 England placed a loan of $4,900,000,000, and the United States in the autumn of 1918 opened subscriptions for the $6,000,000,000 loan to be taken within three weeks.