economic and financial progress in europe

Economic and Financial Progress in EuropeAuthor(s): Joseph S. DavisSource: The Review of Economics and Statistics, Vol. 5, No. 2 (Apr., 1923), pp. 79-113Published by: The MIT PressStable URL: http://www.jstor.org/stable/1927327 .

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ECONOMIC AND FINANCIAL PROGRESS IN EUROPE JOSEPH S. DAVIS

IN many respects I922 was a most disappoint- ing year for Europe. The numerous inter-

national conferences were conspicuous failures and their failure prevented the taking of other important steps in advance. The Genoa conference, of which high hopes had been enter- tained, proved a fiasco. The Hague conference over Russian affairs came to naught. The Paris conference of international bankers in June reported that under existing conditions an international loan to Germany was impossible. The foreign experts called to Berlin in October to advise concerning the stabilization of the Ger- man mark, disagreed upon essential points, and the German government, ignoring the majority report, submitted an unacceptable proposal. Repeated conferences over reparations merely postponed a real decision, until early in January I923 a final disagreement led directly to the forci- ble occupation of the Ruhr. Although war in the Near East was checked before it became a con- flagration, the Lausanne negotiations with the Turks were indecisive and the Angora government has since refused to sanction the treaty which their representative had been unwilling to sign. The partition of Upper Silesia was peace- ably effected in accordance with the League of Nations decision, and Luxemburg became in- corporated into economic union with Belgium; but there has been friction in central Europe over Vilna and Memel, and there are occasional signs of trouble in the Balkans. The noteworthy exceptions to the disappointment are the agreement to support the League of Nations in a vigorous effort for the rehabilitation of Austria, and the arrangement of terms for funding the British debt to the American government, which was accomplished early in I923.

The important cabinet changes of the year, on the whole in the direction of greater conservatism, were of mixed character. The Poincare ministry in France is far stronger and better supported than its predecessors, but whether for good or for ill it is perhaps too soon to decide. In Great B,ritain the fall of Lloyd George led to the sub- stitution of a conservative ministry for a coali- tion cabinet, with a leader of a very different type, but the new cabinet is not strong and its

policies are mainly negative. Changes in the Wirth cabinet and the succession of Cuno have added little, if at all, to the strength or prestige of the German government. Only in Italy, where a bloodless revolution brought the Fascisti into power, does the change seem clearlyfor the better, for a strong government has succeeded the series of weak and unstable governments of recent years.

Notwithstanding the lack of progress, and indeed some retrogression in these respects, the oft-prophesied collapse of Europe, or even of Germany, has not come; and the statistical evidence reflects unmistakably that I922, while a year of painful depression in several leading countries, was a year of substantial recovery and readjustment. Fiscally, the year was generally unsatisfactory but, with few exceptions, better rather than worse than I920 or I92I. Finan- cially, with certain important exceptions, advances have been registered: on the whole, prices and exchange rates have been less unstable, secu- rityprices higher, moneyrates easier; and business failures, though extremely high, have been declining and the liquidation process is more nearly completed. In respect to production, trade, and capital replacement and extension, the progress was well-nigh universal.

The process of readjustment is not complete. Conditions are generally still inferior to those of pre-war days. Few countries in Europe have recovered as far from the depression as the United States. Yet the improvement of I922

was general and fairly continuous; in most of the war-torn countries of the continent productivity was higher and trade more nearly normal than in any year since the war, and the improvement is reflected in all sorts of financial and economic statistics. The outstanding exception to these broad statements is the fiscal and financial degeneration in Germany, which has many serious consequences even though it has not prevented an increase in German output.

This article attempts a review and interpretation of the relevant economic and financial statistics. The material falls into two main groups: the financial - relating to money rates, security prices, currency and credit, commodity prices,

c79:



8o THE REVIEW OF ECONOMIC STATISTICS

exchange rates, and gold reserves and gold movements; and the industrial and commercial - under the headings bankruptcies, unemployment, coal, iron and steel, shipping and shipbuilding, and miscellaneous. The unmanageability of the data alone makes necessary a sparing use of fiscal and foreign trade data.

The statistics used or presented in this summary are taken from sources which are usually reliable. They are, however, far from perfect. There are numerous gaps; bases and dates frequently do not correspond; totals of monthly or quarterly figures do not always check with annual figures; and other instances of discrepan- cies appear. In a number of cases obvious errors in computation were found and corrections were made; in other cases, figures taken from secQnd- ary sources such as the Federal Reserve Bulletin were found to differ from original sources and the original figures were substituted. Notwith- standing these defects, the statistics are believed to be adequate to support the interpretation given.

Such a review as this is most illuminating if supplemented by surveys of individual countries, for conditions vary extremely from one part of Europe to another. Space does not permit the inclusion of such surveys here, and for such material readers are referred, among other sources, to the Federal Reserve Bulletin, the Manchester Guardian Commercial, the London Economist, and foreign bank reviews.

Suffice it to say, in passing, that the year was one of pronounced business activity in France and Germany, and of severe depression in Great Britain, Scandinavian countries, Holland, Switz- erland, Spain, and Italy; and that acute industrial crises developed during the year in Austria and Czechoslovakia. The Baltic states show marked gains, except in Poland, where "political insecurity and party strife, together with budget deficits and wholesale inflation," have generally retarded economic progress. In the Balkans little progress can be confidently reported. In Germany the increased business activity does not signify increased national prosperity, and the net change during the year was probably unfavorable; yet the strength of resistance to the occupation of the Ruhr does not support the view that Germany has been on the verge of a complete economic collapse.

MONEY RATES

In the world's leading monetary centers, money rates continued until July or August I922

the decline which began in the spring of I92I.

During this period, all changes in European central bank rates were reductions, except two increases in the Vienna rate made under pressure for credit restrictions; whereas in the preceding eighteen months, that is, from the fall of I919

to the spring of I92I, all changes had been increases. These changes since January i, I922

are shown chronologically in Table i.' Market

TABLE I. - CHANGES IN EUROPEAN CENTRAL BANK RATES*

January I922 to April 1923

Date of Center Change rOltd Netw Previous change

1922

Jan. 25 Christiania - 64 6 July 5, 192I

Feb. i6 London I 5 44 Nov. 3, I92I

Mar. 2 Geneva - 4 34 Aug. II, I92I Mar. io Stockholm - 54 5 OCt. I9, I92I

Mar. I I Paris - 54 5 July 28, I92I

April I3 London I 44 4 Feb. I6 1922

April 25 Copenhagen - 51 5 Nov. 5 I92I

April 27 Prague - 54 5 Aug. i6, I92I

May II Madrid - 6 5. Nov. 4, I920

May i6 Christiania - 6 54 Jan. 25, I922

June 8 Brussels - 5 42 May I9, I92I

June I5 London I 4 34 April I3, I922

July I Stockholm - 5 44 Mar. 10, 1922

July II Rome - 6 52 May II, I920

July I3 London - 34 3 June I5, I922

July i8 Amsterdam - 42 4 July I, I 9I 5 July 28 Berlin + 5 6 Dec. 23, I9I4

Aug. I7 Geneva - 34 3 Mar. 2 I922

Aug. I7 Christiania - 52 5 May i6,I 922

Aug. 28 Berlin + 6 7 July 28, I922

Sept. 2 Vienna + 7 9 Nov. 29, I921

Sept. 20 Berlin + 7 8 Aug. 28, I922

Oct. I6 Helsingfors - 9 8 Nov. 8, I920

Nov. I3 Berlin + 8 I0 Sept. 20, I922

Dec. 2I Prague + 5 7 April 27, I922

1923

Jan. I5 Prague - 7 5 Dec. 2I, I922

Jan. i8 Berlin + I0 I2 Nov. I3, I922

Jan. 22 Brussels + 42 52 June 8, 1922

April 23 Berlin + I2 i8 J an. I 8, I923

* London Economist.

1 For earlier statistics, and discussion, see this REVIEW, January, I9I9, pp. 96-99; August, I920, p. 2I9; September, I92I, p. 306; April, I922, p. 63.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE 8t

rates on treasury bills, bankers' bills, and trade bills also declined until July, but since then they hardened appreciably. In recent months most central bank rates have been stationary and the few changes have been generally upwards. The Berlin bank rate has been raised gradually from 5 per cent to i8; the Vienna rate has been increased from 7 per cent to 9; the Belgian rate has been raised from 42 to 512 per cent. Since August I922, the only reduction has been in the outlying center of Helsingfors; except that in Czechoslovakia the rate was lowered in January after an increase effective over the year end. Table 2 shows comparatively the present bank rates in European centers, together with certain market rate,, arranged in the order of rates at the end of February I923, with figures for a few other date,.

The changes in central bank rates have dif- fered greatly in the various centers. The Bank of England, which maintained a fairly high rate of 7 per cent for more than a year in I920-2I,

reduced its rate in the enstung i5 months by gradual degrees to 3 per cent. The Bank of Switzerland similarly reduced its rate by degrees from 6 per cent to 3. In the Scandinavian countries, where rates were also high in I920, they have been lowered, but not so greatly, standing recently at 42 or 5 per cent. The Netherlands Bank, which did not raise its rate during the crisis above the 41 per cent rate established during the war, has lowered its rate once only, to 4 per cent. The Belgian rate, which was raised only moderately from 4 per cent in I9I9 to 5 per cent in I920, was reduced only to 412 per cent and has lately been raised afresh to 51 per cent. In France, Italy, and Spain, bank rates were raised in I920 only to 6 per cent and have since been reduced but slightly.

These differences reflect in part the varying policies of the central banks: some, like the Bank of England, have readjusted their rates freely; others, like the Bank of the Netherlands, have preferred stability of rates. In part, how-

TABLE 2. - COMPARISON OF MoNEY RATES IN EUROPEAN FINANCIAL CENTERS, I9I9-23 *

Arranged in order of bank rates prevailing February 28, 1923

I9Ig I920 I92I I922 I923 Center Rate Dec. 31 Dec. 3I Dec. 3 I Feb. 28

Mar. 31 June30 July 31 Sept. 30 Dec. 3I

London .... Bank rate . ........ 6 7 5 44 34 3 3 3 3 London .... Treasury bills .5 63 34 2 4 I I7 24 21 2

London .... 3 months bankers' bills. 54 64 35 3 2 1 I14 219 2 4 232

London'.... 6 months trade bills ... 64 7 514 44 34 3 34 34 3 4 Geneva ...Bank rate ........... 5 5 4 34 34 34 3 3 3

15 ~~~~~~~3 15-- Geneva . Market rate ......... 4i 4 2 2 1W 2 . Amsterdam Bank rate. 4 44 44 41 44 4 4 4 4 Amsterdam Market rate.44 44 41 44 A3 24 ? 34 Stockholm Bank rate ........... 6 74 54 5 5 44 44 42 42 Copenhagen Bank rate .6 7 54 52 5 5 5 5 5 Christiania Bank rate .......-.. 6 7 64 6 54 54 5 5 5 Prague . Bank rate . . 6 54 51 5 5 5 7 5 Paris ....... Bank rate 5 6 54 6 5 5 5 5 5 Paris ....... Market rate .4 54 5 44 4 4 .. 44 Brussels .... Bank rate .4 54 5 5 44 44 44 44 54 Brussels .... Market rate .3 54 5 5 44 41 ? 44 . Rome ...... Bank rate 5 6 6 6 6 54 54 54 54 Milan ......M arket rate .54 6 6 4x 64 5 4 51 ? 54 Madrid ..... Bank rate ........... 5 6 6 6 54 54 54 54 54 Warsaw ..... Bank rate ........ . .. 7 7 7 7 7 7 7 Helsingfors . Bank rate ............ 7 9 9 9 9 9 9 8 8 Vienna .... Bank rate ........... 5 5 7 7 7 7 9 9 9 Berlin ...... Bank rate ........... 5 5 5 5 5 6 8 I0 I2

* London Economist; Bulletin Mensuel, Swiss Bank Corporation.



82 THE REVIEW OF ECONOMIC STATISTICS

ever, the differences reflect variations in conditions. Rates are relatively low in London, Geneva, and Amsterdam, because of the intensity of the trade depression in these countries and the attraction of foreign balances to these centers because of financial stability. In Italy and the Scandinavian countries, where the trade depression has also been severe, banking difficulties have limited reductions. In Italy also the monetary crisis has been slower in spend- ing its force and government pressure on the money market has interfered with reductions. In France, as in Italy, rates are relatively high; here the depression was moderate and recovery was prompt, while the pressure of the government on the money market, especially in connection with the financing of reconstruction, has been considerable. Capital shortage and a conservative currency policy have kept rates relatively high in Finland and Czechoslovakia.

Considering the intensity and duration of the business depression in many countries, rates remain high. The Bank of England rate is one- half of one per cent higher than in the last severe depression of Igo8-og and one per cent higher than in the depression of the nineties. The Paris rate is several points higher than in pre-war periods of depression. This contrast reflects in the main a higher level of true interest rates incident to the world capital shortage.

This point is more directly illustrated in Table 3, which shows comparative rates of yield on leading classes of new security issues in Lon- don for each of the past three years, compared with I9I3. Except in the case of foreign government loans, these rates fell more or less considerably in I922, yet all remained well above I9I3 levels. The maintenance of high rates is partially attributable to the high level of income-tax rates. Another factor affecting the average for I922 is that over half of the new issues appeared in the first quarter and four-fifths of the total in the first six months, before the decline in short money rates had exerted its full influence. The exceedingly high rates on foreign government issues reflect the 'high risk involved, and the fact that in the main these loans were on account of the smaller nations with less well- established credit.

The changes in the Vienna and Berlin rates deserve special comment since they have been

quite out of line with movements elsewhere. In both countries low rates were long maintained. The Vienna rate was 5 per cent until April I92I,

the Berlin rate 5 per cent until July I922. Now the two rates are extraordinarily high-the Berlin rate i8 per cent, the Vienna rate 9 per cent.

The increases in the Vienna rate have been made in consequence of pressure from foreign advisers concerned with the cessation of inflation in Austria and the restoration of a sound currency. The latest increases reflect also a real pressure for commercial credit incident to the stoppage of the increase of the note issue and the existing industrial crisis.

In Germany, while pressure from the Allied Committee on Guarantees may have been a factor, the increased rate is attributable to an increase in domestic prices faster than currency could be printed. One of the paradoxes of the German situation is that an extreme shortage of money and credit has coexisted with an unpre- cedented expansion in the currency. There has been a tremendous increase in speculation affecting goods, securities, and foreign exchange. In such a period of rapidly depreciating currency, every one wishes to borrow and few desire to lend, since debts are contracted in currency and repaid in currency of lower purchasing power. In order to protect themselves, banks and other lenders have charged high rates as well as high

TABLE 3. - COMPARATIVE RATES OF YIELD ON NEW ISSUES OF SECURITIES IN GREAT BRITAIN,

I9I3, I920, I92I, I922 *

Class of securities I9I3 I920 I92I I922

British government loans ... 6.98 5-70 5.59 Colonial government loans 4.I5 5.54 6.42 5.66 Foreign government loans. 5.3I . . . 7.49 7.85 British municipal loans .... ... 6.24 6.22 5.74 Industrial and commercial

bonds and debentures . .5.50 7.92t 8.o9t 6.72t Total loans and debentures. .5.07 6.97 6.39 5.78

Preference stocks and shares .8.o................. 5.74 8.09 8.39 7.17

* Economist, January 28, I922, pp. ii8, ii9; February io, I923, p. 254. All yields are expressed as "less tax," i.e., subject to tax, not "free of tax."

t More detailed figures show that the commonest rates were 62 to 7 per cent in I922 as compared with 72 to 8 per cent in I920 and I92I.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE 83

commnssions, runmng up to 20, 30, 50, or even ioo per cent or more. The so-called interest rates are not true interest, but are chiefly more or less adequate insurance premiums against further currency depreciation.

The outlook for money rates in the present year is varied because business and monetary conditions differ so greatly and because of un- certainty concerning the7 influence of the Ruhr occupation. The indications are that, in the principal monetary centers, rates have reached or passed their minimum in the present business cycle. The improvement in industrial conditions, notably in Scandinavian countries but also in Great Britain and elsewhere, is tending toward a hardening of rates. The disturbances incident to the occupation of the Ruhr are increasing monetary requirements in Belgium, France, and Germany. This has been responsible, at least in part, for the increases in the Bel- gian rate on January 22 and the Reichsbank rate on January i8 and April 23, and for the request of the French minister of finance on February 14 for authority to increase the rate on national defense bills. Should war result from the difficulties in the Near East, as now fortunately seems improbable, an additional influence toward higher rates would be exerted. On the whole, therefore, such changes as are made in most centers are likely to be upwards during the next few months unless the European complications should merely operate to delay recovery from the depression.

This is not, however, likely to be true of all countries. In some cases where rates have not yet been lowered materially, no upward revi- sions are in prospect and further declines may yet occur. This may be the case in Holland. The progress of the depression in Czechoslovakia may operate in the direction of further declines there. The same is likely to be true of Finland and, possibly after further increases, in Vienna. The consistency of movement in I923 is likely to be less than in i1920, I92I, or the first half of I922.

The question of how to determine upon changes of bank rates continues to engage the at- tention of bankers and economists.' Considera-

tions formerly relied upon are no longer trust- worthy. Today governments are powerful if not dominant factors in the money markets; hence commercial requirements have relatively less weight. Gold reserves are abnormally high in certain countries, but cannot safely be regarded in these countries purely as a basis for domestic credit expansion. Gold no longer moves freely among nations, and rates of exchange continue disorganized. New bases for the determination of bank rates are needed as a substitute for the familiar ones of reserve ratios and gold movements. The question is especially important since following the old canons might easily lead in' the United States to maintaining low rates while a business boom of excessive proportions gained headway; and in certain European countries to needless restriction on business through prolonged maintenance of high rates.

There are thosewho argue that the fluctuations of the business cycle can be largely mitigated and baneful changes in the level of commodity prices eliminated merely by the proper regula- tion of central batnk rates. Others,, less optimistic, urge at least the importance of reaching and making known a decision concerning the principles governing changes in central bank rates under existing conditions. It cannot be said, however, that students of the subject have yet reached substantial agreement upon these principles. Those responsible for central bank policies have maintained a discreet silence. In America the Federal Reserve Board has been for months without a governor. International conferences of directors of central bank policies, from which something may ultimately be hoped, have not yet been attempted. The only significant move has been the increase in the rates of the federal reserve banks of Boston, New York, and San Francisco, in February and March, before the pressure upon their lending powers had become large.

SECURITY PRICES

The year I922 witnessed a further recovery of bond prices in most countries, generally in con- tinuation of the rise that characterized I92I.

Table 4 and Chart I illustrate this movement. In London the rise culminated in April and

May I922, following a marked improvement from November i92I, which carried prices of govern-

1 See "Price Stability and the Trade Cycle," Economist, January 20, I922, p. 90, and "Federal Reserve Bank Policy - The Need of a Definite Statement," Harvard Business Review, January I923, p. I32.




TABLE 4. -EUROPEAN INDEX NUMBERS OF SECURITY PRICES, I9I8-22: (a) FIXED INTEREST SECURITIES *

GREAT BRrrAIN. AGGREGATE VALUES (million pounds) SWITZER- SWEDEN NETHERLANDS. INDEX NUMBERS FRANCE ______ ~~~~~~~~~LAND INDEx NumBERS

INDEX NumBERs

Month British Public British Colonial Foreign N_BERS Index Provincial Index of Fixed Railway and corpo- railway govern- govern- of and lod Railway bond interest deben-

Indian ration deben- ment ment 45 obli- bond loans bonds prices securities tures f unds stocks tures stocks stocks gRtions prices

i9i8 Dec. 3,301 39.6 150 59.3 333 75.49 . . .. ... ... ... ... I9I9 Dec. 2,896 36.3 I29 56.7 271 67.02 64.3 79.62 80.75 82.00 75.8b 70.7 I920 Dec. 2,551 33-4 12I 53.9 220 59.07 50.6a 72.00 74.50 75*75 67.9b 67.7 I92I Dec. 2,882 37.I 129 58.4 220 71.26 65.8a 79.50 79.75 8o.3I 65.9b 65.3 I922 Mar. 3,1I8 40.6 142 66.3 233 78.28 78.4 78.75 79.50 80.50 69.2 66.7

June 3,238 42.6 149 67.8 240 83.26 79.i 8o.8i 8I.38 82.oo 69.7 71.I Sept. 3,210 42.5 146 68.5 234 87.75 84.o 83.oo 8i.8i 83.19 72.3 73.1

Dec. 3,222 43.0 149 67.9 223 85.51 79.1 83.93 81.38 83.44 71.5 71.3

* See footnotes to Table 5.

ment securities and railway debentures nearly to the high levels reached at the close of the war, and raised other British public securities and colonial government bonds to an even higher

level. After the spring months the London prices of British and colonial bonds were remarkably stable until further improvement appeared early in I923. The net increase in the two years I92I and I922 was from 25 to 30 per cent. Prices of foreign government bonds shared in the recovery between November I92I and April I922,

rising to I4 per cent on the average; but since last April they have lost most of this gain. For

this decline the failure of the Genoa conference, the crisis in the Near East, the inability to settle the reparations issue, and the occupation of the Ruhr are largely responsible.

In the continental markets, so far as can be judged from available statistics, the rise was somewhat more gradual than in London. In Sweden and Switzerland the recovery was considerable; elsewhere it was moderate. In the final quarter of the year a reaction occurred in most countries which did not affect corresponding prices in London. Little need be said of the bond markets in countries with rapidly depreciating currencies. Bond prices in Germany have risen in terms of marks but far less than industrial shares, dollar exchange, or commodity prices. Holders of domestic industrial bonds have lost heavily, not only in income, but also because the debtor companies to a large extent have been calling in the bonds for redemption in depreciated currency.

In Sweden the movement of bond prices has corresponded most closely to that in London. Most of the improvement was registered late in I92I and early in I922. From the low point at the end of I920 a net gain of nearly 6o per cent was made. In the third quarter of I922 a further increase occurred which was lost in the last quarter.

In Switzerland the rise was almost as marked, although the recovery from the business depression was far less considerable than that which took place in Sweden. The Swiss Bank Corpora- tion's index of 45 obligations rose from 7I.26 at the end of I92I to 87.75 at the end of September

CHART I.-EUROPEAN INDEX NUMBERS OF PRICES OF FIXED INTEREST SECURITIES, MONTHLY, 1919-22

1919h and Ind i1

4 0

"~of bO"'

1919 1920 1921 1922




1922, nearly 50 per cent above the low point reached at the end of I920 and well above the best figures since the war. Fear of the outcome of the capital levy referendum (decisively de- feated early in December) led to a decline in October which has been only partially overcome.

The improvement in Holland, begun in I92I,

continued throughout 1922. Owing partly- to the smaller variations in money rates, bond prices did not fall as low as in other markets in I9I9 and I920 and their rise has been less pronounced.

In France also the improvement has been moderate. Three per cent rentes rose by some io per cent between December I92I and Septem- ber I922; railway debentures rose somewhat more. Both have since declined, although the railway debentures have more nearly held their gains. The Statistique Ge'nenrale index of prices of securities with fixed return, which fell until I92I (yearly averages: I913, 9I.3; 19I9, 75.8; I920, 67.9; I92I,65.9), rose from 65.8 in January I922 to 72.5 in August, but has since declined. The yield on new bond issues in Paris, a service- aOle index, dropped from about 6.7 per cent in most of I92I to 6 per cent in July I922; since then it has risen steadily, nearly to the I92I level. Iaterest rates remain exceedingly high. Tax- free government securities yield over 6 per cent, industrial loans cost even 8 per cent.'

In the main, the increases in bond prices are the reflection of easier monetary conditions, just as the declines of I920 and I92I reflected the monetary stringency. In Great Britain there have been several important additional factors not present elsewhere in comparable degree: the reduction of 'the income tax rate for the'fiscal year beginning March 3I, I922; the improved credit of the government; and the revival of London's preeminence as a financial center. A recent favorable factor has been the agreement with America over funding the British debt to this government. The special improvement in railway debentures is attributable in England to improved traffic and earnings, the full resumption of private control, and the consolida- tion of the railways into four large systems; in France to improved traffic and railway revenues, a reduction in the railway deficits, and the re-

organization of financial arrangements with the government. In France the removal of restrictions for dealing in government securities has apparently favored the rise of the old 3 per cent rentes but not a similar improvement in the various war loans, which closed the year somewhat lower than at the beginning. The rise in Swiss bonds is apparently attributable partly to the influx of foreign balances for investment, especially from central European countries where monetary conditions are unstable. The more moderate recovery in France is certainly due largely to the fact that the government continues to absorb the bulk of French savings, and that the credit of the govemment, at home and abroad, has not risen as French industry has improved; while declines since September reflect renewed monetary stringency.

Prices of public utility and industrial shares show much greater variations, whether one compares different countries or different groups of shares in the same country. In most countries the net change in I922 has been favorable. This has been especially true in England and Switzer- land. Some representative indices are given in Table 5 and Chart 2.

The most noteworthy movement in the Lon- don market during I922 was the rise in British railway shares which began in November I92I.

In five months the preference shares rose by 35 per cent, the ordinary shares by 50 per cent. Since April the ordinary shares have risen still further, and the preference shares have maintained their gains. Preference shares at the end of I922 were 5 per cent higher than at their peak in I9I8, and ordinary shares 20 per cent above it. Other British public utility shares have sub- stantially maintained their marked gaims culminating in May I922, and have been fairly stable in recent months at levels higher than at any time since the close of the war. Gas stocks and tramway and omnibus stocks have risen to 50 per cent above the level prevailing during most of I92I.

More significant as indices of real improvement, actual or prospective, are the movements of industrial shares in London. Brewery stocks bettered their good record of I92I and are now well above the best figures of I920. A group of industrial and commercial shares rose sharply in March and April 1922, and have since moved

1 See Federal ReserveBulletin, February, 1923, pp. i89, igo; and Economiste Fransais, January I3, 1923.




TABLE 5. - EUROPEAN INDEX NUMBERS OF SECURITY PRICES, I9I8-22: (b) VARBLE INTEREST -SECURITIES

GREAT BRITA. AGGREGATE VALUES SWITZER SWEDEN FRANCE ITALY (million pounds) INDEX INDEX NUMBERS INDEX NumBERS INDEX NUMBERS

_ _ _ _ _ _ -~~~ - _ _ _ _ - ~ ~ iu M B E R S ~_ _ _ _ _ _

Month __-_NBR_ British Commer- Iron, coal . . Indus- Variable . Indus-

railways: Gas cial and Ship n S. Afrean 2I Stock trial interest shetal nachi trial ordinary stocks industrial steel ping mines shares prices shares securities shares md shares

i918 Dec. 220 23.I 375 I26 28.3 87.6 I500.7 ... ... ... ... ... I9I9 Dec. 201 20.6 420 III 32.0 II7.8 I07.I0 ... ... 157b 225 ... I 24 I920 Dec. i66 I9.8 248 74 24.9 7I.6 76.27 T76b I23 I92b I97 79.67 I04

I921 Dec. I67 2I.7 25I 55 24.0 62.0 69.80 T2Ib 93 I45b I48 63.84 99 I922 Mar. 209 24.8 265 55 24.8 63.0 74.o8 89 77 I37 I29 56.70 98

June 25I 29.4 308 63 26.6 69.6 83.65 II3 I04 I4I I2I 60.54 III Sept. 244 28.9 321 62 26.o 80.6 90.43 I03 92 I58 I36 67.47 II7

Dec. 258 29.3 337 70 28.4 82.I 88.25 96 8Ia ... ... 7 2.o8

* British figures, from the Bankers Magazine (prices i9I8- 20 converted to fit the new series begun in December I921),

relate to a day near the 20th of each month. French figures, from the Statistique Gnfrale (fixed return and variable return) and the Manchester Guardian Commercial (railway debentures and industrial shares), and Swiss figures from the Swiss Bank Corporation's Bulletin Mensuel, relate to the end of the month. Swedish figures, from the reports of the Skandinaviska Kredi-

taktiebolaget (bond prices converted from an index of effective yields) and the Sweden Economic Review, relate to the middle of the month. Dutch figures, from the official Maandschrift, are averages for the month. Italian figures, from the Federal Reserve Bulletin (Bachi index converted into a continuous series) and the Manchester Guardian Commercial, relate to the end of the month.

a. November figure. b. Average for the year.

steadily upward. They stand now, however, considerably lower than before the crisis of 1920.

Iron, coal, and steel shares recovered sharply in Apnrl and again toward the end of I922, but are still very low as compared with prices in I9I8

and I9I9 when the steel industry was operating at high pressure and at considerable profit. Shipping shares moved similarly in I922 but are much nearer the best figures since the close of the war. South African mining shares recovered even more in I922 in consequence of the settlement of the Rand strike and the enlarged output in recent months, but are not yet back to the level of I9I8-20. Other mining shares have continued weak.

On the whole, the better grades of shares with variable dividends fared better in I922 than the highly speculative securities. Both, however, rose further during the year than the gilt-edged and other fixed-interest securities, which had risen in I92I while shares were still falling.' The index of industrial shares used in our survey of British economic conditions rose from ioo in November I92I to I50 at the end of I922, and still further in January and February I923.

In Switzerland, despite the persistence of depression, share prices recovered remarkably during I922, the index of the Swiss Bank Cor- poration rising from 70 to 88. Even so, these

CHART 2.- EUROPEAN INDEx NUMBERS OF PRICES OF VARIABLE INTEREST SECURITIES, MONTHLY, I9I9-23

S3rifi5h rId

Ofj 21 ares

N9O9 1920 192l lkof 192a 3

NoTE: Open linez itidiratc lack of data.

See also the index of the British Foreign and Colonial Corporation. The two general index figures given by the Bankers Magazine are unreliable because each includes foreign securities as well as British.




prices are far below the levels prevailing at the close of I922.

Italian security prices rose during I922. Pro- fessor Bachi's index, covering I 25 companies with an aggregate capital of 6382 million lire, shows a decline of about 20 per cent in I92I and an increase of I3 per cent in I922. Another index, of 20 industrial shares, given in the Man- chester Guardian Commercial, shows a decline of only about 5 per cent in I92I but an increase of i8 per cent by the end of September I922, to a level higher than any that had prevailed since August I920. Textile shares led in the improvement, while iron, steel, and engineering shares, as in England, have lagged somewhat behind.

In France the index of the Statistique Generale shows a moderate decline continuing until May while the franc was rising, and a steady increase since then as the franc has fallen. The average for I922 will be slightly higher than for I92I,

though the I92I average was passed only in July I922. All classes of shares closed the year I922 materially higher than the year before.' Metal shares fell more heavily in the early months but have risen similarly. "Concerns whose products could be used for reconstruction purposes have done particularly well."

Swedish indices show peculiar tendencies: a decline from Jantiary to March, a rise culminating in June, and a decline in the following months which was checked only in December. For the year I922, share prices average lower than in I92I.

In general, therefore, share prices rose during I922 under the influence of lower money rates, improvement in business activity and prospects, and in some cases (notably in France), abnormal variations in foreign exchange. In few cases, however, have share prices closely approached the high levels of I920 or even the best prices of I92I; Further increases seem likely to occur in I923, but the net change over the year is greatly dependent upon developments in the Near East and the Ruhr.

CURRENCY AND CREDIT

The utmost variety in currency policies and experence characterized I922. This is partially revealed by Table 6, which shows the note issues

outstanding in various countries at the end of I919 and I920, at the end of each quarter in I92I

and 1922, and for February 28, I923.

In' most western European countries further contraction of currency and credit took place in I922, in consequence of the trade depression, further liquidation, and the downward readjustment of commodity prices. To this tendency Belgium and Portugal are the principal exceptions. The increase in note issues in Belgium is partially attributable to the extension of Bel- gian currency into Luxemburg. In Switzerland a material expansion has occurred in recent months, and similar tendencies are appearing in France. In central and eastern Europe currency expansion has continued to be the rule. This expansion has been extreme in Germany and in Poland, at a higher rate than in any preceding year. The same was true of Austria and Hun- gary in the first nine months of the year; but in recent months the expansion has slackened, and latterly it has practically ended, at least for the time being, in consequence of rigorous measures for currency control. In Greece the expansion was temporarily arrested in April by the radical device of a forced loan to the extent of half of the currency outstanding. Since then expansion has been rapid, and for I922 as a whole the inflation has been more pronounced than in I92I. In the other Balkan states, the expansion has been comparatively moderate. In Finland the note circulation has fluctuated around I400

million marks for the past two years. Sound currencies have been established in Latvia and Lithuania. In Czechoslovakia, where currency expansion was considerable in I920, and moderate in I92I, contraction took place in I922.

As in previous years, the requirements of the government in many countries have been an important factor influencing the expansion or contraction of currency and credit. This factor, however, has been a dominant influence in fewer countries than in previous years. Budget deficits have generally been reduced, and in the Bal- tic States (except Poland) and Czechoslovakia practically eliminated. The liquidation, partially reflected in the high figures for business failures in I922, has been an important influence making for contraction in several countries. An extraneous factor, more powerful in I922 than in

1 L'Economisle Fran,ais, January 27, I923.




other recent years, has been the demand for more stable currencies for use in countries in which the internal currency is no longer serv- iceable as a standard of value or even as a

medium- of exchange. Space does not permit a complete- discussion of the developments in each country, but a few words concerning the developments of the year in Great Britain, France, Germany, and Austria will throw light upon significant differences in conditions and policies.

In Great Britain the contraction was more -marked than in 1021 desnite the reduction in

money rates and a moderate recovery from the depression. The average of month-end figures for bank notes and currency notes outstanding was 45I millions in I920, 435 millions in I92I,

and 399 millions in I922. The figure was 43I at the end of 192I and 404 at the end of I922. Dis- counts and advances by the nine London clear- ing banks show similar reductions in average figures from II76 in I921 to io68 in I922, and December figures of II9I and I03I respectively.' This reduction is attributable in part to the reduction of treasury bills by funding in treasury

TABLE 6. - EUROPEAN NOTE ISSUES, I9I9-23*

Figures in millions for currency of each country

United Switzer- Nether- Czecho- End of : Kingdomn land landser- | Nether- Sweden Denmark Norway Belgium France Italy slovakia

Pounds Francs Florins Kronor Kroner Kroner Francs Francs Lire Cz. kronen

I919 .............. 444 I,036 I,033 722 489 454 4,764 37,275 I6,3I2 4,723

I920 ........... ...... . . 478 1,024 I,072 760 557 478 6,II9 37,902 19,731 1I,289

192I March 452 986 I,037 664 5I7 425 6,I05 38,435 i8,765 10,922 June 43I 94I 993 627 496 418 6,IIO 37,422 I8,I59 ii,I68 September . 4I8 97I 996 598 48I 416 6,2I2 37,I29 I8,I8o II,57I December.. 43I I,OO9 1,013 628 471 419 6,290 36,487 I8,809 I2,I30

I922 March 402 83I 962 554 446 385 6,3I3 35,528 I8,1II2 10,323 June . 397 789 960 53I 442 385 6,228 36,039 I7,664 9,838 September 390 8i 960 605 467 384 6,5 I 8 36,603 I 7,990 10, I97

December . . 404 976 975 587 459 385 6,701 36,359 I7,963 10,064

I923 February .| 379 840 94I 494 448 354 6,87I 37,055 .... 8,948

End of Finland Poland Germany Austria Estho- oGreec Hungary Spain Portugal Rou*ma- Jugoslaa nia GreeHnay Sanniaa-Jgsvi

E. Marks P . marks Marks Kronen E. marks Drachms Kronen Pesetas Escudos Lei Dinars

1919 ............. I,I24 5,267 35,698 .... ... ,I368 .... 3,856 362 4,215 ...

I920 ............. I,34I 49,362 68,805 30,646 ... I,492 I4,308 4,326 6o6 9,486 3,344

1921 March ,I476 74,o87 69,4I7 41,067 ... I,58o I5,650 4,223 635 IO,962 3,500 June. I,399 I02,697 75,32I 49,685 ... I,744 I8,096 4,I7I 650 I I,073 b 3,746 September . I,4i6 I52,792 86,394 70,I7I 250 I,950 20,845 4,207 670 I2,350 4,476 December.. i,356 229,538 II3,639 I74,II5 350 2,I30 25,I75 4,244 723 I3,722e 4,688

I922 March i 144I 250,665 I30,67I 307,906 700 2,255 29,327 4,I35 758 I3,864 4,785 June . ,373 300,1OI 169,2I2 549,9i6 700 I,426 33,600 4,I27 8I5 I4,143 4,74I

September . I,397 463,706 316,870 2,277,678 I,OOO 2,I85 58,458 4,I40 914 I5,I57 5,222

December 1,42I 793,437 I,280,095 4,080,I77 I,500 3,025 75,887 4,I37 I,047 i5,184 d 5,040

1923 February I.. ,5I3 I,I77,30I 3,5I2,788 4,207,992 I,800 3,149' 75,I35 4,077 ... I5,396 5,354

* Economist; Barclay's Bank Report; L'Economiste Europten; Federal Reserve Bulletin. a. January I3. b. June i8. c. December I7. d. December i6. e. June 22.

1 Federal Reserve Bulletin, February, I923.




bonds. The head of the largest London bank uses this movement as the text of a sermon against deflation.' Nevertheless, there is by no means a consensus of British opinion that the decline is due primarily to the policy of the government or of the Bank of England. These have exerted an influence; but in the main the reductions in currency and loans are by many people interpreted as the reflection of the decline in commodity prices and the slow recovery from the depression, rather than as a cause of the depression. Undoubtedly the reduction in the floating debt has operated to reduce the item of discounts and advances by the London banks, without affecting greatly the commercial bills and advances of these institutions.

In France the statements of the commercial banks reflect a moderate expansion of credit during the year, but certainly no greater than the expansion of trade warranted.2 The statements of the Bank of France, on the other hand, seem to indicate a certain contraction of its credits and the national currency in I922, though much more moderate than in I92I. The following figures reflect these changes.

Year end figures in million francs

1920 1921 I922

Commercial bills receivable. 3,309 2,506 2,40I Advances in bullion and se-

curcities ................ 2,202 2,24I 2,082 Advances to the state (i9i4-

22) .................. 26,600 24,600 23,600 -A it.> in crculation ...... 37,902 36,487 36,359 Deposit4' (excluding treasury

deposits) .............. 3,5i8 2,7I7 2,289

This liquidation was accomplished, despite increasing business activity, with the aid of fairly high rates (5 per cent on discounts, 64 per cent on advances) and moderate repayments on state account. The repayment in I922 was one billion francs instead of the 2 billions as provided for in the contract between the bank and the state, and was made largely out of sinking fund. Early in I922 the state debt to the bank was lower than since early in I9I9 and the note issue shrank accordingly; but this was due to temporary conditions and the subsequent increase oc-

casioned no surprise. The tendency at present is toward renewed expansion: money is tighter, the franc is lower, prices have greatly risen, and pressure upon the treasury is considerable. Nevertheless, the government is vigorously en- deavoring to balance the ordinary budget, and it is not unlikely to succeed in financing its "recoverable" budget without recourse to the bank or large increases in the floating debt, and the Bank of France is stoutly resisting inflation- ist tendencies. The currency situation is by no means satisfactory, but seems at present to be well in hand.

In Germany, on the contrary, the situation has been beyond control since the summer of I92I,

and the currency has gone from bad to worse. Some significant figures for the treasury and Reichsbank are given in Table 7. It will be ob- served that the treasury has not succeeded, to any considerable extent, in discounting treasury bills outside the Reichsbank. Whereas at the end of I920 only one-third of the treasury bills were held by the Reichsbank, the corresponding figure at the end of 1922 was 8o per cent. In recent months, moreover, the government has issued large quantities of treasury bills and bonds for securing supplies, chiefly of grain, and has some further unexplained liabilities on treasury bonds and bills.3 The increase in floating debt in the last six months has been at a rapidly increasing rate.

Another striking fact is the tremendous increase, in the past nine months, in the holdings of commercial bills by the Reichsbank. At the end of I921 these amounted to slightly over one billion marks; at the end of I922 they were 422

billions; two months later they were I829 billions. The increase in commercial bills is an indication of the extreme credit stringency, which has been mentioned above in connection with the increase in the Reichsbank rate to i8 per cent. The Reichsbank note circulation has risen somewhat faster than the floating debt, but much less rapidly than prices. To a considerable extent settlements are made in treasury bills, commercial bills, and foreign bills and currencies. Rye and potato banks for the issue of loans repayable in a commodity unit have been established in a desperate effort to supplant-the unstable mark.

The German government is still unable to

1 London Joint City and Midland Bank, Monthly Review, February, 1923. 2 Federal Reserve Bulletin, February 1923.

3 Economic Review, February I6, 1923, p. 136; Wirtschaft und Statistik, January 31, 1923, p. 68.




TABLE 7. -GERMAN FLOATING DEBT AND REICHSBANK STATISTICS, I92I_23*

(Unit; i,Ooo,ooo,ooo marks)

FLOATING DEBT TREASURY BILLs , OTHER REICHSBANJK FIGURES

End of -____ -Miscella- 'Discounted - ____

Total of

,Issues for *e tsury Held outside Held by Commercial Private Note Loan Total | supplies neous bresilus Reichsbank Reichsbank bills deposits issues bureau notes

I92I June ...... 2I4 3 26 I85! I05 8o 2 I5 75 9 September . 229 5 I4 2IO II2 98 I I5 86 8 December . 264 6 1I2 247 II5 I32 I 25 II4 8

I922 March .... 28I 4 6 272 I25 147 2 26 I3I 9

June ...... 3I2 II 6 295 IO9 I86 5 27 I69 IO September 528 32 46 45I IOI 350 50 8o 3I7 I4 December 2,093 294 304 I,495 3IO I,I84 422 377 I,280 13

1923 January ... 2,78i 390 309 2,082 493 I,6o0 697 ? I,984 13 February .. 4,628 746 294 3,588 64I 2,947 I,829 ? 3,5I3 I3

* Wirtschaft und Statistik; Federal Reserve Bulletin.

cover its expenditures by taxation or loans and continues to pay its way largely by borrowing from the Reichsbank, thus forcing the bank to issue increasing quantities of paper marks. The postponement of cash reparation payments early in I922 and the cessation of all reparation payments in January I923 have made no obvious impression upon the government's ability to meet its needs. The attempt, in March, to float a $so,ooo,ooo loan payable in foreign currencies of high value is reported to have largely failed of private subscriptions, but it has been un- derwritten. The recent stabilization of the mark exchange indicates that efforts are being focused upon the problem, with initial success. But it is too soon to say that the end of the debacle is in sight. Germany not only suffers the extreme consequences of unrestrained currency depreciation and disorder but must still look forward to a period of painful readjustment, the more severe because of the severity of the currency chaos, when stabilization is seriously attempted.

In Austria the same process had gone even further than in Germany when in September 1922 the League of Nations undertook, with the support of various foreign governments and the Vienna banks, to stabilize the krone. These measures are now proceeding under the general direction of a controller, Dr. Zimmermann of Rotterdam, appointed by the League of Na- tions: The currency expansion was gradually checked in the final months of the year, when

notes and deposits continued to increase while discounts and loans were reduced. Since the beginning of I923 the new bank has been func- tioning with gold assets constituting a normal proportion of the demand liabilities in terms of current values. The currency is fluctuating within rather narrow limits. The burden of credit stringency seems likely to come to an end before long, and the prospect for a fairly stable currency, at least for the next two years, is good. Whether success will crown the efforts of 4the League of Nations to rehabilitate Austria fisczlly, commercially, and industrially is a larger q9vts' tion to which no confident answer can be given. Upon this success the ultimate stability of the krone must depend. Austria is now undergoing, however, the difficulties of a readjustment period instead of the different pains of a period of unstable and rapidly depreciating currency.

COMMODITY PRICES AND COST OF LIVING

The movements of leading indices of wholesale prices and retail food prices from January 1I920

are shown in Charts 3 and 4. Table 8, further- more, gives annual and quarterly averages for the wholesale price indices of these and other European countries. It is advisable to discuss separately the countries of western Europe, in which currency disorders have been small, and those of central and eastern Europe, in which



ECONOMIC AND FINANCIA PROGRESS IN EUROPE 9I

currency inflation, with its-causes and consequences, has played a large rWle in the course of prices.

With respect to western Europe,. two facts are especially evident.. First, there was a termina-

tion in i922 of the long decline in commodity prices that began in I920 and tontinued in most countries throughout I92I; second, I922 appears generally a year of far greater stability of prices than any other since the war. In some countries a more or less pronounced increase occurred before the end of I922. This was true not only of Belgium, France, and Italy, but also of Switzer- land. Elsewhere in western Europe no such marked rise occurred. The stability of prices was especially noteworthy, at least after the early months of the year, in the United Kingdom; Spain, the Netherlands, and Scandinavian countries.

A roiugh measure of the reduced instability of prices in I922 is given by the figures in the last

two lines. of Table 8. These show, for each index, the average deviation, in I92I and I922 respectively, of each monthly figure from. the average for the year, expressed as a percentage of the annual. average.:

A further notable development of the year is the approach of commodity prices in most of these countries toward a common level, and in particular toward the tevel to which American prices have tended. The considerable increase in American prices early in I922 had no counter- part. in Europe, and the net effect of the rise in America and the fall abroad was to bring the various price levels materially nearer together. This was an undoubted factor in the rise of exchange rates which characterized this period, and the subsequent greater stability of prices had its bearing on the stability of exchanges.

The chief exceptions to the last two- state- ments, .in western Europe, are Belgium and France. There, prices have fluctuated greatly

CHART 3.-WHOLESALE PRICES IN VARIOUS COUNTRIES, MONTHLY, I920-23, AS REFLECTED

iN LEADING hIDEx NUMBERS

(Logarithmic vertical scale. Base: 19I3 = roo)

700 - ___

600- __ j _ % ITALY - _ __ __ 600 ^ _

500 _ _ __ _____ K - h A _4 _SS _. _ f 400

_ ___ i\ PA CE _ _ _ .

7I'E' d

__ X

% q ,_

- ._

__ _

~~~oo * - -~~~~"1*.4t O o M 300 - { \ ~'s x-1-l-ls -{ I

WUNIED 5 TT L4-/

I I F>B,~~___ IASTAEES L %*@

- o 1 I I

Lr10-0

}920 19~UNIED 9Z12




and have risen materially, especially in the last few months of I922. and since. Thus the Belgian wholesale index which had been as low as 344, rose from 360 in September I922 to 434 in Jan- uary I923; and the French index, which had been as low as 306 in February, rose from 329 in September to 387 in January. These represent increases of about 20 per cent in four months, a more rapid increase than any since I920. The increase continued in February I923.

In Italy also there have been pronounced fluctuations, roughly inverse to the exchange rate -

a decline culminating in May, a rise culminating in October, and a decline in the last two months of the year. The fluctuations have been less marked, however, than in IQ20 or IQ2I. The

average level was lower than.in 192I, and the index closed the year somewhat below the figure of the year before.

Price movements. in Germany, and in central and eastern Europe generally, are widely differ-

ent from those in western Europe. In Germany and Poland tremendous increases in commodity prices and living costs have occurred. The Ger- man indices have risen more rapidly than those of any other country. Thus, the Federal Statistical Bureau's index of wholesale prices for January I-923 was nearly eighty times the index for January I922. Since July the increases have been at an especially rapid rate; in some instances the index more than doubled in a single month. -The cost of living has risen somewhat less rapidly than wholesale prices, but increased more than fiftyfold between January I922 and January I923.

In Bulgaria, Roumania, and most of the smaller countries. Drice indices have risen by 2 ~ or No

per cent or more. In these countries, as we have already noted, inflation has been much more moderate than in Germany, and, as indicated below, the exchange rate has fallen in no great degree.

CHART 4.- RETAIL PRICES IN VARIOUS COUNTRIES, MONTHLY, I920-23, AS REFLECTED IN LEADING INDEX NUMBERS

(Logarithmic vertical scale. Base (usually): July 19I4 = IOO) 700 __ __MLN

600 J f U

500 _4 ___ 0_

400 KINON.

2! 0 0 ~~~~~~~~~~SWEDN

rJi-4hD MATES \ ThITE-D KINhG OM

100 19EO 19E1 192E 19Z,3



ECONOMIC AND FINANCIAL PROGRESS- IN EUROPE 93

TABLE 8. - EUROPEAN INDEX NUmBERS oF WHOLESALE PRICES, I9I9-23 *

Yearly and quarterly averages of monthly figures on pre-war base, usually I9I3, I9I4, or I9I3-I4

Yearly or quarterly United Switzer- Nether- . average Kingdom land lands Sweden Denmark Norway France Belgium Italy Germany Poland

I9I9 . ... ..... 242 ... 297 330 294 ... 357 ... 366 ... ...

1920 ............. 295 ... 282 347 382 382 5I0 ... 624 ... ...

I92I ............ I88 I96 i8i 2II 250 298 346 ... 578 I,9II. 1922.... I55 i66 i6o I62 179 233 327 | 367 562 34,I82 ...

192I ISt . 2I8 229 199 25I 304 325 382 ... 620 1,384 ...

2d .......191i I93 i8o 222 260 295 334 ... 547 I,333 ...

3d ....... i8I I 79 I79 I97 244 295 336 ... 547 1,804 ...

4th .I6 i6o i8i i66 I74 I92 277 330 372 596 3,121 60,389

1922 ISt I56 I56 I73 i6i I67 I79 25I 309 357 557 4,400 65,468

2d .15 I59 i6i I64 I64 I78 232 319 349 529 6,6I4 80,478 1d I 53 1.. I62 157 I62 179 228 329 36I 570 I9,320 I29,9I3

4th . 15 I53 I67 I57 I55 I79 22I 350 400 592 I06,394 274,458

I923 Ist .... I5I|i i8i | ... 9I1 224 4II 463 | 8i 441,925 ...

Averages of monthly deviations from annual average expressed in percentages of annual average

1921 ............ 9.5 9.7 5.2 I2.I I3-3 4.7 5.4 ... 5.6 33I ...

1922 ..1I.9.. .9 2.8 2.0 2.6 0.9 4I| 4.0 4.5 3.9 I05.6 ...

* Federal Reserve Bulletin; Monthly Bulletin of Statistics; Wirtshaft und Statistik.

In Czechoslovakia, on the -other hand, prices have declined enormously; the retail price index, for example, fell from I475 in June to 984 in November. Reductions have also taken place in Finland. In Vienna living costs doubled between December I92I and May I922, and increased more than tenfold in the next five months. Since September I922, however, with the stabilization of the exchange, they have fallen considerably in spite of increases in currency and the removal of restrictions upon rentals. If the stabilization of the exchange can be maintained and currency expansion kept within moderate limits, prices and living costs in Austria are likely to have comparatively moderate fluctuations after a few months of readjustment.

The increased stability of prices and the approach to a common international level, where these developments have occurred, signify a definite gain of I922. They make for more stable exchanges, reduced risks in business operations, and more confident planning for the future. The recent increases in Belgium and France are disquieting, since they indicate the strength of

forces making for fresh inflation and a recurrence of the commercial instability and high business risks that characterized the years I9I9-21. The changes in Germany, although they give a somewhat exaggerated impression of the condition of the country, reflect an utter disorganization of the fiscal and currency situation, which cannot but have serious adverse reactions upon the economic progress of Germany.

FOREIGN EXCHANGES

The movements of the foreign exchanges can best be considered in connection with the ac- companying charts of monthly average rates in New York, in percentages of gold parity, from January I920 to March I923. These data, drawn from the Federal Reserve Bulletin, are plotted on vertical logarithmic scales for better comparison of the relative movements. The scales are uniform for all sections of Chart 5 except that for Germany, Austria, Hungary, and Poland; '

I See also the chart in Wirtschaft und Statistik, January, I923, p. 25, especially for countries with low exchange rates.




CHART 5.-EXCHANGE RATES QUOTED IN NEw YORK ON LEADING FOREIGN CouNTms, MONTHLY, 1920-23

(Expressed in percentages of gold par)

cPet -Sweden- 100 Pf

0 _Sweden _ e_rk =

Denm0rk _ _enmrwayk

1920 1981 1922 1923

50 Belgi m - France

4 0 --

O 1tb St r 1- Belgium % 3 0 /w \ !--js

2 0 _ S _ _ _

15 1920 1921 1922 1923

10.00 ==:) \= ----| | | lScale for Germany, 1 ---- I I I Austria and Hungarli 86.0 that of other countries

6.00 - - 1 - ----1 - - -

4.00 - - - - - - - - - 1 [ - 1

I t X \ | | | |\Germang |

LOC - - - - *" 111garg1 .80 - - - - *__

.60 ~ ~ .Iv .6C - - - - f - -^w 1

.40 _ ? - - - - - \

Austri a1 .20__1s

.80? 1- - - - - I- 1

.08

.06 -L

.04 - I

.02 - - - - - - - 1- -l-L

.01 - -

Per I I I _ cent = = = Switzerland

80o+ lte- 00. h Nethrlands

70 - n-* , i IT 60- -

1920 1921 1922 1923

a an Canada= 90 *

-_:2W = 80 ,.,..* =

1920 1921. 1922 1923 120

90 -41-

80 _ _ rgentina

Ill- I-t -*o*.

1 *O1

le _ I 40 _ _ .

% ...0f.

l~ liap Jt iv' r 40

1920 1921 1922 1923 301 , X , , i - -1 1 -

%Jugoslavia. 20

8. 6-

IVc Icho-S Ovaial

oG5I$ I 10 f I 0

9

8*| --- Buiaiman|ia | l

3L 1- ll '

l920 1921 1922 1923




the scale for these countries has been reduced to keep the chart within a reasonable compass. Quarterly averages for the years 1920-22, in actual rates, are given in Table 9.

With a few notable exceptions, exchange rates have been more nearly stable during I922 thaiL

in any corresponding period since the close of the war. This is true not only of countries which have reestablished their currencies sub- stantially on a par with gold, including Canada, Holland, Sweden, Switzerland, and Japan. It is true of Great Britain: sterling exchange re-

TABLE 9. -EXCANGE RATEs QUOTED iN NEW YORK ON EUROPEAN COUNTRIES, I920-23

Quarterly averages of daily noon buying rates for cable transfers *

United Switzer- Nether- Year and Quarter Kngdom ln lans | - Sweden Denmark Norway Belgium France Spain Portugal

Dollars per Cents per Cents per Cents per Cents per Cents per Cents per Cents per Cents per Cents per pound franc florin krona krone krone franc franc peseta escudo

Par _ . _ _

4.8665 I9.30 40.20 26.80 26.80 26.80 I9.30 I9.30 I9.30 io8.05

1920 Ist ........ 3.595 I7.IO 37.30 I9.89 I6.58 I8.22 7.72 7.570 I7.99 ....

2d . ....... 3-9IO I7.96 36.62 2I.64 I7.24 I8.67 7.38 7.0IO I6.95 ....

3d ........ 3.666 I6.84 33.05 20.88 I5.I3 I5.i6 7.82 7.350 I5.27 ....

4th ....... . 3.468 I5.6i 30.67 I9.46 I4.04 I3.97 6.5I 6.I53 I3.48 ..

I92I ist ........ 3.843 I6.37 33.83 22.16 I7.97 I7.20 7.2I 6.88o I3.83 ....

2d ........ 3.895 I7.4I 34.53 23.2 I I7.79 I5.45 7.95 7.895 I3.54 ....

3d ......... 3.670 i6.86 3I.48 2I.3I I6.55 I3.IO 7.45 7.6I7 I2.9I IO.525 4th ....... 4.000 i8.8i 34.9I 23.57 I8.97 I4.00 7.20 7.432 I3.87 8.686

I922 Ist ........ 4.32I I9.46 37.38 25.75 20.57 16.65 8.I9 8.632 15.44 7.86I

2d ........ 4-437 I9.23 38.43 25.88 2I.43 i8.05 8.37 9.o38 I5.63 7-773

3d ........ 4-447 I8.98 38.80 26.24 2I.38 I6.90 7.53 7.95I I5.47 6.I89

- 4th ........ 4.509 I8.59 39.36 26.8I 20.36 I8.39 6.62 7153 I5.39 4.796

I923 Ist ........ 4.680 I8.72 39.53 26.69 I9.36 I8.46 5.65 6.380 I5.6o 4.436

Year and Quarter Italy Czecho- Finland Poland Germany Austria Hungary Bulgaria Roumania Greece Jugoslavia slovakia

Cents per Cents per Cents per Cents per Cents per Cents per Cents per Cents per Cents per Cents per Cents per lira krone markka P. mark reicksmark krone krone lev leu drackma dinar

Par . __

I9.30 20.26 I9.30 23.82 23.82 20.26 20.26 I9.30 I9.30 I9.30 I9.30

1920 ISt ......... 5.99 1.225 4.392 .68o I.33 .430 .... 2.042 I.917 I2.508 3.638

2d. 5 .i8 2.020 5.I93 . 563 2.I4 .6io .... I.767 2.062 I I.629 3.303

3d 5........0 5oo 1.847 3.533 .5o8 2.I2 .538 .... i.860 2.407 II.529 4.7I7

4th .3.68 I.200 2.425 .260 I *39 .327 .... I.252 I*5I5 8.892 3.075

I92I Ist .3.68 I.299 3.I33 .I354 I.6I2 .2608 .... I.303 I383 7.493 2.855 2d 4. 96 .. . 49 5 2247 . iii8 I.547 .2555 .... I.268 i.6o8 6.I27 2.896

3d ........ 4.35 I.232 I*5I9 .0420 1.I50 .II82 .2632 .8645 I.I984 5-446 2.268

4th ... I8 I.I12 1763 .0272 .534 .o436 *I34I .69I4 .7454 4.2 2 I 1455

1922 Ist .4.80 I.773 i.983 .0283 .453 .0252 .I426 .697I .7740 4-438 I*323

2d .5.20 I.935 2.057 .0249 .336 .OI04 .1199 .7062 .696I 4.I90 I*387

3d ........ 4.45 2.772 2.I5I .049 I.24 .0023 .0593 .6730 .6905 2.838 I.234

4th .4. 57 3.I86 2.466 . 0072 .0207 .OOI4 .04I5 .677I .6263 I*739 I*47I

I923 Ist ....4.85 2.928 2.620 .003I .053 .0014 .0354 .0621 .4935 i.i64 .989

* Computed from Federal Reserve Bulletin data. Prior to used for Czechoslovakia, Finland, Poland, Austria, Bulgaria, July I921, monthly means of high and low quotations are Roumania, Greece and Jugoslavia.




mained virtually stable throughout the greater part of I922, despite seasonal influences, huge foreign loans, heavy payments of interest on the American foreign debt, domestic political changes, and international complications. It is true of British India, Argentina, Uruguay, Spain, Esthonia, Latvia, and Lithuania, whose exchanges have made net gains during the year, and of Bulgaria, Roumania, and Jugoslavia, whose exchanges have declined moderately. It is true even of Austria and Hungary since Septem- ber or October I922, and of Denmark and Nor- way, where fluctuations have continued to be large.

This increase in stability, a noteworthy gain of the present year, is not due to the adoption of formal stabilization measures either by countries individually or by international action ad- vocated by exponents of such measures.' The financial subcommittee which reported at the Genoa conference, while criticizing as "futile and mischievous . .. all artificial control of operations in exchange," outlined a program for restoring the gold or gold exchange standard whereby stability in exchange could be regained. In this connection it urged the desirability of continuous co6peration among central banks of issue or banks regulating credit policies in the several countries, to be initiated at an early meeting of representatives of central banks. It also recommended the development of organ- ized markets in forward exchange.2 Thus far these recommendations have been almost en- tirely ineffectual. The Berlin government in October called a commission of foreign banking and economic experts to consider the stabilization of the mark, but it ignored the majority report which recommended immediate measures toward stabilization.3 Nowhere has the gold standard been completely reestablished; no new parities have been fixed; no international agreement to keep fluctuations within specified limits has been adopted. Only in Latvia and Lithu- ania, where sound currencies have been intro- duced, and in Austria, where the stabilization of the currency is a cardinal factor of the pro-

gram outlined by the League of Nations for the rehabilitation of Austria, have efforts been seriously and successfully focussed upon the problem.

The reduced instability of the exchanges has resulted rather from the operation of many economic forces. Probably the leading factor has been the approach of commodity prices in the different countries to a common level after the extreme divergences which characterized the years I9I9-2I. The rise in American prices, early in I922, occurred simultaneously with the further decline in price levels in many other countries. This meant a depreciation of the dollar and appreciation of foreign currencies. For these changes domestic conditions seem to have been primarily responsible, though it must be recognized that changes in exchange rates themselves influence prices, of imported goods which enter into the commodity price index of each country. After the first few months of I922, commodity prices in the various countries were comparatively stable and the long period of pronounced readjustments came to an end.4 Elements contributing to this price stability have been the conservative banking and currency policies and the more normal conditions of international trade. The result, however, has been a smaller variation in exchange rates.

Other factors deserve briefer mention. Out- side of Germany, speculation in the exchanges, which was very widespread in I92o and I92I,

has apparently been greatly reduced and is now confined much more largely to professional opera- tors. Some progress has been made in develop- ing arrangements for facilitating dealings in forward exchange (the "futures" of the exchange market) in London, Antwerp, Paris, and elsewhere.! Heavy flotations of foreign security issues in London and New York in the first half of I922 are understood to have increased foreign balances in these centers which can be used, as before the war, for settling current international indebtedness merely by shifts among the various foreign balances. The elimination of the seasonal decline in sterling exchange has been ac-. complished with the aid of considerable ability and skill on the part of the government, the bankers, and business concerns in distributing their purchases of exchange through the year, which has been made possible through the stronger financial position and the clearer eco-

1 See Manchester Guardian Commercial, April 20, Decem- ber 7, I922. 2 Federal Reserve Bulletin, June I922.

3 Ibid., January I923, p. 6i. 4 See further above, p. 9I. . Manchester Guardian Commercial, April 20, I922, Econo-

mist, June I7, I922, p. I249.




nomic and financial outlook. Since London is the leading center for international exchange dealings, stability of sterling has in turn been an important factor making for stability in other rates.

In general, foreign currencies were higher in New York at the end of I922 than at the beginning. For this change two influences are chiefly responsible - the closer approach of international price levels to a common level, and the demand for foreign currencies and bills of exchange of the stronger countries, for use as temporary investments or actual currency in Germany and other countries in which confidence in the domestic currency has been largely de- stroyed. The failure of the German currency to expand during the year in proportion to the increases in commodity prices, while business continued extremely active is, to no small extent, attributable to the large utilization of foreign currencies and bills of exchange in domestic settlements.

Aside from Denmark and Norway, where the instability of exchange rates is not larger than in previous years, the countries which continue to show a marked instability of rates can best be discussed in three groups. In the first group, typified by France and Belgium, no great change in the level of rates occurred during the year as a whole; in the second, represented by Czecho- slovakia, a marked appreciation took place; and in the third, typified by Germany, extreme depreciation occurred.

French and Belgian exchanges show the same seasonal tendencies that were exhibited in I920

and I92I, modified by severe pressure late in I922 and early in I923, which is connected with the failure to reach a settlement of the reparations issue and the occupation of the Ruhr, and in France, with frank (and in part over-pessimistic) discussion of the fiscal position in the French parliament. The decline of foreign confidence in the fiscal and political policies of these governments has evidently been a weightier factor than conditions of industry and trade, although increased purchases of wheat, coal, and raw materials have been a contributing

factor in France.' The Italian exchange has been subject to much the same influences, but to a smaller degree, because it has been favor- ably affected by the stability of the new government and the increased confidence in its policies since Mussolini assumed control in Octo- ber I922. These influences, of course, operate chiefly through changes in foreign balances in these countries or by their balances abroad, and through the flow of emigrant remittances and investment funds. Belgian and French exchanges are near or below the lowest points reached late in 1920, while Italian exchange is somewhat above the earlier minimum.

The Czechoslovakian exchange, on the contrary, appreciated greatly in I922. From a low point in November I92I it nearly doubled in three months; and a further rise in the summer months brought it to a point higher than any reached since I919, roughly three times the average of October and iNovember I92I, and double the average for the best month of I92I.

Changes since September I922 have been moderate. The Finnish mark has shown similar tendencies, though more moderate ones. A notable recovery took place between September and November, I92I, and in the same months of I922, and the tendency in the interval was upward. In both of these cases the principal factor has been the conservative fiscal and monetary policies of the government, the improved trade balance, and the growing confidence in the economic soundness of these nations. In the case of Czechoslovakia, however, the influx of foreign balances from Germany and other neighboring countries, and the demand for Czechoslovakian exchange for currency or investment in these countries, have undoubtedly been considerable factors.

In Germany and Poland the fiscal and currency chaos has led to even heavier declines in exchange rates during 1922 than in earlier years. The same was true of Austrian and Hungarian rates until their decline was sharply checked in September, since which date these rates have been practically stationary.

The rate of decline, however, has been far from uniform. For example, the Polish crown recovered between October I92I and January I922, declined in the next two months to the earlier level, then remained until June sub-

1 See Federal Reserve Bulletin, February, I923, p. I92. No great reliance can be placed upon figures for the French trade balance, because imports are entered according to importers' declarations, and exports according to arbitrary official valuations of an earlier year.




stantially at this point, close to the figures of August and September I92I. For some ten months the net decline was negligible. Beginning in June I922 there came a pronounced decline, temporarily checked in September and again in December. Similarly, the German mark recovered in December I92I and maintained much this level in December, January, and February; then, after a drop to a new low level in March, it remained fairly stable until late in June. Since then it has dropped faster and further than any other European currency, until early in I923,

when a sharp recovery is attributed to concen- trated sales of foreign currencies, especially francs. In other words, in these countries the instability of foreign exchange has been a serious factor as well as the depreciation.

A recent feature of the German exchange has been the striking decline late in January, followed by a rapid recovery in the first half of February and by stabilization since February 20

at a rate of about .0045 cents per mark. The recovery and stabilization are a'ttributed to the intervention of the Reichsbank, which has util- ized considerable holdings of foreign bills, pre- viously accumulated for the making of cash reparation payments. The Reichsbank's action has been strongly supplemented by the activity of private individuals and banks. The purchases of marks by the French for use in the Ruhr have been a contributing factor. Whether the stabilization will be merely temporary or will be the beginning of effective control of the exchange, it is quite too early to say. In any event, the experience will be valuable.

In these countries neither currency inflation nor an adverse balance in merchandise trade can be regqrced as the dominant cause of exchange depreciation or instability. Inflation in part is caused by the exchange depreciation. The balance of merchandise trade is utterly incalcu-

lable, and invisible items in the international account are of exceptional importance. Extremely weighty factors are speculative purchases and sales of the currency abroad and speculative purchases and sales of foreign currencies in these countries, under the influence of changes in sentiment and opinion without regard to immediate requirements for international settlements. Thus, the relatively smaller instability in the first six months of I922 reflects the hopes from the Genoa conference and the Paris bankers' conference, which were held in vain. The absorption of quantities of foreign currencies and bills of exchange, in Germany, for example;, for use as temporary investments and as currency has played a large r6le. The accumulation of balances abroad, which has apparently been going on during the year, has operated in the same way.

GOLD RESERVES AND GOLD MOVEMENTS

Table io shows the changes in the principal central gold holdings in recent years, and by quarters in I922. Changes in European central gold reserves were on the whole inconsiderable in I922. After a gradual increase in the Bank of England's holdings of half a million sterling in the first half of the year, the British drew il millions from the Bank reserve and an equal amount from the Treasury reserve against currency notes in July, evidently to ship to the United States in connection with interest pay- -ments on the American debt. A net reduction of 2 millions has occurred in the British central gold reserves, to which the increase of 4 millions of silver coin is hardly an offset. The Bank of France added 84 million francs to its gold in vault, in October and December, in consequence of small repayments on the gold-secured debt to Great Britain.' The German Reichsbank gained

1 During I922 it became publicly known that the item entered in the accounts of the Bank of France as gold abroad is not what it seems. It has been understood that this represented largely transfers of gold from the Bank of France to the Bank of England during the war as collateral for advances by the British treasuryon French account, to be returned after these advances were repaid. Though no official statement concerning the status of this gold had been made, it had been implied that the gold was still held by the Bank of England as an ear-marked fund. During the past summer the Bank of France sought to secure the return of this gold to its vaults by making arrangements for repaying this loan to Great Britain.

Actual shipments were made in October and December, in- volving a shift of 84 million gold francs,anda furthershipment took place in February I923. This led, however, to the an- nouncement by the British government that this gold had not been held in England, but had been employed with other gold funds in stabilizing the exchanges before America entered the war, and had therefore gone largely to America. Our previous statements on this subject are therefore in error, and this gold abroad should not be included, as it has been heretofore, in our summary of central gold reserves. The repayment requires the British government to buy the gold in the market, as they have done, or to draw it from their own reserves. The




TABLE 10. - CENTRAL GOLD RESERVES OF LEADING EUROPEAN COU$9TRIES

(Unit: $I,OOO,OOO)

United End of t ZKing- B3el- France0 Italy d Nor- Swedenf Den- Switzer- Hol- Spai h Poland HGoe Czechio- Greece

End of dom0 gium way mark b land ~ landg many Islovakiak slavia f

19I3 ...... I70 48 679 3I0 I2 27 20 33 6I 93 1.7 279 ... 5.2

I9I8 ...... 524 5I 664 257 33 77 52 80 277 430 ... 539 ... I0.4 ... I919 ...... 583 5I 695 254 40 75 6i 87 256 472 1.7 259 ... ...0

1920. 763 52 686 258 39 76 6i 92 256 474 2.9 260 ... .II0 I2.4

I92I1. ....... .. 764 52 690 266 39 74 6I I06 244 485 6.o 237 4.I Io.8 I 1922. 733 ...... . . . 73 6I I03 234 487 9.8 239 I2.5 ... I2.4

1922 Mar. 764 52 691 268 39 73 6I I05 244 487 6.9 238 I3.I Io.8 14.3

June 764 52 692 268 39 73 6I I02 244 487 7,4 239 I4.I Io.8 I2.4 Sept. 749 52 692 268 39 73 6i 98 234 487 7.6 239 I8.9 6.onm I5I Dec. 733 ... 708 ... 39 73 6i I03 234 487 9.8 239 20.5 ... I2.4

1923 Mar. 749 67 ... ... 390 730 ... I03 2340 487 9-30 239 I ... 12.20

a. Including gold held on redemption account with respect of 1. Julian calendar; includes also a small item of silver. currency, and some silver. m. Excluding 25 millions deposited at Bank of England.

b. National bank. c. Goldin vault. n. Serb-Croat-Slovene State. d. Treasury and three banks of issue, including some silver o. Approximately middle of month figures.

held by banks of issue. e. Norjes bank. SOURCES: Monthly Bulletin of Statistics, League of Nations; f. Swedisk Riksbank. g. Netherlands Bank. Federal Reserve Bulletin; L'Economiste Francais; Commerce h. Bank of Spain. i. National Loan Bureau. Report, U. S. Department of Commerce; London Econo- j. Reichsbank, not including Imperial War Chest. mist; Commercial and Financial Chronicle; Maandschrift k. Banking office. van het Centraal Bureau voor de Statistiek.

91 million gold marks through gradual purchases in the first seven months. The Belgian gold reserve increased 21, million francs in November. The Bank of Spain's gold holdings increased by I2 million pesetas. The Bank of Netherlands lost 24 million florins in September and October. The Swiss bank gold holdings fell by 45 million francs in the first nine months and recovered 30 millions of this in the last quarter. The Bank of Roumania added 30 mlllion lei, while the Serbian central bank lost io million dinar.

The largest relative changes occurred in three minor countries. The Bank of Greece lost in September 25 million drachmae, 30 per cent of

its reserves. The Bank of Poland added I7 million marks to its gold holdings, an increase of over 6o per cent. The Czechoslovakian bank increased its gold and silver holdings 50 per cent, 265 million crowns.

To a large extent these changes offset one another. In the aggregate, European reserves are much the same as at the end of I92I. In the main, however, the movements have been in the right direction, that is to say, countries with low reserves have generally maintained or increased them, and the reductions have occurred in countries which could well afford to part with gold.

Outside Europe the principal changes have been increases in American and Canadian reserves, and a considerable flow to India.' De- spite considerable exports, chiefly to Canada, Central America, British India, and Hongkong, America's net imports were 238 million dollars, only 36 per cent of the net imports of I92I but greater than in any other year since I9I6. The increase in America's central gold reserves was I72 million dollars, as compared with 798 millions in I92I. Chart 6 shows the monthly movements to and from the United States since July

net effect is practically the same as if the Bank of France or the French government were buying gold in London with francs. The operation itself tends directly to lower the franc, and it is questionable whether the moderate accessions to the gold holdings of the Bank of France will justify the policy. The French have been unwilling to accede toBritish proposals, in connection with the settlement of reparations and international indebtedness, that the obligation to return this gold should be abrogated.

1 The Japanese "specie reserves" declined during the year by 262 million yen, but this decline appears to have been due not to reductions in gold held in Japan but to the decrease in gold credits abroad. Cf. this Rlvrw, April, I922, p. 76.



ioo THE REVIEW OF ECONOMIC STATISTICS

I920, when the huge export movement of the preceding twelve months came to an end.' Gold exports from Great Britain to British India amounted to nearly I3 million sterling, and 412 million dollars were exported from the United

States to India. The new gold has been divided largely between America and India, while Amer- ica has secured the bulk of the gold drawn from the hoards of continental Europe.2

Central gold reserves have increased at a lower rate in I922 than in i92I, chiefly for three reasons: the strike in the South African mines greatly reduced the output of new gold in February, March, and April I922; the Russian gold hoards have apparently become exhausted; and the gold which has flowed to India has gone into private hands rather than into central reserves.

The first of these influences is no longer opera- tive. Indeed the Transvaal output in recent months, as shown in Table i i, has been at a higher rate than since I9I6, owing largely to the lower levels of gold prices and mining costs and

the higher purchasing power of gold output; and this bids fair to continue in I923. The second influence will affect I923 more largely than I922,

since little further seepage of Russian gold to America is expected. The movement to India is continuing (indeed American exports to India in January I923 were $6,ooo,ooo) and present conditions seem favorable to its further continu- ance, but it is difficult to predict its influence during the whole of the coming year.

Further increases in central gold reserves are likely to occur during I923, to the extent of most of the new gold output. The removal of restrictions upon the circulation of gold in Switzerland and the United States has had some effect but seems unlikely to exert a very large influence. Few other countries are likely to en- courage the entry of gold into circulation. The principal influence determining the amount of additions to central gold stocks is likely to be the drawing power of India and China. No important relaxations of restrictions upon gold movements have occurred, and none are clearly in prospect. Even in London, the restoration of a free gold market is unlikely to accompany the restoration of sterling exchange to parity.3

The distribution of the net additions in I923

depends not only upon trade influences, but upon the course of payments on other items in the international account. Chief among these are the

shifts in foreign balances, the course of immi- grant remittances, and the extent to which American and British investors absorb foreign securities. The present indications are that

CHART 6.- UNITED STATES GOLD IMPORTS AND EXPORTS, MONTHLY, I920-23

Million llmpor-t imeasured above base line -ilion doll M Exports measured below base line dollam

1 - - Black portions represent net impos or exportt 100 90 _ *90

80 -j -sI__ 60 ._ _60 50 _0- ___ - 45

10 -40O

30 . 30

40 40

? (0 ;- 0 m ,

1920 1921 1922 L923 _

TABLE i i. - GOLD OUTPUT OF THE TRANSVAAL, I9I6-22 *

(Unit: i,ooo fine ounces)

First Second Third Fourth Total Year quarter quarter quarter quarter for year

I9I6 2338 2294 23I4 2350 9297 I9I7 235I 2282 2253 2I97 9082

I9I8 2070 2I86 2I85 I980 842I

I919 2025 2I22 2I3I 2052 8330 I920 2003 2I02 2I20 I928 8I54 I92I i88i 2048 2092 2094 8II5

I922 640 I8I7 2230 2333 7020

* Economist, January I3, I923, p. 57 (I9I7 and igi8 totals adjusted).

1 See this REVIEW, April I922, P. 74. 2 Gold exports from France to the United States, tabulated

in the Federal Reserve Bulletin, February, I923, P. I92, represent chiefly such gold flowing through France, both in I921 and I922, and, with one exception, indicate no draft upon French reserves.

3 See discussion by F. C. Goodenough, Chairman of Bar- clays Bank, Limited, at the stockholders' meeting January 23, I923.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE

America's excess of merchandise exports, which has been falling heavily, will further greatly diminish in I923 if it is not replaced by an excess of imports. Reasoning upon this tendency, and taking account of other items in the internatidnal balance, Washington officials of high standing have predicted a reversal of the flow of gold to America during the year. This is conceivable. It is important, however, to note that the British government has elected to pay instead of de- ferring the I923 instalments of interest and principal on its debt to the American government, and that there are no present prospects of large investments by Americans in foreign securities during the year. It is also necessary to in- quire whither the new gold output will flow if not to the United States, apart from the share which is absorbed in the East; in other words, what nations can afford to accumulate a yellow hoard in these' days? While it is very probable that America's net gold imports will be smaller in I923 than in I922, and possible that in certain months there may be a net outflow, it seems doubtful whether a turn of the tide will be reached this year.

There is still no early prospect of any formal arrangement whereby the huge surplu's gold reserves in America can be used to aid in stabilizing European currencies. Conceivably when sterling exchange returns to par the time may' seem ripe for some international agreement among the countries whose exchanges stand close to gold parity, whereby the maintenance of the exchanges at this level may be assured. This has been hinted at in various quarters, offcial and unoffcial; and it was emphatically recommended by the Finance Commission at the Genoa conference in May I922.1 Meanwhile, it is significant that, even with a reserve- ratio for the federal reserve system of over 75 per cent, the federal reserve banks of Boston, New York, and San Fran- cisco have recently raised their discount rates. American banking officials clearly appreciate the fact that much of our excess of gold must be virtually held in trust for future use abroad, and that it- cannot safely be used as a basis for expansion of domestic credit.

BANKRUPTCIES The course of business failures affords general

indications of Europe's progress in readjust-

ment. To interpret this correctly, however, one must recognize that this index lags several months behind the course of current business activity. As in the United States since the war, the climax of liquidation is ordinarily reached some time after the tide of production has turned upward.

Comparative figures for several countries are given in Table I2. In most countries of Europe business failures apparently reached their maximum sometime in I922, after a rapid increase in I920 and further increases in I92I. The improvement has been most pronounced in Sweden, where the failures were less numerous in I922

than in I92I and where the failures in the last quarter of the year were fewer than in any other quarter of the past two years. Norway and Switzerland show a similar tendency. In Den- mark failures in the first nine months were large, probably because of the influence of bank failures, but the fourth quarter shows a considerable improvement over the corresponding quarter of I92I. In Great Britain the failures for the year were considerably higher than in I92I, but conditions have improved in recent months. In the Netherlands the fourth quarter was the worst of any of the past two years, and the recovery from the depression has been very moderate and the liquidation especially prolonged. In Czechoslo- vakia the number of failures has increased in every quarter of the last two years. In both the second and the third quarters the failures were higher than in the whole of I92I. This reflects the much slower arrival of the severe crisis in that country, which seems to have culminated in the middle of I922. In Italy the fourth quarter of I922 was the worst in two years. Here too the business crisis reached its height only in I922 and liquidation is only gradually being accomplished.

Although the period of liquidation is not yet over, it is reasonable to expect that failures in I923 will generally be materially lower than in I922. In Germany, on the other hand, the situation is peculiar in this respect as in others. In the first half of I92I, when the exchange was comparatively steady, business failures increased, though they remained small in comparison with pre-war records. Since then, with rapid currency depreciation, the number of failures has steadily decreased to proportions practically negligible

1 Federal Reserve Bulletin, June, 1922, p. 678.



102 THE REVIEW OF ECONOMIC STATISTICS -

TABLE I2.- BusiNEss FAILURES IN EUROPEAN COUNTRIES: I93, I9I9-22 *

United Switzer- Nether- Czecho- Year or quarter Kingdom land lands Sweden Denmark Norway Italy slovakia Finland Germany

I913 ............. 719I ... I824 3803 33I 395 7392 ... 762 9689

I9I9 ............. I072 343 I092 2097 I44 I92 ... ... 997 1920 ............. 2288 435 I49I 2350 3I0 386 636 ... ... I302 I921 ............. 56ii 658 2339 5I86 706 io6i I70Ib 386 359 3100

I922 ............. 753I 6708 339I 4654 782 974 3556 2865 347 ioo8

I921 ISt ...... ... I68 530 I072 I58 22I I70b 27 II4 739 2d . . ... I70 544 I33I I58 288 368 63 90 906

3d -, ..... ... I62 603 I259 I62 30I 550 I20 6o 847 4th . . I58 66i I524 228 25I 6I3 I76 95 6o8

I922 ISt ........ 226 7I8 I420 I93 274 822 353C I09 414

2d ...... .. I75 796 II92 227 30I 849 458c 95 293

3d ........ ... I57a 88o I045 I97 206 898 552e 67 i85

4th . . 1 I2a 997 997 I65 I93 987 I502 76 ii6

* Monthly Bulletin of Statistics; Bankers Magazine; Swiss Bank Corporation's Commercial and Financial Review, 1920,

and Bulletin Mensuel; Maandsckrift; Federal Reserve Bulletin; Commerce Reports; Recueil Mensuel de l'Institut International du Commerce; Wirtschaft und Statistik; Economic Review.

a Provisional. b. For ii months and 2 months respectively. c. Figures for 1922 on a different basis, including "con-

cordats obligatoires."

for that country. The day of reckoning, which came to most countries in I920-22, is still postponed.

UNEMPLOYMENT

Indices of unemployment evidence both the prevalence of depression and the measurable improvement in I922. Table I3 illustrates this development. In France and Germany the pace of business activity has been such that throughout most of the year unemployment-was negligible and a labor shortage existed.' Toward the close of I922 unemployment increased somewhat in Germany although perhaps not more than should be expected in that season. The reper- cussions' of the Ruhr occupation are now causing increasing unemployment in Belgium, France, and Germany, especially in the iron and steel industries. If the occupation is prolonged, other industries will be affected in turn. In Belgium, which is subject to many of the influences affecting France, unemployment-was reduced to normal proportions during I922, but is undoubtedly higher at present.

In most other countries unemployment was considerably above normal throughout I922.

In Italy, Austria, and Czechoslovakia, it was much higher than in I92I, and in the Nether- lands slightly higher. In Italy there has been a distinct improvement during the year, but in the other countries mentioned the improvement has not been noticeable, at any rate until the fourth quarter. This movement reflects the severity of the business depression, which came to these countries later than to most others. In Great Britain, Sweden, Norway, Denmark, and Switz- erland an improvement was registered in I922,

which shows up especially in statistics of part- time employment; but in all of these countries there are still huge numbers of unemployed. In some cases the figures are probably exaggerated by inclusion of unemployables, or are larger than if emigration had been taking place, throughout the war and since, on as large a scale as before it. Nevertheless, the depression in shipbuilding, in the iron and steel trade, and in numerous other lines continues to be reflected in these statistics. The high figures of unemployment in Poland may reflect the incomplete absorption of ex-soldiers in industry, owing to the delay in restoring Polish mines and factories.

The reduction in unemployment has a three-

1 There are indications that unemployment in Germany would be greater if government departments and private concerns were free to discharge- workmen; but this condition affected 1922 rather less than anyof the three preceding years.




TABLE 13.- UNEMPLOYMENT INDICES IN EUROPEAN COUNTRIES, I9I3, I92I, I922 *

Approximate IUnited Switzer- Nether- Den- Czecho- . date Kingdom land lands Sweden mark Norway Belgium Italy slovakia Filand Poland Germany Austria

(a) (b) (c) (a) (a) (a) (a) (a) (c) (C) (c) (c) (a) (c)

1913 Mar. 3I .... I.9 3.5 ... 3.4 7.1 7.8 i.8 I.5 ... ... ... 2.8 ...

June 30 .... 1-9 39 2.6 37 0.7 2.1 ..2.7

Sept. 30.... 2.3 3.7 . .. 4.9 2.3 3.8 I.2 3.2 . ... ... 2.7

Dec. 3I-... 2.6 4.6 .. . 9.I 4.4 I5.I 3.7 3.5 ... ... ... 4.8 ...

192I Mar. 31 .... I0.0 II.3 47.6 I3.9 24.5 23.6 i6.5 I0.4 I38 38.0 2.93 80 3-7 32.I

June 30 .... 23.I I7.8 54.0 8.I 27-7 i6.8 20.6 9-9 388 3I.2 0.94 II5 -3-0 32.4

Sept. 30.... 14.8 I 2.2 66.6 6.8 27.3 I6.6 I7.3 9.6 473 29.0 I.37 70 I.4 32.8

Dec. 31 .... i6.5 I6.2 89.o i6.6 33.2 25.2 23.4 6.6 54I 22.0 2.I3 I73 i.6 32.9

1922 Mar. 3I .... I6.3 I4.4 89.I I4.I 30.6 27.9 25-4 5.2 498 36.3 2.86 I73 I.I 62.7

June 30 .... 15.7 I2.7 59.5' 9.5d 21.5 I3.2 I5.6 2.6 372 63.8 o.8o I05 o.6 37.5

Sept. 30.... 14.6 I2.0 49.5 9.Od 15.2 io.6 II.5 0 I.4 3 13 ... 0.79 .. .7 ...

Dec. 3I .... 14.0 I2.2 . .. 2I.7 20.3 ... I.7- 382 ... ... .. 2.& ...

* Ministry of Labour Gazette; Monthly Bulletin of Statistics, League of Nations; Recueil Mensuel de l'Institut International du Commerce; Commerce Reports; Manchester Guardian Commer- cial; Economic Review.

a. Percentage unemployed among trade unions covered by return. b. Percentage unemployed under compulsory insurance provisions. c. Thousands of laborers reported idle. d. Provisional. e. August.

fold significance. It implies increased business activity, increased productivity; it indicates that workers are receiving steadier incomes, whatever the wage rates; and it implies decreased burdens upon employers and the state for relief funds. Readjustments in wage rates have gone hand in hand with reduced unemployment, notably in Great Britain. All this signifies progress in the necessary, if painful, adjustments required by post-war conditions. Nevertheless, the huge unemployment doles that are still required are a heavy burden upon industry and upon state treasuries, and there is no prospect that they will be soon eliminated.

COAL PRODUCTION AND TRADE

The coal industry and the trade in coal and coke are of fundamental importance to Europe. It is therefore highly significant that for Europe as a whole, and for most countries individually, production of coal, lignite, and coke was higher in I922 than in any other year since the war and that the trade in coal and coke has regained many of its pre-war characteristics. Table I4, giving annual -and quarterly data on coal and lignite production by leading European producers, illustrates this progress.

It will be noted that only in Great Britain was production seriously curtailed in I92I. There the primary influence was the coal strike. Not only was production almost completely suspended for three months, but the recovery of output was necessarily slow. Important contributing factors, however, were the extreme depression in foreign trade, affecting bunker requirements, and the reduced demand at home and abroad incident to the general business reaction. In Belgium and Holland the same factors caused a slight reduction in I92I.

In I922 outputs were universally higher than in I92I, higher indeed than in any year since the war, except in Belgium, where a slight reduction occurred; in Czechoslovakia, where the industrial crisis reduced domestic requirements; and in Ger- many, where the partition of Upper Silesia accounts for the smaller figures since June. The output of the devastated mines of northern France rose from 5,347,000 tons in I92I to 7,824,000 tons in I922, nearly half the I9I3 output of i8,663,000.' Reports from Bulgaria indicate that her output, which fell off between I9I7 and I9I9 after rapid increases early in the war, surpassed the IgI97 record in I92I and has further increased in I922, so that the country is now an exporter of coal. Increases on the con-

1 Economic Review, February 23, 1923, p. i56.



I04 THE REVIEW OF ECONOMIC STATISTICS -

TABLE I4. - EUROPEAN COAL AND LIGNiTE PRODUCTION, I913, I9I9-22 *

(Unit: z,ooo metric tons)

COAL PRODUCTION LIGNiTE PRODUCTION Y e a r o r _ _ _ _- _ _ _ . _ _ _ - _ _ _ - _ _ - _ _

quarter Great Nether- Czecho- Czecho- Britain lands Belgium France a Saar GermanyC slovakia Poland Germany slovakia Austria Hungary

19I3 ........ 292,025 I,872 22,474 44,628 I3,2I7 I76,892 I4,268d ... 87,233 23,0I6d ... ...

I99 ........ 233,468 3,408 I8,493 22,200b 8,990 I07,69I I0,488 ... 93,840 I6,932 i,98o ... I920 ........ 233,216 3,941 22,4I4 26,272 9,410 I3I,347 II,I32 6,4I2 II,634 I9,693 2,398 4,788 192I ........ I66,992 3,92I 21,807 29,o85 9,466 I36,2II II,628 7,567 I22,897 2I,074 2,470 5,646 1922 ........ 255,892 4,573 2I,235 319I3 II,239 I30,332 . .. I37,i82 .... .... ....

I921 Ist ... 55,167 9I7 5,6I9 7,o62 2,028 35,477 3,o64 I,73I 29,986 5,433 654 1,417

2d ... 182 9II 5,005 6,886 2,300 30,972 2,926 I,773 29,803 5,043 528 I,39I 3d ... 53,281 989 5,493 7,272 2,725 34,I53 2,907 I,977 3I,033 5,237 6I7 I,292

4th .6 58,362 I,103 5,690 7,865 2,4I3 35,609 2,73I 2,o86 32,075 5,36I 671 I,546

1922 Ist ... 63,200 I,087 5,599 7,935 2,795 37,040 2,679 2,282 33,380 4,7I0 82I I,49I 2d 58,476 I,093 5,I09 7,624 2,51I 32,447 2,402 2,I62 32,550 5,I44 767 I,270

3d 64,3364,353 I,I78 5,o85 7,9I0 2,990 29,952 2,4I8 8,831e 35,38I 4,738 787 I,2I2

4th ., 69,864 I,2I5 5,442 8,444 2,943 30,893| . .. 32,87 I . . ....

* Board of Trade Journal; Economist; Maandschrift van het Centraal Bureau voor de Statistiek; Economic Review; Monthly Bulletin of Statistics, League of Nations; Wirtsckaft und Statistik.

a. Including Lorraine but not the Saar. b. Lorraine not included in January figures. c. Excluding Lorraine and the Saar. d. Bohemia, Moravia, Silesia. e. Since July 122, including Upper Silesia.

tinent reflect in part improvements in labor supplies, labor conditions, and the organization of the mines; but chiefly improved demand, owing to increased business activity and higher purchasing power. In France the gradual restoration of the devastated mines of northern France has been the leading factor. The improvement was most striking in the British output, which was not only 50 per cent higher than in I92I but io per cent higher than in I9I9 or I920, while at the close of I922 weekly outputs were sub- stantially back to the high I9I3 level. Since the British coal production is now above that of the rest of Europe combined, this increase is especially significant.

The marked recovery in Great Britain was due to several factors. One was the improvement in domestic trade as compared with I92I and the necessity of replenishing depleted stocks. In- creased shipping activity and the American strike led to enlarged requirements for bunkers: shipments of coal in bunkers rose from ii millions in I92I to i8 millions in I922, as compared with 2I millions in I913 and I4 millions in I920.

The principal increase, however, was in exports, which rose from 25 millions in I921 to 64 millions

in I922, as compared with 73 millions in I9I3 and 35 millions in I919. Table I5, showing the distribution of these exports in comparison with I913, I920, and I92I, is illuminating. In all directions shipments were higher than in I92I,

and with few exceptions, higher than in I920.

Direct shipments to Germany were 8,346,ooo tons, nearly as high as in I9I3, and a good deal more went into Germany through Holland and Belgium. The strike in the United States largely eliminated A;merican competition in foreign markets and even led to shipments to the United States. Bunker stocks abroad, depleted during the British strike, had to be replenished, and this demand was also affected by the increased shipping activity of I922. The larger shipments to the continent reflect chiefly increased- productive demands and higher purchasing power incident to the recovery from the depression, where that had been severe, and to the continued progress in productivity in Ger- many and France.

The German situation is further illuminated by Chart 7, which shows the total output of coal, lignite, and coke, exclusive of the Saar, and the coal output of the Ruhr, Upper Silesia,



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE I05

and other coal-mining districts by months since January I920. It will be seen that the coke and lignite outputs were appreciably higher than in I92I and still higher than in I920. T'he partition of Upper Silesia, effected in June I922, reduced the German share in that output by over 2 million tons a month.' This accounts fully for the reduced German output in the last six months of the year, and was a factor in the reduction in June. While satisfactory Polish figures are not yet available, the indications are that the change in political control has somewhat reduced the output of the Upper Silesian fields as a whole. The partition has affected considerably the German figures of trade in coal. Here- tofore, Germany exported coal from Upper Silesia; now, Germany imports coal from' the Upper Silesian mines under Polish sovereignty.

Germany's coal consumption was clearly higher in I922 than in any year since the war. Her shipments on reparation account were no larger than in I92I, and her imports, apart from those of Upper Silesia, were over io million tons

higher. The complaints of coal shortage in Ger- many during I922 reflect increased productive requirements rather than reduced supplies or

increased deliveries on reparation account. In part, the resumption of imports from Great Britain on -a large scale reflects a return to normal trade relations whereby north Germany is sup-

TABLE I5. - COAL EXPORTS FROm THE UNITED KINGDOM, I913, I920-22 *

(Unit: I,ooo long tons)

19I3 1920 1921 1922

Russia ............. 5,998 93 139 584 Sweden .4,563 I,372 I,233 2,523

Norway .2, 298 8oi 694 I1,567 Denmark. 3,034 I,040 I,804 2,866

Germany .8,952 13 8i8 8,346 Netherlands ........ 2,0I8 239 I,788 6,o68 Belgium .2,03 I 67I 6i8 3,489 France. I2776 II,69I 6,396 I3,579 Portugal. I,202 30I 436 784 Spain . 2,534 290 I,02 I I,7II

Italy ............... 9,647 2,905 3,383 6,342 Chile .589 7 23 84 Brazil .,887 I58 242 I,OI3

Uruguay ........ ' 724 II7 222 503 Argentine ........... 3,694 274 887 2,02 I

Algeria ............. I,282 5II 455 I,032

Egypt .3, 62 986 I,025 I,762

British India. I79 I 532 999 All other countries ... 6,829 3,461 2,945 8,924

Total exports.. ..- 73,408 24,93I 24,66I 64,197

Bunker coal .......... 2I,032 I3,840 IO,926 I8,259

* Tables selected from Accounts relating to Trade and Navigation of the United Kingdom, for each month of I922;

Accounts and Papers, United Kingdom, I9I7-I8.

CHART 7. - GERMAN PRODUCTION OF COAL, LIG- NITE, AND COKE (EXCLUSIVE OF SAAR), MONTHLY, I920-22

(Logarithmic scale)

Totalca

Coke

Upper Silesia

- I920 l921 19



io6 THE REVIEW OF ECONOMIC STATISTICS

plied by sea-borne coal instead of by rail shipments from the south. In part, however, it is true that German coal going down the Rhine to French and Belgian ports has passed Bxitish coal going up to German industrial centers. This involves a clear economic waste, incident to the reparation arrangements.

The coal situation has been greatly changed in the opening months of I923. The production of the Ruhr district was running, in I922, at about 8 million tons a month. The output has been reduced to a small frac'tion of this figure by the flight of the mine owners with their records and staffs, the disorganization of transport by the strike of the railway workers, the other difficulties which the Germans put in the way of operation and movements, and the impossibility of efficient or effective operation by the French and Belgians without German co6peration. Un- doubtedly production in other fields will be stimulated, and probably some increases in the Ruhr output will occur; but so long as the occupation continues, there is no prospect that the supply can be increased radically. Europe in general, and Belgium, Luxemburg, France, and Germany in particular, will suffer acutely from the reduction.

IRON AND STEEL

The iron and steel industry was among those most severely injured'by the industrial crisis of I920-2I. In I922 it showed a marked recovery from the extreme of the depression, and for the year as a whole production was considerably higher in all producing countries than in I92I.

Nevertheless, except in Luxemburg, production is still far below the pre-war level.

The situation is illustrated by Table i6, giving annual and quarterly figures of pig-iron production for the principal production countries, and by Chart 8, showing monthly outputs of these countries (except Germany) from January I920.

Data for coke and crude steel production reveal practically the same tendencies, and other as- pects of the same development are shown by statistics of iron-ore production and imports and exports of iron ore, pig iron, and crude steel.'

It will be noted that the influence of the industrial reaction was especially severe in Great Britain and Sweden, more moderate in Belgium,

and comparatively slight in other continental countries. Monthly data for Germany, Poland, and most other continental countries would be in accord with this statement if they were available; in Austria and Czechoslovakia, however, a reaction occurred in I922.2 In Italy the reaction was probably as severe as in Belgium, although somewhat later. Moreover, in Great Britain and Sweden the recovery has been far less complete. In these countries current production is far below the levels of I9I9 and I920, whereas elsewhere the monthly outputs in the last half of 1922 were higher than at any period since the war. British exports of iron and steel, however, were higher in I22 than in the boom year I920.3

TABLE i6. - EUROPEAN PIG-IRON PRODUCTION, I9I3, I9I9-23 *

(Unit: I,ooo metric tons)

Year or Great Luxem- Fac quarter Britain Sweden Belgium burg Franc Germany6

19I3 I0,425 730 2,485 2,544 9,077 I 2,888 19I9 7,524 496 25I 6I2 2,412 6,299 1920 8I,37 460 i,iI6 696 3,3I7 5,5566 I921 2,654 3II 876 970 3,363 7,500c

I922 5,000 356a I,604 I,677 5I,29

1921

ist I,5i6 I04 324 206 885 2d 76 I02 24I 235 86o 3d 267 51 1

I30 233 766 ...

4th 795 53 i8i 296 852 ...

1922 ist 994 57 304 332 1,020 ...

2d II,90 64 348 4I7 I,24I ...

3d I126I 63 444 45I I,337 ...

4th I,555 I72a 5o8 477 1 ,530

31923 ISt I,773 ...

* Board of Trade Journal; Monthly Bulletin of Statistics, League of Nations; Sweden Official Economic Review; Commerce Reports; Economic Review; Federal Reserve Bulletin; Recueil Mensuel de l'Institut International du Commerce; Statistical Bulletin, National Federation of Iron and Steel Manufactures, and Bulletin Statistique General de la France.

a. Provisional. b. Alsace-Lorraine included with France and excludedcfrom

Germany. c. Unofficial.

1 Economist, January I3, 1923, p. 58; Economic Review, February 23, 1923, p. I56; Commerce Reports, March 5, 1923,

p. 603. 2 Economic Review, January 26, I923, p. 76; Commerce

Reports, March 5, I923, p. 6o5. 3 Commerce Reports, March 5, 1923, p. 604.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE I07

The reasons for these contrasts lie deeper than the commonly accepted view that conservative fiscal and currency policies (miscalled deflation policies) have hindered the revival of production. The ore mines of France and Lorraine and

the furnaces and factories there and in Belgium were seriously injured during the war. The change of Lorraine and the Saar to French control and the difficulty of securing adequate and regular supplies of coke and raw materials have handicapped the industries of Belgium, France, and Germany. These obstacles to production are being overcome only gradually. There has therefore been an underlying upward trend in these countries which the business reaction merely interrupted. Moreover, the reconstruction in Belgium and France, which was little influenced by the depression, has furnished the dominant market for iron and steel, whereas British and Swedish outputs were required much more largely for new construction at home and abroad, which the business reaction curtailed heavily. Moreover, in Great Britain the reduction in shipbuilding requirements has been a more serious factor.than elsewhere, since some

30 per cent of the normal British output is said to go into ships. The same is true also of Sweden, though- in smaller degree. In Germany, on the other hand, the steady expansion of shipbuilding has been a favorable influence; and the expansion of industrial plants, abnormally stimulated by the tax system and the currency depreciation, has also been a favoring factor.

One of the most pressing problems since the war has been the reorganization of the continental iron and steel industries in view of the shift of Lorraine and the Saar to French control. Numerous efforts have been made to bring about a rapprochement, or even an international cartel, in which the producers of Belgium, Luxemiburg, France, and Germany might be combined. Some such arrangement is essential to the effective operation of the coal, iron and steel -industries in all of these countries, if not to the peace of western Europe. At one time in I922 there were intimations that these efforts would succeed, but the rivalry of interests, the distrust intensified by the war, and the unwillingness of either the French or the Germans to accept the best terms of the other, proved too strong. The failure of the industrialists to agree among themselves undoubtedly contributed to the failure of the conferences over reparations and to the decision of the French and Belgians to enter the Ruhr. Meanwhile, even the French iron and steel syndicate has been dissolved. I The occupation of the Ruhr constitutes an

especially serious setback to the iron and steel industries of the last-named countries. All are heavily dependent upon coke from the Ruhr and the Saar (where the miners have struck), and the trade in pig iron and crude steel between France and Germany is of the utmost importance to both. For lack of coke- and on account of in- terruption of this trade, numerous furnaces in all of these countries have already been blown out and steel plants are feeling the loss of supplies of fuel and raw materials. Reports in February indicated that France and Luxemburg were most affected, and Germany least; the Ruhr industries were said to be operating on full time, but this can hardly continue indefinitely. Doubtless the iron and steel industries in Great Britain, Sweden, Czechoslovakia and elsewhere will de- rive some stimulus, albeit a temporary and abnormal one, from this cause. Pig iron is even

CHART 8. - PIG-IRON OUTPUT IN EuRoPEAN COUNTRMS, MONTHY, 1920-23

(Unit: IooO metric tons)

60C __ .-g \ United Kin dom Fra-c _

40C- -?- _

30o Frrnce Png om

) /-t I / 2 9A* lum lC=

_t Bekltitm.

A ~ ~ Ur

1920 192l 1922 1923

NoTE: United Kingdom produced I4,000 metric tons in May I921, I,O0o in June, and io,ooo in July. Data for chart were obtained from League of Nations, Monthly Bulletin of Statistics; Labour Gazette (U. K.); and Eco- nomic Reviw.



io8 THE REVIEW OF ECONOMIC STATISTICS

being exported from the United States to Europe. But for financial reasons it is quite improbable that the reduction of output in the disturbed areas will be counterbalanced by increases elsewhere.

SHIPPING AND SHIPBUILDING

The year I922 was one of declining freight rates, increased shipping activity, and extreme depression in shipbuilding. These apparently contradictory but intimately related facts deserve consideration, both because of their in- trinsic importance and because of the indications which they give concerning the general economic situation.

The decline of ocean freight rates is illustrated in Table I7, giving indices prepared by the Fed- eral Reserve Board and the British Chamber of Shipping, for the first month of each quarter since January I920. The general trend has been con- tinuously downward. The drop was especially marked between June I920 and March I92I.

In I922 the decline was much more moderate than in I920 and somewhat more moderate than in I92I. Broadly speaking, ocean freight rates are now between 20 and 30 per cent of the level prevailing in January I920. Though costs of operation, too, have fallen, the prevailing rates

are considered generally unprofitable except in Germany, where costs have been abnormally low and freight rates relatively satisfactory.

The extreme decline is explained in part by the height of shipping rates during the war, which continued in I9I9 because of emergency demand for imports into Europe and the delays in putting the existing tonnage and ports into normal use. A downward readjustment was inevitable on this account apart from other conditions, but three other factors were exceedingly important. Sea-borne trade diminished greatly in I920-2i,

with the passing of the emergency demand and because of the difficulties of Europe in financing purchases abroad, the almost universal industrial depression, the coal strike in Great Britain, and improved grain crops in Europe. Simul- taneously there was a pronounced alteration in the value of money, reflected in the severe declines in price levels and necessarily also in shipping rates. Finally, there was a huge output of new merchant vessels in consequence of the new construction undertaken in I9I9-20. For the most part, these influences appear now to have exerted their full influence, and current tendencies are rather in the opposite direction; but the excess of merchant tonnage over shipping requirements can be corrected only by degrees.

The depression in shipping reached its maxi-

TABLE I7. -INCES or OCEAN FREIGHT RATES, 1920-23 *

CHAMBER OF SHIPPING OF FEDERAL RESERVE BULETI INDEx UNITED KINGDOm

Month Time charter Freight index rates United French Netherlands Scandinavia Mediter. AU Europe

I920 = IO0 Kingdom Atlantic and Belgium ranean

1920 January .... .... I00.0 100.0 100.0 100.0 100.0 I00.0 April ..... .... 90.2 87.2 78.9 82.7 72.2 83.5 July ..... .... 96.o 85.6 82.I 82.0 75-3 86.3 October .... .... |849 68.9 70.9 75.3 69.6 75-4

I92I January 46.3 59.8 60.7 30.2 34.1 42.9 43.2 43.3 April .39-5 35-9 50.- 32.6 36.6 29.4 35-7 39.0 July ....... 43-0 34-7 42.5 33-2 37-0 29.0 34.7 36.8 October 30.8 29.9 37.0 28.5 30.7 26.7 33.3 32.3

1922 January 33.0 29.9 31.7 22.7 23.3, 23.4 32.2 27.1 April. 3I.0 28.4 27.3 24.8 22.7 24.0 27.I 25-4 Jly ....... 27.8 25.4 28.8 25.9 22.6 23.0 26.4 25.9 October 28.3 23-9 25.3 23-9 I8.9 22.9 2I.6 22.7

1923 January .... 29.4 24.1 25.3 24-7 I9.8 22.3 2I.2 22.9

* Statist; Federal Reserve Bulletin.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE IO9

mum in I92I. Generally it continued in I922,

but the increase in shipping activity is one of the most striking features of the past year. It is important both as an indication of improved conditions of world trade and because of the importance of the shipping industry to the maritime nations. The recovery is most clearly revealed in statistics of shipping entrances and clearances, and in reports of idle tonnage. Illus- trating this tendency, Table i8 gives annual and quarterly data of shipping clearances for certain countries, and Table I9 gives a recent Department of Commerce estimate of tonnage unemployed on January i, I922 and I923, in comparison with Lloyd's figures of world tonnage on July i, I922.

Statistics of shipping movements indicate a fairly steady increase in entrances and clearances in European continental ports ever since I9I8,

except in Sweden, where I920 was the best year since the war, and in Great Britain, where the coal strike reduced the movement appreciably in I921. The progress in I922 was pronounced in every country of Europe and, if allowance is made for seasonal influences, was fairly con-

tinuous. In most cases the I922 figures are not far below those of I9I3.

Idle tonnage reached tremendous proportions in I92I: at one time during the year probably a third of the world's merchant shipping was unemployed. Even after an improvement in the second half-year, the idle tonnage was estimated at ii million gross tons at the opening of I922. A year later this was reduced by practically 2

million tons. Almost the whole of this reduction occurred in European shipping, for American idle tonnage was no smaller and that of Japan only slightly less. At the opening of I923,

Scandinavian and German tonnage was almost fully employed, while British- idle tonnage amounted to only 5 per cent of her fleet and was said to be better distributed than at any time since I9I4. The present figures, though still excessive, exaggerate the extent of the surplus: unquestionably much of the tonnage now reported idle is obsolete, in bad repair, or otherwise virtually unemployable, and a great deal of it will be scrapped.

The improvement in I922 over I92I is due in part to low European grain crops, and in large

TABLE i8. - EUROPEAN SHIPPING MOVEMENTS: CLEARANCES, I9I3, I919-22*

(Unit: I,ooo net tons)

United Net-her- Germany Year or quarter Kingdom lands Sweden Norway Belgium France Spain Greece Hamburg Latvia

(a) (a) (b) (a) (a) (a) (b) (b) (a) (b)

1913 ... ..... 67,820 I1,oi6 I3,764 4,740 i6,896 26,08I 28,992 ... I4,440 ...

I9I9 .34556 3,660 8,472 2,232 4,4i6 9,390 8,424 22472 I,450 ...

1920 .36,726 6,528 II,637 3,397 II,304 i6,947 I2,984 3)972 4,3I3 ...

192I ....... 36,97...... 9,876 8,o97 3,477 14,322 2i,565 i5,982 4,722 9,443 777 1922 . 59,680 .... .........5 io449 .... .... .... ... I3,348 ...

I92I ISt ........ 8,I72 2,278 I,6oo 906 3,210 4,60i 4,o60 1,038 I,928 I30 2d ....... 5,545 2,499 I,7I5 752 3,546 5,I97 3,443 I,058 I1985 I89 3d ....... I0,673 2,634 2,297 902 3,8i6 5,906 3,620 I1290 2,742 222 4th ....... I2,006 2,465 2,485 9I7 3,750 5,86i 4,859 I,336 2,788 236

1922 ist ........ I2,636 2,348 2,I56 961 3,804 5,4I3 4,I29 II77 2,6I4 I94 2d ........ I4,263 2,625 2,477 13I3 4,245c 6,90I 4,045 939 3,68i 378 3d ........ i64I4 2,706 3,I52 I1,9I 4,428 7,28i 4,2I5 I,20 3,634 364 4th . i6,387 2,770 .... .... .... 7,57 .... ... 3,4i8 ...

* Board of Trade Journal; Accounts of Trade and Navigation; London County, Westminster and Parr's Bank Reports; Monthly Bulletin of Statistics, League of Nations; Recueil Mensuel de l'Institut International du Commerce; Commerce de la France; Wirtschaft und Statistik.

a. With cargo only. b. With cargo and in ballast. c. For May and June figures include l'Union &onomique

Belgo-Luxembourgeoise.



Iio THE REVIEW OF ECONOMIC STATISTICS

TABLE I9. - ESTimATED IDLE MERCHANT SHIPPING, JANUARY I, I922 AND I923, COMPARED WITH SEA- GOING STEAM AND MOTOR TONNAGE, JULY I, I922 *

(Unit: I,000 gross tons)

PEE CENT TONNAGE IDLE TONNAGE IDLE

Country July I, IQ22 Jan. I, I922 Jan. I, I923 Jan. I, I923

United Kingdom. 19053 I,96I 1,00 5. 3 Belgium ........ 275 275 ...

France .......... 3,303 I85 730 22.I

Italy . 2,600 585 472 I8.2

Germany ....... I,783 ? nil o.o Holland ......... 2,6I3 327 330 I2.6

Denmark ....... 944 I6I ? ...

Sweden ......... .996 204 -22 2.2

Norway ........ 2,337 207 53 2.3

Spain .......... I,I87 530 520 43.8 Greece ......... 653 I70 Ii6 I7.8

Japan ........... 3,325 I20 99 3.0

United States .... I2,506 5,309 5,328 42.6

* Department of Commerce Estimate of Idle Shipping, from Journal of Commerce, February 23, I923; Lloyd's Regis- ter data on merchant fleets, from London Joint City and Mid- land Bank Monthly Review, July, 1922.

measure to the revived coal trade, but it reflects also a heavier volume of sea-borne traffic in raw materials and manufactured goods of many sorts, which can take place only as productivity increases and industry improves.

The plethora of world shipping, which is basic- ally responsible for the low freight rates and the huge volume of idle tonnage in the face of increased shipping activity, is attributable in part to the war construction in the United States, but also in part to the great post-war boom in Euro- pean shipbuilding, which has been followed by an extremely severe depression. Table 20 illustrates this movement with Lloyd's figures of launchings and of tonnage under construction in European countries in recent years. The boom was due partly to the desire of shipping companies to restore fleets depleted by the war, partly to rampant nationalist sentiment in countries such as France and Italy, and partly to the mad rush to get more ships to carry the large post-war volume of good at the high rates which prevailed in I9I9 and I920. Accordingly, launchings reached their maximum in Great Britain in I920

and in most other European countries in 192I.

When in I920 and I92I shipping freights

dropped sharply and shipping companies found great difficulty in -employing their- existing vessels, contracts for new ships were canceled and work was suspended on tonnage under construction. Few new vessels were commenced in I921;

and, as the depression continued into I922, still fewer new vessels were commenced in that year. Keels on which some progress had been made were even taken from the stocks and junked; hence the marked decline in launchings in 1922

and in tonnage under construction at the end of each quarter of the year. If allowance is made for suspensions of operations, the tonnage actu-

TABLE 20.-EUROPEAN SHrPBUILDING, I9I3, I9I9-22*

(Unit: x,ooo gross tons)

LAUNCHINGS

ULnited Gr Year King Nether- sweden Den- Nor- France Italy manyb

dom lands mark way many

I913 I,932 I04 I9 4I 5I I76 50 465

I9I9 I,620 I37 5I 38 58 33 83 a I920 2,056 I83 64 6i 39 93 I33 440

I921 I,538 232 66 77 5I 2II I65 509

I922 I,03I 163 30 4I 32 I85 IOI 526 b

UNDER CONSTRUCTION

End of year or quarter

1913 I,957 I27 ... ... ... 229

I919 2,994 328 III IOO 93 2I7 315

I920 3,709 45I I23 I2I 84 398 364 I92I 2,640 314 78 63 62 353 394 ...

1922 I,469 I43 ... .... ... I89 2 1I ...

1921

Ist 3,799- 4I8 .III I23 88 427 352 ...

2d 3,530 39I 98 IO9 85 390 3IO ... 3d 3,283 349 87 82 77 351 398 4th 2,640 314 78 63 62 353 394

'1922

ISt 2,236 258 56 62 50 286 3I2 .. .

2d I,920 226 40 52 53 243 286 5oo 3d I,6I7 I77 46 40 45 I97 2IO 350

4th 1,469 I43 45 35 41 I89 21I 4I6

* Lloyd's Register data, from Board of Trade Journal; Monthly Bulletin of Statistics, League of Nations; Journal of Commerce; Economist; L'Economiste Europden.

a. Not reported. b. Pre-war German figures include Danzig, which launched

50,000 gross tons in 1922, and which had over 40,000 tons under construction at the end of I922.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE III

ally under construction in Europe was probably less than one-third of the tonnage building two years before. Great Britain and Holland suffered the most extreme reduction; in Great Britain a third or more of the shipbuilding workers were unemployed in each month of I922.

In Germany alone was the tendency different. Under extreme pressure, the Germans surrend- ered their merchant fleet in I919 on reparation account. Subsequently, with the aid of com- pensation made by the government and under the stimulus of low wages and subnormal costs, the shipping companies set to work to build up the fleet even while the ships of other nations were lying idle by the thousands. Each year -since the war they have launched more ships than in the preceding year, and their pre-war record has been broken even if one leaves out of account the tonnage built at Danzig. Germany's shipping fleet has been increased by purchases also, and now probably exceeds 2 million gross tons.

The shipbuilding depression has not yet ended, but the worst may well be past. Each of the last two quarters of I922 saw an increase in tonnage commenced in Great Britain, and in the final quarter new keels laid nearly equaled the launchings. In other countries too a change was evident toward the end of the year. Until the old, obsolete, and uneconomic vessels have been scrapped, in America as well as abroad, it will be difficult to see how the available world tonnage compares with the shipping requirements; but shipbuilding is not likely to be very active until international trade increases considerably further in, volume and ocean rates have risen appreciably above their present level.

It is worth noting that, for the most part, the depression in shipping and in shipbuilding has injured the nations best able to bear the loss - the United States, Great Britain, Japan, Hol- land, the Scandinavian countries, Spain; while the non-maritime nations of the continent have profited by the low levels of ocean freight rates on their imports and exports. Belgium, France, and Italy, however, have suffered both in shipping and shipbuilding.

OTHER ECONOMIC EVIDENCE

Brief reference should be made to some other evidence concerning the European economic situ-

ation, which cannot be fully discussed because of limitations of space.

The output of bread grains was heavily reduced in I922, chiefly because of adverse weather conditions in the winter and spring. Both in Ger- many and France, however, the pessimistic early reports have not been borne out by later statistics. Particularly in Germany it is impossible to reconcile the low estimates of the grain crops with the low imports and the recent official assertions that Germany is adequately supplied with food until July. Production of potatoes, sugar beets, other root crops, fruits, nuts, oil seeds, and wine have been excellent. Live stock has increased less rapidly than in the preceding years and is still far below normal. Supplies of phosphates are especially deficient in Germany. In most other respects agriculture is generally favored by increased supplies of fertilizer, as well as of agri- cultural machinery.

Railway car loadings, a good index of domestic trade, were generally higher in I922, and in France and Germany higher than in any year since the war. In France the improvement ac- companied a marked increase in traffic by canals, which have now generally been restored to good working condition. In Germany car shortages prevailed except during the summer, owing chiefly to heavy requirements despite improvements in railway equipment and traffic conditions. In Great Britain the increase in domestic coal movements was noteworthy but the movement of general merchandise increased only slightly, and both remained lower than in I920

or I913. Generally speaking, the railways improved financially. With the changes in rates, railway revenues on the leading French lines increased by an average of over 7 per cent in I922,

and the deficits continued to decline. British railway earnings were appreciably higher than in recent years, despite some reductions in rates.

Foreign trade figures cannot readily be interpreted without detailed analysis. The value figures are distorted by price changes, in countries of depreciating currency by the utter impossibility of getting valuations that are even approximately accurate, and in the case of France, because of the peculiar bases of valua- tion. Aggregate weight figures are distorted by changes in the components, especially by the predominance of coal, coke, iron ore, pig iron,



II2 THE REVIEW OF ECONOMIC STATISTICS

and other heavy raw materials. Territorial changes, such as the transfer of Alsace-Lorraine, the partition of Upper Silesia, and the economic union of Luxemburg with Belgium, vitiate com- parisons with I9I3, and even I92I, in the case of Belgium, France, and Germany. Without a thoroughgoing study, however, a few words can be said to supplement the evidence afforded by shipping movements.

Judging by index numbers of the volume of trade expressed in terms of I9I3, British imports increased greatly over I92I, nearly to the levels of I919 and I920; and exports recovered steadily through the year, until in the last quarter they exceeded the quarterly average for any other year since the war. Both, however, remain materially lower than in I9I3. Quantity figures for leading French and German exports show, in the main, moderate increases in manufactured goods and an import trade more nearly normal. Swed- ish exports recovered greatly, and in some of the leading lines the I9I3 level was even exceeded. The Baltic states have shown a marked improvement in their exports. Even Russia shows some increase. Data for motor car and motor truck exports from the United States, and for British lumber imports and exports, afford significant evidence of improved conditions on the continent of Europe. While the improvement has not been universal, the instances of retrogression are few and relatively unimportant.

Moreover, in most countries there has been a definite, though inadequately measurable return to more normal balances between imports and exports. In the case of Great Britain, the adverse merchandise balance is a little smaller than in I9I3, if allowance is made for the change in price levels; while estimates of invisible items yield a favorable balance of 62 million sterling, as compared with a favorable balance of I93

million sterling in I9I3 and an adverse balance of 63 millions in I92I.1

THE PROCESS OF EUROPEAN RECOVERY

The nature of the process by which recovery in Europe should be expected has been often misconceived. We frequently speak as if all Drogress in recovery must await the completion

of certain preliminaries. The case is presumed to be analogous to the starting of' a railway'train. First the locomotive and cars must be put in good repair, coal'and water provided, a skilled fireman and engineer put in charge, and steam got up; then the train can start. Similarly, it is argued, as conditions precedent to recovery, European nations must first have general peace, reduced armaments, a settlement of the reparations issue, definite schedules for paying international debts, balanced budgets, a reestab- lishment of the gold standard, and so on; then, and not until then, can they go forward. Hence particular remedies are emphasized as of vital importance.

The experience of Europe indicates the error of this conception. Measurable progress has clearly been made, but none of these preliminaries has yet been effected. 'The truth is that few of these desirable objectives can be attained in advance of the commencement of recovery; they can be attained only in the course of that recovery. Most of them are indeed essential to complete restoration of normal conditions in Europe, but their attainment is part of the recovery itself.

What has been happening in Europe is this: The areas disturbed by war have diminished. Standing armies, though still twice as large as before the war, have been gradually reduced. Devastation is being corrected. Plants adjusted to war requirements have been gradually converted to new uses. Maladjustments of industrial plants and shipping are being corrected by rust or reconstruction. Roads, bridges, rail- ,ways are being repaired or rebuilt. Railway equipment is being put into condition and increased. Buildings are slowly being replaced, and the deterioration which characterized the war period is being overcome. Water power resources are being developed. International commercial connections are being reestablished. The excessive friction caused by instability of prices and exchange is being reduced. Live stock is increasing. The fertility of the soil is being restored. Stocks of foodstuffs and raw materials are being built up. Government functions, ex- panded greatly during the war, are being reduced.

Many of these things involve heavy capital eXDenditures, Dublic and Drivate. or a corre-

I Economist, February I7, I923, p. 296.



ECONOMIC AND FINANCIAL PROGRESS IN EUROPE II3

sponding expenditure of effort in restoring intangible capital. The process requires the devotion of current savings largely to restoration and only moderately to expansion. For the time, heavy additions to public debts are inevitable. Much of the expenditure can show its fruits only some time after it has been made. Yet as this process continues, productivity and trade tend to increase, tax-paying ability improves, and both ordinary and extraordinary expenditures of the governments decline. Only as progress is made in these directions is it possible to arrest the growth of public debts, balance budgets, adjust accounts between creditor and debtor governments, regain sound monetary standards, and reduce to more normal proportions the instability of prices and exchange. These developments must be gradual, and can be attained only country by country.

The process seems painfully slow. Un- doubtedly it is far slower than it would be if political and business leaders had cooler tempers, greater foresight, and a truer perspective, and if mutual understandings and reasonable recon- ciliations of clashing interests could be reached. The situation calls for neither complacency nor exasperation, but rather for patient attack upon the obstacles that interfere with the operation of economic forces making slowly but surely for attainment of normal productivity and trade.

Considering the magnitude of the war and the complexity of the problems it bequeathed, the progress already made is very substantial. The disappointments of I922 lie chiefly in the fact that all efforts to reach agreement upon the outstanding obstancles to European progress in recovery were admitted failures; and the Ruhr occupation is serious because it promises to cause a definite reduction in productivity and renewed maladjustments of finance and industry in western Europe, without resulting in as reasonable a settlement as wise negotiation would have yielded.

The underlying trend at the opening of I923

was strongly upward. Were it not for the financial chaos in Germany, the bitter struggle in the Ruhr, and the threat of fresh wars in eastern and southeastern Europe, the outlook for this year would be distinctly favorable. Clearly Europe is in a stronger position than in any recent year to stand the strain imposed by the unfavorable developments mentioned. Certainly they will have untoward effects on the countries im- mediately concerned. The calmness of the financial markets reflects the prevalence of an optimistic view, but at the time of writing it is impossible to weigh accurately the chances whether these factors will merely retard the recovery in process or will result in social revolution and renewed economic disintegration.



economic and financial progress in europe

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