THE UNITED STATES, III. AFTER 1914 317 
had done. The disposal of the successive Liberty loans was accom- 
plished by utilizing to the utmost the credit machinery of the banks 
of the Reserve System. Purchases of the bonds were fostered, 
indeed were fairly pumped up, by great subscriptions for which 
the banks supplied the funds. Billions on billions were disposed of 
by this forcing process. The banks made loans to the subscribers, 
creating deposits to their credit; checks against these deposits 
served to pay for the bonds; the Treasury again deposited the 
checks to its credit, and in due time drew its own checks in 
payment for the war expenditures (including the loans to the 
Allies). The large stock of gold held by the Reserve Banks en- 
abled the expansion to take place without the traditional earmarks 
of an undue or dangerous procedure. Indeed, the one really im- 
portant sign of excess and the one effective check of excess — the 
outflow of gold — could not have taken place anyhow. No one 
of the traditional links of connection between price changes and 
international trade was present: neither an inflow of gold as a 
cause of rising prices, nor an outflow as a check. The Treasury 
and the banks were able to go their way in raising the war billions 
by creating deposits ad libitum. And these deposits remained a 
permanent addition to the effective circulating medium — per- 
manent, that is, in the sense of remaining in effect so long as the 
debts incurred by subscribers to the bonds continued to be carried 
by the banks. The deposits kept going round and round. First 
they were used by the Treasury in its various payments; and then 
used and spread broadcast by the contractors, merchants, manu- 
facturers, farmers, soldiers, into whose hands the money” flowed. 
As with the export of capital, so with these financial operations, 
the process was one of self-deception. The real efforts and 
sacrifices of the war were concealed. And in both cases, the 
really significant operations were purely domestic, quite divorced 
for the time being from international trade. 
All this could not go on indefinitely. The phenomenal excess 
of exports could not possibly persist. The upward movement of 
prices must come to an end when the Treasury’s war operations 
would cease. A process of readjustment was inevitable. With