CHANGES IN VOLUME OF PAPER MONEY 391 the decline of transactions with foreign countries as well as within the country, breakdown all around. This is what took place in Germany when the issues of paper money, at first comparatively moderate, reached the farcical dimensions of 1923. The export bounty and the exchange dumping came to a speedy end. Quite different conditions appeared when the paper rubbish was finally swept away, and the newly stabilized mark system was established. Then emerged the situation which has been considered elsewhere — that of a stable currency, which it was designed to keep on a par with specie, but which had the essential characteristics of a gold exchange system. We return to the main proposition ; namely, that depreciating paper does not in itself lead to rates of foreign exchange that wil stimulate either exports or imports. As with almost every general proposition on these matters, there are cases w. «93 De regarded as exceptions to the rule. One such played a large purt in the paper exchanges of the post-war period. Depreciating paper may bring about the “flight of capital.” Tnvestors may become uneas from continued depreciation, may fear complete collaps: and may wish to place their possessions in secure form. They will then buy gold exchange, sending the funds to foreign banks; or may buy foreign securities. Germans and Frenchmen during the ominous stages bought dollar exchange, Swiss exchange, sterling exchange, or else securities of these countries. The rates, in terms of francs or marks for dollars, Swiss francs, pounds sterling, not only rose, but rose more than domestic prices. And this disproportionate rise operated tostimulate exports. A bounty arose in just the same way as it does when governments use paper money at the outset for meeting their own foreign engagements. I suspect that it was operation of the latter, direct purchase of foreign exchange by government, which played the largest part in the bounty experienced (so long as conditions had any calculability) in Ger- many, in 1924-25, whereas it was the flight of capital that played the more important part during the depreciation of the French franc. Such a flicht of capital is a natural or at least presumable