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APPENDIX 
(VIIb) The fluctuations in the value of money become most ap- 
parent when the money side of a sale is shifted from the currency of 
one nation to that of another, at the prevailing rates for the foreign 
exchange involved. When in the spring of 1920 the German mark 
rose for a time from 1}% to 2% cents, many German exporters who 
had purchased goods on credit from German producers for foreign 
delivery and who had, consciously or unconsciously, gone short of 
money in so doing, suffered severe losses. 
To take an imaginary but quite typical instance, a German export 
house, let us say, had purchased a consignment of potash from a 
German company for 400,000 marks, paying 100,000 marks (or a 25- 
point margin) down on the transaction. This potash the German ex- 
porters agreed to sell to an American firm in New York for $7,500— 
the equivalent of 500,000 marks at the rate of exchange (1 mark = 
114 cents) then prevailing. The German exporters naturally expected 
a profit of 100,000 marks in the sale. But, as has been pointed out, 
the German exporters were forced to go short of money at the same 
time they bought the potash on margin. During the time elapsing 
between the receipt of the potash by the German exporters and its 
delivery by them in New York the value of the potash does not change, 
but the value of the German mark rises from 1% to 2% cents. Ob- 
serve the result. The $7,500 paid by the American house is exchanged 
at 214 cents per mark for only 300,000 marks, instead of 500,000 
marks expected under the old rate of 15 cents. ‘In consequence of 
this rise in marks, of which the German exporters had gone short, the 
latter not only do not make their expected profit of 100,000 marks, 
but in addition lose their margin of 100,000 marks and are barely able 
to pay the German producers the 300,000 marks still owed to them. 
(VIIc) Before the establishment of the Federal Reserve system, 
the call loan market on the New York Stock Exchange constituted 
the only central liquid factor in American banking. During a bank- 
ing crisis, American banks would, therefore, almost unanimously “call 
their loans,” to place themselves in liquid position. The remarkable 
thing about this old system was that the call loans were always so 
safe from the lenders’ standpoint. But the maintenance of such safety 
imposed a terrible burden and risk upon the borrowing brokers and 
their customers, and on call loan interest rates. Few cases ever oc- 
curred where a Stock Exchange member could not in the long run 
get a loan on good securities. But the interest rates soared in the 
process to sometimes fantastic figures. In the panic of 1907, a few 
loans were even made at 1259, per annum! Needless to say, however, 
these were retired in a few days.