316 
Y 
INTERNATIONAL TRADE 
one set of Americans who furnished the funds for paying still 
another set of Americans. The actual merchandise — the iron 
and steel, copper, railway material, motor cars, cotton, leather, 
breadstuffs and meat products — went to foreigners. What came 
from foreigners was merely some scraps of paper, their govern- 
ments’ promises to pay; nay, in sundry cases nothing more than 
an entry on the books of the Treasury. Never was the nature of 
capital export exhibited more clearly. Goods go out, and for 
the time being nothing enters in return. And never before was the 
nature of capital export more completely misunderstood. The 
country was supposed to receive much and to relinquish nothing; 
whereas in fact it parted with much and received nothing. 
The curious self-deception of the American public was largely 
due to the continued upward movement of prices, the continued 
war boom, the specious appearance of wonderful prosperity. And 
in this regard there is a sharp difference between the first stage 
and the second. The upward movement of prices which had 
begun in the latter part of 1915 and had become marked in 1916 
went on with swifter pace thru 1917 and 1918. The reader may 
be assumed to be familiar with its character and its momentous 
consequences. What is pertinent to the problems of international 
trade is that during this second stage — 1917 and after — the 
price movement was the result of domestic causes only. During 
the first stage it had been otherwise. Then the great imports of 
gold (during the fiscal years 1916 and 1917) filled the reservoirs of 
the banks. The Federal Reserve System, established in 1913, 
was just getting on its feet. The inflowing gold supply made its 
way into the coffers of the Reserve Banks, and supplied the basis 
for a quick and sharp expansion of credit, deposits, and circulating 
notes. But when the country entered the war the inflow of gold 
ceased. It was no longer necessary for the Allies to muster every 
resource — gold, as well as loans and sales of securities — in order 
to pay for their purchases. The United States Treasury stepped 
in for them. 
The operations of the Treasury, however, served to expand the 
circulating medium even more effectively than the gold imports