in THE MARK EXCHANGE 93

and the rest of the world: the liability to makepayments to foreigners operating on this directly; andthe inflation of the currency operating on it indirectly,either because the additional paper money stimulatesimports and retards exports, by increasing localpurchasing power at the existing level of values orbecause the expectation that it will so act causes anti-cipatory speculation. The expansion of the currencycan have no effect whatever on the exchangesuntil it reacts on imports and exports, or encouragesspeculation ; and as the latter cancels out, sooner orlater, the effect of currency expansion on the exchangescan only last by reacting on imports and exports.

These principles can be applied without difficultyto the exchange value of the mark since 1920. Atfirst the various influences were not all operating inthe same direction. Currency inflation tended todepreciate the mark ; so did foreign investment byGermans (the " flight from the mark "); but invest-ment by foreigners in German Bonds and Germancurrency (an exact line between which and short-period speculation it is not easy to draw) operatedsharply in the other direction. After the mark hadfallen to such a level that more than 100 marks couldbe obtained for a £ sterling, numerous persons all overthe world formed the opinion that there would be areaction some day to the pre-war value, and thattherefore a purchase of marks or mark Bonds wouldbe a good investment. This investment proceeded