9 6

A RE VISION OF THE TREATY

CHAP.

Germany would require a much larger note issuethan at present, if German internal prices were tobecome adjusted to gold prices at an exchangeof more than 1000 marks to the £ sterling. 1 If,therefore, the other influences were to be removed,if, that is to say, the Eeparation demands wererevised and foreign investors were to take heartagain, a sharp recovery might occur. On the otherhand, a serious attempt by Germany to meet theEeparation demands would cause the expenditure ofher Government to exceed its income by so great anamount, that currency inflation and the internalprice level would catch up in due course the externaldepreciation in the mark.

In either event Germany is faced with an un-fortunate prospect. If the present exchange depreci-ation persists and the internal price level becomesadjusted to it, the resulting redistribution of wealthbetween different classes of the community willamount to a social catastrophe. If, on the otherhand, there is a recovery in the exchange, the cessa-tion of the existing artificial stimulus to industry

1 Since there are about as many German Government Treasury Bills,payable at short notice, held by the pubLic and the banks, other than theReichsbank, as there are Reichsbank notes, the note issue can be easilyexpanded as soon as the internal price level needs more legal tender currencyto support it, even apart from new issues by the Government to meet theexcess of their expenditure over their income. Do those, who wouldenforce on the German Government a cessation of "the printing press,"intend that the outstanding Treasury Bills should be repudiated, if at theirmaturity the holders wish to be paid off in cash ? There is no such easysolution of the overwhelming problems of Gorman Public Finance.