power as the average of those which it borrowed at the five Liberty Loan dates.[1]
In considering Europe's burden of debt we must remember the unacknowledged premium on gold and the grave circumstance, of similar significance, that the price upheaval in Europe was even more serious, far more serious, than with us.
In the absence of any more exact estimate let us assume that the average price level in western Europe is threefold that of 1913 while ours is only two-fold.
Conformable to this situation we may further assume that to resume specie payments and get back to and maintain the old pars of exchange, European price levels must drop relatively to ours by about one third; for, if our present price level be maintained, Europe's would have to fall in the ratio of 3 to 2.
This means that the purchasing power of her money must appreciate in the ratio of 2 to 3. Such an appreciation would alone add 50% to Europe's burden of debt as compared with what it is at present prices.
Now, if we in America insist on reverting to our pre-war level—if, that is, we double the present purchasing power of our dollar, Europe's price level, in order to get back to the normal relation to ours, must be cut in three and her war debt virtually tripled. Even without war debts Europe would be ruined economically if her money units were thus tripled in purchasing power within a generation. Even an enhancement of 50% would be almost unbearable and would probably fan social discontent into revolution. To see that this is a grim fact we need only to recall how be-
- ↑ The average index number at the five dates was 195 (on the basis of 100 for 1913), calculated as follows:
1st Liberty Loan June 1917 index number 184×2.0 billion = 368 2d Liberty Loan Nov. 1917 index number 182×3.6 billion = 655 3d Liberty Loan May 1918 index number 191×4.1 billion = 783 4th Liberty Loan Oct. 1918 index number 204×7.0 billion = 1428 5th Liberty Loan May 1919 index number 200×5.3 billion = 1060 weighted average index number 195×22 billion = 4294
