EXCESS LIQUIDITY AND EUROPEAN MONETARY REFORMS, 1944-1952.

During early post-Second World War years in the U.S., there had been much discussion concerning probable effects of large liquid asset holdings on consumption and private investment spendings. Many economists felt that excess liquidity would have a direct inflationary effect on spending habits of both households and business firms. Europe, however, had another concern, primarily because it was generally agreed that there was imminent danger of hyperinflation if the volume of liquid assets were not drastically reduced. Further, a widespread feeling existed that if assets were allowed to remain in the system they would undermine any monetary-fiscal program aimed at deflation. Through European eyes, the presence of large liquid asset holdings created a serious stumbling block in the path leading to inflation control. As a consequence, one principal anti-inflationary weapon used in this area of the world was monetary reforms, which, in one way or another, swept away large portions of liquid assets accumulated by the public in the course of war and occupation.