THE  PRICE  LEVEL

159

2  See  Professor  W.  A.  Scott’s  able  paper  “  Bond  Issues  and
the  Money  Market  ”  in  “  Financial  Mobilization  for  War  ”
(Chicago,  1917)-

unexpectedly  translated  into  the  higher  altitude  of
state  policy  by  a  sentence  of  President  Wilson’s
message  to  the  special  session  of  Congress:
“  It  is  our  duty,  I  most  respectfully  urge,  to  protect  our
people  so  far  as  we  may  against  the  very  serious  hardships
and  evils  which  would  be  likely  to  arise  out  of  the  inflation ­
  which  would  be  produced  by  vast  loans.”
In  the  nineteen  months  of  our  active  participation
in  the  war  the  inflation  argument  has  undergone  two
interesting  developments.  In  the  first  place,  the
argument  has  come  to  be  used  less  in  outright  resistance ­
  to  funding  in  war  finance,  of  any  kind
and  to  whatever  extent,  but  has  been  employed  in
much  more  rational  way  in  restraint  of  an  exclusive
or  disproportionate  reliance  upon  funding  and  a  corresponding ­
  avoidance  or  insufficient  use  of  taxation.
In  the  second  place,  careful  thought  has  made
clear  that  inflation  may  easily  but  need  not  inevitably
result  from  war-time  borrowing,  and  cautious
analysis  has  sought  to  establish  the  essential  distinction. ­
  The  actual  process  has  been  subjected  to
searching  examination,  and  the  following  conclusions ­
  may  be  said  to  represent  the  present  consensus ­
  of  deliberate  economic  opinion:  2
To  the  extent  that  loans  are  made  ultimately  from
uninvested  capital,  from  current  income,  from
liquidated  investments,  or  from  current  and  future
savings  there  need  be  no  inflation.  To  the  extent
that  loans  are  made  by  banks  for  their  own  account