THE  PRICE  LEVEL

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The  current  war  loans  of  the  United  States  have
been  neither  as  simple  nor  as  direct  as  the  above,  and
this  in  consequence  of  the  use  of  certificates  of  indebtedness. ­
  The  Treasury  has  been  supplied  in  the
first  instance  by  anticipatory  borrowings  in  the  main
from  the  banks  and  to  a  limited  extent  from  investors, ­
  and  such  temporary  obligations  have  at  intervals ­
  been  liquidated  out  of  or  funded  into  issues
of  long  term  bonds  bought  in  the  course  of  intensive
flotation  campaigns  by  investing  citizens  and  banks.
This  procedure  —  conveniently  described  with  respect ­
  to  its  dominant  feature  as  “  certificate  borrowing ­
  ”—  presents  much  more  complex  possibilities  as
to  resultant  inflation.  The  certificates  of  indebtedness ­
  may  be  paid  for  from  out  of  savings  or  from
out  of  loans,  and  the  same  alternatives  exist  with  respect ­
  to  the  bond  issues  by  which  or  from  the  proceeds ­
  of  which  the  certificates  are  eventually  extinguished. ­
  In  short,  new  variables  enter  into  play  and
the  outcome  becomes  more  than  ever  dependent  upon
elected  policies.  The  conclusions  which  might  be
expected  to  result  from  these  more  intricate  conditions ­
  might  be  summarized  briefly  as  follows:  If
the  certificates  are  taken  over  by  the  banks  and  by
investors  without  the  creation  of  additional  deposit
currency,  and  if  the  funding  bond  issues  are  thereafter ­
  subscribed  and  paid  for  from  out  of  savings,
there  will  be  no  loan-created  inflation.  To  the
extent  that  any  of  these  assumptions  are  unrealized,
the  possibility  of  such  inflation  is  present.
Before  passing  to  our  direct  concern  —  the  manner ­
  in  which,  if  at  all,  the  use  of  certificates  of  in ­