﻿V

THE PRICE LEVEL

The relation of certificates of indebtedness to the
price level is an aspect of the larger question of the
effect of war borrowing upon economic and social
well being. Even before our entry into the war this
consideration had been much to the fore in fiscal dis-
cussion in this country and abroad, in connection
with the outright disfavor of funding and the vigor-
ous advocacy of an “ all tax ” policy in war financ-
ing, on the score that war loans make inevitably for
inflation and rising prices.

It is possible to trace with some exactness the
growth of the doctrine that war loans cause in-
flation.1 Without returning to shadowy beginnings,
the first explicit phrasing of the argument appears to
have been made in 1915-1916 by an English econ-
omist of note, Mr. A. C. Pigou, professor of polit-
ical economy in the University of Cambridge in two
public lectures delivered in Cambridge, in articles
contributed to the Contemporary Review and, more
formally, in the little book on “ The Economy and
Finance of the War.”

1 See a paper by the writer “ Do Government Loans Cause
Inflation? ” (in Annals of American Academy of Political and
Social Science, January, 1918), from which the succeeding
paragraphs are taken.

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