﻿THE PRICE LEVEL

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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 infla-
tion 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 re-
sistance 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 cor-
responding 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 distinc-
tion. The actual process has been subjected to
searching examination, and the following con-
clusions may be said to represent the present con-
sensus 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

2 See Professor W. A. Scott’s able paper “ Bond Issues and

the Money Market ” in “ Financial Mobilization for War ”

(Chicago, 1917)-