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WAR BORROWING

by credit creation, or by individuals through bank
loans in the nature of long time engagements rather
than of installment purchases — inflation may re-
sult. The actual proportion of such non-inflating
“ savings loans ” to the class of potentially inflating
“ credit loans ” is in the war funding experience of
the belligerent states undetermined. But whatever
it be, there is no fixity attached and financial policy
exercised through banking control can reduce the
relative and even the absolute importance of in-
flation-causing borrowing. That an unwisely
directed borrowing policy may take the form of
“ credit loans ” is no reason why borrowing as a
measure of war finance must be denounced lock,
stock and barrel as inflationist in effect. The
obvious alternative is, having first determined to
what extent recourse shall or must be had to loans
in a war programme, to plan such borrowing de-
vices as will draw upon the fund of present and the
source of future savings, without recourse to credit
expansion.

All the foregoing is predicated upon the assump-
tion that the war borrowing availed of is direct and
final — in the nature of debt obligations, whether
long-term bonds or short-term notes, emitted by the
state and purchased forthwith by investing citizens
and banks. If payment be made for such obliga-
tions directly or indirectly from out of loan-created
deposit accounts, inflation may be expected to result.
If payment be made out of current savings or out of
existing deposit accounts without corresponding
credit expansion in other quarters, there would seem
to be no necessity for such inflation.