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WAR BORROWING

count that a policy, which on fiscal grounds might
be impeccable, would yet be properly passed over in
favor of some alternative measure.

The actual effect of certificate borrowing upon
the business life of the country as attested by the
state of the money market has seemingly been the
avoidance of strain and fluctuation to a very re-
markable degree. But this stabilizing effect is to
be imputed not to the particular borrowing device
which has been employed but to the credit mechan-
ism which statute and administrative policy have
provided for use in conjunction therewith. Per-
missive payment by credit, exemption of govern-
ment deposits from reserve requirement, rediscount
facilities with the Federal Reserve Banks — and not
any virtue inherent in or peculiar to certificate bor-
rowing have saved the capital market from the dis-
location which might have been anticipated in a
period of war borrowing. Given this same mech-
anism properly adjusted to the changed condition
and the same monetary stability might be expected
to attend any other or at least some other borrowing
device.

The effect of certificate borrowing upon the eco-
nomic well-being of the citizen body is more difficult
of demonstration. The usual barometer — the in-
dex number of commodity prices — shows that
prices remained stable during the first half of the
war borrowing period, and advanced sharply during
the second half. The constancy of the first phase
may be ascribed to the interval that must elapse be-
fore the full effect of any abnormal increase in the
volume of credit will show itself in higher prices,