﻿164	WAR BORROWING

in the mass of commodities or in the frequency of
transfers or any reduction in the velocity of circula-
tion, an increase in the volume of money or check-
able deposits over a theretofore normal supply will
be followed by a rise in general prices.7

This increase in the circulating medium has been
called inflation, and the inquiry has been phrased as
“ Do government loans cause inflation? ” If, how-
ever, the term inflation be given — wisely or un-
wisely — an altered signification, the result is not to
change the quest but merely its title. Instead of
seeking to determine whether war borrowing causes
inflation, we should undertake to ascertain whether
such operations bring about a rise in general prices
— it being understood that this increase is the con-
sequence, other things being equal, of an increase in
the volume of money and credit.

The monthly index numbers of wholesale com-
modity prices and of retail food prices in the United
States in the calendar years 1915, 1916, 1917 and
1918 as compiled by the U. S. Bureau of Labor have
been as follows:

7 Thus the Federal Reserve Board has lately defined in-
flation as “ the increase of current purchasing power, whether
in the form of actual currency or in the form of credit— faster
than the volume of available goods ” (Federal Reserve Bulle-
tin, November, 1918, p. 1048). With this compare Professor
Kemmerer’s succinct statement; “ Inflation means a redun-
dancy of money or circulating credit, or both that results in
rising prices. It occurs when, at a given price level, a coun-
try’s circulating media — money and credit instruments of ex-
change— increase relatively to trade needs.” (“Inflation and
the Government Fisc.” prepared for Committee on War Fi-
nance of American Economic Association; see also “ Infla-
tion ” in American Economic Review, June, 1918.)