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  discussion ­
  in  this  country  and  abroad,  in  connection
with  the  outright  disfavor  of  funding  and  the  vigorous ­
  advocacy  of  an  “  all  tax  ”  policy  in  war  financing, ­
  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  inflation. ­
 1  Without  returning  to  shadowy  beginnings,
the  first  explicit  phrasing  of  the  argument  appears  to
have  been  made  in  1915-1916  by  an  English  economist ­
  of  note,  Mr.  A.  C.  Pigou,  professor  of  political ­
  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.

157