i6o

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  result. ­
  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  inflation-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  devices ­
  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  assumption ­
  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  obligations ­
  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.