THE PRICE LEVEL 
179 
serve Banks as fiscal agents. But the essence of the 
operation will be the creation of additional credit by 
the subscribing bank. The subscribing ability of a 
bank will be limited — in the absence of reserve re 
quirements against such government deposits — 
only by the extent that it must be in a position to meet 
withdrawals. If the bank is able by rediscounting 
to supply a credit balance at the Federal Reserve 
Bank or to secure Federal Reserve notes to meet 
currency withdrawals, there is not even this re 
straint. The first step of the borrowing process — 
in so far as the banks make payment for certificates 
by credit — is the creation of an additional volume 
of credit in the form of government deposits. 
The course of such newly created credits, when 
liberated in process of government expenditure, pre 
sents the same variety of possibilities heretofore 
noted. Paid over to the public creditors (munition 
makers, ship-builders, etc.) in the form of the 
Treasury’s drafts upon its balances, they may be used 
by the recipients to discharge maturing loans, to 
swell deposit accounts or to obtain additional circu 
lating medium. In the first event the inflation 
effected will be limited to the period within which the 
government deposits were dispersed; in the other 
cases there will be a continuing effect. 
The final stage in the operation will be the tender 
of some part of the certificates in settlement of bond 
subscriptions, and the liquidation of the remaining 
part at maturity (unless called for prior redemp 
tion) from out the proceeds of taxes, Liberty Loans 
or refunding certificates. If these new proceeds are 
obtained from savings the result will be (a) de