202

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  remarkable ­
  degree.  But  this  stabilizing  effect  is  to
be  imputed  not  to  the  particular  borrowing  device
which  has  been  employed  but  to  the  credit  mechanism ­
  which  statute  and  administrative  policy  have
provided  for  use  in  conjunction  therewith.  Permissive ­
  payment  by  credit,  exemption  of  government ­
  deposits  from  reserve  requirement,  rediscount
facilities  with  the  Federal  Reserve  Banks  —  and  not
any  virtue  inherent  in  or  peculiar  to  certificate  borrowing ­
  have  saved  the  capital  market  from  the  dislocation ­
  which  might  have  been  anticipated  in  a
period  of  war  borrowing.  Given  this  same  mechanism ­
  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  economic ­
  well-being  of  the  citizen  body  is  more  difficult
of  demonstration.  The  usual  barometer  —  the  index ­
  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  before ­
  the  full  effect  of  any  abnormal  increase  in  the
volume  of  credit  will  show  itself  in  higher  prices,