7° W. G. Langtvorthy Taylor 



falls away, and the market for future goods vanishes. The gen 

 eral market now deals in a new commodity, gold. 



Everybody in the community that had any surplus had calcu 

 lated on too great returns from it. Laborers had calculated on 

 too high wages. The whole society had anticipated an inordinate 

 increase of subjective total values, and this had influenced them in 

 incurring all sorts of expenditures on present goods at a high 

 price. Business corporations had incurred heavy bonded indebt- 

 edness on the basis of high returns. But the rise in the exchange- 

 value of present goods inevitably engenders a rise in wages — one 

 of the largest expenses in most businesses. Critics discover that 

 corporations, on the face of their published statements, are carry- 

 ing insufficient reserves or surpluses for necessary betterments 

 and replacements of old or antiquated plant ; boards of directors 

 issue additional bonds for improvements and thus create addi- 

 tional demand for commodities in terms of future goods. 



In the early days of the credit system, it was supposed that 

 inflation took place because inconvertible notes could not be pre- 

 sented for money when their value fell. 1 With no more than 

 normal renewals, or, in other words, with normal payments into 

 the bank in discharge of borrowings, the bank notes could hardly 

 suffer very serious depreciation from the mere lack of converti- 

 bility. In the absence of lack of confidence, payment into the 

 bank in discharge of debt would act the same as presentation for 

 redemption in keeping up their value. Excess of issue is clearly 

 the cause of depreciation in such a case. Since all issue arises 

 from loans, excessive issue can only arise from a too high valua- 

 tion of the security or of the product. Productive loans are made 

 on the expectation of production and nothing else, and their nomi- 

 nal value can rise only with the nominally greater productivity of 

 the process. In other words, inflation is exaggerated forecast of 

 productivity. 



The persons directly responsible for mistakes of this sort are 

 chiefly the leaders of financial industry. It would, however, be 



1 "But if by law they (the bank notes) are not so convertible, of course this 

 excess will not be brought back, but will remain in the channels of circula- 

 tion, until paid again into the bank itself in discharge of the bills which 

 were originally discounted." The Bullion Report 1S10, Sound Currency, 

 vol. II, no 14, p. 20. 



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