602 TRANSACTIONS OF SECTION F. 



be assured that punctual payment would follow in due course. Thus a want 

 of confidence, which in the first instance was confined to monetary transactions, 

 was extended to dealing in goods. The same difficulty did not arise to any 

 serious extent with regard to the rendering of services, because payments in 

 the nature of wages or salaries were exempted from the provisions of the 

 Moratorium ; but those who were under liability to pay out large sums in wages 

 were gravely inconvenienced, and sometimes obliged to suspend operations 

 altogether. 



(v) Effect of Increased Paper Currency on Prices. 



We now come to what is perhaps the most controversial of all our questions, 

 that of the effect of the issue of Treasury Notes upon prices. 



Several distinguishad correspondents send us memoranda which are very hostile 

 to the continuance of these notes. Sir Inglis Palgrave expresses the view which 

 is taken by most economists. He writes thus : ' The effect of an increase of 

 the paper currency upon prices, if sufficiently large, is invariably to raise prices, 

 in the same way as any other increase of the circulating medium, whe'n this is 

 not called for by an increase in the business done. The general increase in 

 prices since the issue of the Treasury Notes may possibly be connected with 

 that issue in some degree. Few things are more difficult to trace than the altera- 

 tion in prices caused by the issue of a Government paper issue at its first incep- 

 tion. To employ a simile, if I may venture to do so, it is like watching the rise 

 of the tide on a wide beach. Sometimes the waves appear to beat stronger, 

 sometimes they retreat, and it is not till some considerable interval has 

 occurred that the spectator can be certain that the water at his feet is really 

 deeper. Those who will refer to what occurred when the payment of the notes 

 of the Bank of France in specie was suspended aftca- the year 1870 when a vast 

 paper issue was made, and what is taking place now on the Continent from 

 similar causes, will understand this. The effect on prices in this country during 

 the suspension of specie payments early in the last century is another and a 

 good example. The House of Commons even, by passing a Resolution moved by 

 Mr. Vansittart, at that time Chancellor of the Exchequer, denied that the high 

 price of bullion then existing was due to the over-issue of paper, but the effects 

 which followed the resumption of specie payment showed conclusively that 

 prices had been raised very considerably by the great increase of the 

 currency.' 



The most emphatic condemnation of Treasury Notes is that of Professor 

 Shield Nicholson, who has denounced them in the columns of the Scotsmnn -' 

 and in the pages of the Quarterly Eevieiv.-'' So far as gold is concerned, he 

 argues, we might have expected to see a general fall in prices, since ' all the 

 great foreign banks have taken to hoarding their gold, as if that were the 

 height of financial wisdom.' Moreover, as the Economist index numbers 

 show, the rise in prices since the War ' is the more remarkable as it set in 

 in face of a continuous fall for the year preceding the outbreak.' The Money 

 Market, he continues, has been ' in a state of otiose repletion, and the 

 channels of circulation have been filled to the brim with emergency currency.' 

 Ay. a result the value of our imports has risen while that of our exports has 

 fallen sharply. ' Inflated prices encourage imports and discourage exports.' 

 Then there are difficulties at home, e.g., the readjustment of wages to 

 meet the general rise in prices. ' It cannot be denied that there has been 

 a general rise in prices, which is exactly the same thing as a general deprecia- 

 tion of the currency, but many people object to the use .of this latter 

 phrase. They prefer to indicate their confusion of thought by saying that the 

 rise in prices is the "natural " result of the War. On this view, prices in war- 

 time simply rise because "it is their nature to," like the dogs that delight to 

 bark and bite, and the opium that has the virtus dormitiva, whose nature it is 

 to dull the senses.' One object of the note issue was the preservation of our 

 stock of gold, and this policy is attacked by Professor Nicholson — ' The maxim 

 that a rciserve of gold ought to be accumulated in ordinary times for use in an 

 emergency has been strangely perverted into the maxim that in times of stress 

 gold ought to be hoarded for liberation when the stress has passed.' 



=* February 17th and March 17th, 1915. 



" ' The Abandonment of the Gold Standard,' April 1915. 



