268 REPORTS ON THE STATE OF SCIENCE, ETC. 
The Effects of the War on Credit, Currency, Finance, 
and Foreign Exchanges.— Report of Committce, consisting of 
Prof. W. R. Scorr (Chairman), Mr. J. E. Aten (Secretary), 
Prof. C. F. Bastasiz, Sir EH. Braproox, Dr. J. H. Ciaran, 
Dr. Huey Dauton, Mr. B. Euuincer, Sir D. DrRummMonp FRASER, 
Mr. A. H. Gisson, Mr. C. W. Gumuesaup, Mr. F. W. Hirst, 
Prof. A. W. Kirexaupy, Mr. F. Lavinaton, Mr. D. H. Ropertson, 
Mr. E. Syxss, and Sir J. C. Sramp. 
Even at the distance of thirty-two months after the Armistice it is not possible 
to write with certainty on economic conditions during the War and the 
reconstruction period. Nevertheless, we have reached a certain amount of 
agreement or some of the principal points which have arisen during our inquiry. 
Our Committee endorses the memorandum submitted by the five economists * 
to the Economic Conference at Brussels. Also the recommendations of the 
Commission on Currency and Exchange,? which were approved unanimously 
by the Economic Conference. These recommendations cover a considerable 
part of our questionnaire, e.g. Credit, Inflation, and the Gold Standard. 
Our first question, How far is the rise in prices in the U.K. since 
July 1914 due (a) to expansion of the currency and (b) to expansion of credit? 
like the second, is evidently controversial. Economic opinion is still divided 
as to the relative share of credit expansion and currency expansion in causing 
the rise in prices since July 1914. 
The majority of our members and correspondents believe that the expansion 
of credit was the main cause. As Sir J. C. Stamp writes: ‘A relatively small 
part is due to the currency, but the greater part is due to the expansion of 
other credit instruments.’ Sir Edward Brabrook writes: ‘I take it that both 
causes contributed to the rise in prices, but I cannot say in what proportions.’ 
Sir Drummond Fraser ‘Has no doubt whatever that the rise in prices was 
mainly due (a) to the expansion of the currency and (b) to the expansion of 
credit.” Mr. Hirst thinks that ‘the expansion of currency and the expansion 
of credit interact, i.e. one is sometimes the cause, sometimes the effect of 
the other.’ 
Mr. Lavington and Mr. Robertson (avoiding the difficuity of defining 
‘currency’ or ‘money’) say that the difference between pre-war and post-war 
prices ‘ was due, in the main, to expansion of the instruments of payment,’ 
they add, in agreement with Sir J. C. Stamp, that it also was due (perhaps 
to the extent of 10 per cent.) to a falling-off in production. Mr. Ellinger 
qualifies this by limiting it ‘to the time of the Armistice or a little later.’ 
Dr. Cannan holds that the rise in prices was ‘ due to Government expenditure 
of money on a scale which could not have been reached without a diminution 
in the purchasing power of money. This diminution would have come about, 
to a large extent, even if no U.K. paper money had been issued, owing to 
the demonetisation of gold abroad, which reduced the value of gold. The 
U.K. paper money enables it to be carried further.’ 
Mr. Sykes draws a distinction between the expansion of the currency 
abroad, where it has been ‘the principal cause of the increase of prices,’ because 
it was issued by Governments in direct payment of their debts, and the increase 
of currency in the U.K., which has been ‘almost entirely a consequence of the 
expansion of credit.’ Without such additional. currency the banks could not 
have met the increased potential demand for cash which the increase in the 
volume of credit placed in the hands of the banks’ customers. Mr. Sykes 
believes that if the additional currency had not been created by the Govern- 
ment ‘a voluntary emergency currency would almost certainly have been 
brought into existence by mutual consent of all parties.’ 
1 Dr. Bruins and Professors Cassel, Gide, Pantaleoni, and Pigou. 
2 Mr. Robertson comments: ‘These seem to me very difficult to apply in 
present circumstances.’ 
