270 REPORTS ON THE STATE OF SCIENCE, ETC: 
the Government’s policy in relation to credit and interest rates. There are 
other forms of credit besides bank loans, e.g. the book debts of private traders. 
The volume of these depends primarily upon the state of business confidence, 
but drastic deflation of currency, by causing a fall in prices, would cause a 
restriction of this kind of credit also.’ 
Sir Drummond Fraser writes : ‘Some portion of the expansion of the currency 
was undoubtedly due to the expansion of credit. But I doubt whether the two 
are entirely interdependent. ‘lake two extreme cases: When the Austrian 
Government was short of money the currency was expanded. When the British 
Government was short of money credit was expanded. In Austria the increase 
in the note issue was not accompanied by a pro rata increase in the bank 
deposits. In Great Britain the increase in bank deposits was not accompanied 
by a pro rata increase in the note issues. The expansion of currency in a 
country like Austria is readily accomplished, because the note issues remain 
in circulation. The expansion of credit in Great Britain was readily accom- 
plished because of the effectiveness of deposit banking.’ 
Mr. Gibson also holds that the expansion of credit was the main cause of 
the expansion of the currency. But the first could not have taken place 
without breaking up a part of it into legal tender units for wages and retail 
transactions. ‘Currency notes have not been forced into circulation; they 
have always been returnable to the banks at their full face value to the credit of 
customers.’ Of course, some issue of paper money was required to balance the 
gold coins withdrawn from circulation. 
Mr. G. Bernard Shaw answers Questions (1) and (2) together: ‘The two 
are really the same. Expansion of credit is effected by issuing more currency 
than you have goods to back it with; in short, by inflation. Credit is one of 
the economic phantoms.’ 
QuEsTION 3.—Was it possible, in this and other countries, to prevent the 
expansion of credit and currency ? 
This question raises the further question, ‘Should a war be paid for by 
loans or by taxation?’ and the answer depends partly upon the view which 
is taken of the patriotism of non-combatant citizens, partly on their power 
and will to pay. Opinions differ as to the extent to which higher taxation 
could have been imposed, but we agree that considerably higher taxation might 
safely have been imposed at an earlier period of the War. Such taxation would 
have tended to check personal extravagance, to lessen the inevitable rise in 
prices, and to decrease the future burden of the War Debt. It might have 
helped also to abate the demand for war bonuses, which were themselves both 
an effect and a cause of higher commodity prices. Something more might also 
have been done, in 1914 and 1915, to attract savings or special profits into the 
Exchequer by means of continuous borrowing rather than by, or in addition to, 
spectacular periodic loans. 
Dr. Dalton answers the original question—‘ Yes; by heavier taxation (or 
alternatively, to some extent, by offering higher rates of interest on voluntary 
loans). This policy, if it had been adopted in this country, would have pre- 
vented the greater part, if not the whole, of the rise in prices and money wages, 
and of the depreciation of the American and other exchanges. Especially in 
the early part of the War, it was a gross error of policy not to impose heavier 
taxation.’ Mr. Hirst, Commander Hilton Young, Mr. Mason, and Mr. Bernard 
Shaw also answer Yes. Sir J. C. Stamp answers: ‘ Theoretically Yes, but 
psychologically No, the stimulus given to profit-making by the expansion is 
too important an ingredient for waging the War to have been left out.’ Dr. 
Dalton comments : ‘This doesn’t say much for the patriotism of the business 
community.’ Mr. Allen observes: ‘A Napoleon may be compelled to mislead 
his countrymen, a self-governing community ought to face a war with a full 
knowledge of its costs and dangers. ‘lo take a classical analogy, the choice was 
between the policy of Pericles and that of Cleon; and Cleon’s won.’ 
Sir Edward Brabrook says: ‘1t was not possible to prevent it.’ Mr. Sykes — 
takes the same view, for he doubts ‘whether any Government which attempted — 
to prevent the expansion of currency and credit would have withstood the 
strain, even if it were abstractly possible.’ He mentions a further difficulty— 
How could Great Britain have financed international purchases for war pur- 
