EFFECTS OF THE WAR ON CREDIT, CURRENCY. AND FINANCE. 271 
poses without an expansion of credit?’ Perhaps we may draw a line, as 
suggested by Dr. Scott (in ‘Economic Problems of Peace after War,’ Second 
Series, page 56), between borrowing for purchases at home and for purchases 
from foreign countries, the second being a legitimate and unavoidable 
expansion. 
Mr. Robertson comments on this paragraph, ‘I don’t feel sure that this is 
relevant to inflation, only to the different question of loans and taxes.’ Mr. 
Lavington, too, cannot see the validity of the distinction. 
Sir Drummond Fraser writes: ‘The expansion of credit and currency can 
be prevented in this and other countries, if the money required by the Govern- 
ments is raised from taxation and loans direct from the people. Great Britain 
has proved this. During the four hundred days on which National War Bonds 
i. were on tap—from October 1917—the whole of the home money borrowed was 
raised from the day-to-day proceeds from the Bonds and Savings Certificates. 
This wholesale transfer of purchasing power from the people to the Govyern- 
ment, without monetary inflation, not only arrested but actually reduced the 
hitherto continuous rise in prices. In my opinion it was an error of judgment 
not to have increased taxation in the early part of the War and not to have 
borrowed direct from the people at a higher rate of interest than that paid for 
the money borrowed on the money market. ‘lhe practical result was shown in 
the swollen bank deposits and swollen currency notes, which ought to have been 
tapped by a Government security of the nature of National War Bonds.’ 
Mr. Robertson says ‘not in most countries, to any very material extent, 
granted that the War was to be carried on. In war the preservation of morale 
frequently involves a certain measure of illusion.’ 1t was certainly the practice 
of the European Governments to assure their citizens that the cost of the War 
would be paid by the defeated enemy. Mr. Ellinger thinks that, in order to 
prevent expansion of currency, it would haye been ‘necessary (a) to increase 
taxation, and (0) to conscript Labour and Capital, including the Labour of 
supervision and organisation.’ He thinks that the first might have been done 
in this country to a limited extent, also in France and Germany, but he doubts 
whether the conscription of Capital and Labour could have been carried out 
in any country. 
Mr. Allen writes : ‘There can be no doubt, I think, that all Governments 
ought to have increased their taxation at an early period of the War, just 
as the American Government did, when at last it took up arms. We must 
recognise that Mr. McKenna’s two Budgets (September 22, 1915, and April 4, 
1916) mark an immense advance on eyerything that was done by European 
Finance Ministers. Subsequent Budgets have made no appreciable improve- 
ments in Mr. McKenna’s scheme of taxation.’ 
Professor Cannan holds that the expansion of credit could have been pre- 
vented “by not issuing it.’ He adds, ‘Of course this might have stopped the 
War; but that isn’t economics, but politics.’ 
Compulsory service raises the question of the conscription of wealth. 
Clearly, it ought not to have been possible for people who were, for any reason, 
whether age, sex, occupation or physical disability, free from the risks and 
discomforts of military service, to make fortunes or even to improve their 
economic condition out of the misfortunes of their country. ‘lhe Excess Profits 
Duty was a necessary result of the postponement of taxation of 1914-15, when 
the Government created so much new purchasing power. It ought to have 
reduced the purchasing power of the public by higher taxation. 
As we said in our interim report for 1920, no one has explained why the 
ordinary Budget at the beginning of the financial year 1915-16 did not add to 
taxation. ‘It should have been clear that non-combatants could not make their 
usual demands on the national output of goods and services, if the requirements 
of the fighting forces were to be supplied. Consequently it was desirable 
that the simplest of all checks on consumption, i.e. taxation, should have been 
applied. Unfortunately the Government seemed to have cther views, and 
“business as usual ’’ was the popular cry.’ 
Mr. Lavington, taking the view expressed some time ago by Sir Drummond 
Fraser and Mr. Gibson, with which Dr. Dalton agrees, thinks that the expan- 
‘sion of currency could have been appreciably reduced had we adopted earlier 
