New-York tribune., 1918-03-07

ion may be as to just what consti-
tutes initiation, we are sure that very
few of those who have studied the
question will subscribe to the theory
held by Theodore H. Price and pre-
sented in the current issue OF
"Commerce and Finance as fol
lows:
We have always maintained that
imitation consisted and consisted
only. in the issue of currency that
was irredeemable; that it commenced
when that currency ceased to be eX
changeable for gold at par and ended
when the gold parity was reestab-
lished. The theory that an expan-
sion of credit means imitation is only
tenable when the credit granted is
poorly secured or not secured at all
We're it otherwise the development
of loan and deposit banking in this
country would have produced intoler-
able imitation. for aggregate bank
loans have increased something over
1000 per cent since 1880, while our
population has hardly more than
doubled. Within the same period the
per capita of money in circulation
has risen from about $40 to S4S, but
the increase has really been much
greater when we take into consider
alton the use of bank checks as a
substitute for cash.
Thirty or forty years ago this
country was poorly supplied with
banks, and outside of the larger
cities the farmers demanded cur
rency, and in many cases silver dol
lars, in payment for their crops. To-
day nearly every one has bank &C
count and a pocket checkbook, and
signed bits of paper serve the pur-
pose for which cash was formerly re-
quired. The potential addition TO
our circulating medium has been
enormous, but until the war com
menced there was no advance in
values beyond that caused by the de-
probation of gold. which was due in
turn to an enormous increase in it's
production at constantly diminish
ing cost.
But it was not until some time af
ter the war began that the volume
of credit and currency began to ex
pand much faster than the produc
tion of goods. 1t is not merely lacI
of solidity Of the security on which
credit is based that causes initiation
as Mr.. Price suggests, but rather
the use to which credit is put. Tt
the extent that expansion of credi
results in increased production ~
initiation is produced, because sucl
credit reproduces itself and is self
liquidating, but to the extent that i
increases consumption the result i
downright imitation of prices. And
lest there be any doubt that such re
suits are produced by expansion O
bank credits, it may be we'll to Civ
here the opinion of no less an au
thority than member of the Fed
eral Reserve Board. This is wha
A. c. Miller said not long ago:
Imitation takes place whenever tn
supply of the purchasing media is in
creased more rapidly than is the sup
ply of goods produced and to be ex
changed. Prices then rise. Their ris
is inevitable under the operation 0
the general law Of demand and sup
no exception, but rather the mos
exact case. The power to purchas
and pay is the power to bid, and whc,
the supply of the means of purchas
and payment-no matter what thei
forms, whether gold certificates. bank
notes, Federal Reserve notes or ban
deposit credits circulated by mean
of checks-outrun the increase in tn
supply of goods available for purchas
there will be increased bidding TO
the goods, with the inevitable result
ant of increased prices The cv
dence and the measure Of state O
imitation proceeding from imitation @
money currency, or credit, are the rise
of prices. When, therefore, bankin
credits are opened for any other pun
pose than to facilitate transaction
which result in an increase in tn
production and supply Of goods banl
ing credit is being used to lay tn
foundation OF imitation.
Having demolished the quantits
tive theory Of money to his ow
satisfaction, Mr.. Price goes on to sa
that cit would not appear, however
that an increase in the circulatin
medium can cause an advance j
prices as expressed in terms of golt
so long as that medium is in fac
payable in gold" and wonders VIII
there is so much apprehension thu
creation Of the War Finance Corpt
ration will be followed by a gres
rise in prices. The answer is, thcl
are not many who believe, as NJ
Price apparently does, that $4,000
100000 of currency can be pumpc