New-York tribune., 1918-05-05

are the result Of imitation?
Evidently there is some test by which
Mr.. Adams is able to detect the limit
of expansion which does not cause
higher prices and that which does.
Either expansion does cause rise
in prices, as great many economists
and financicrs claim. or it does not
cause it. The laws of economics are
absolute; they do not start working
automatically like safety valve or an
overflow pipe. If great deal Of in
fation causes a great rise in prices a
little Of imitation will cause CORE
spending moderate rise. Where is Mr..
Adams going to set the limit Of safety,
the point when credit will begin it's
share of the responsibility for our
price levels?
Recall. He says that if the govern
ment uses the credit of its bond issues
for current expenses of the war there
will be dangerous imitation; if this
credit is not used for permanent or
quasi-permanent valucs-ships, build
ings, etc.
This is astounding!
Are we to infer that the laws of
economies and the relation between
money, credit and prices work upon a
sort of balance sheet basis; that if
there are assets which have been pro-
duced from the use Of credit equal to
amount of loans or bonds issued to pro-
duce them, if all the money realized
from credit expansion is accounted for
on an imaginary balance sheet, there
will be no poss biity of initiation?
What does such a theory make Of
the credit imitation that ended in the
boom and panic Of 1907 and 1908 =?
Probably not one dollar in one hun
dred thousand or more Of the credit
that was extended up to the point Of
the final break at that period was used
for the Current expenses" of the ma
tion. 1T was all used in construction,
working capital, equipment and for the
purchase of securities. And according
to this new theory it could not have
caused high prices, abnormal condi-
tions and eventually the inevitable
break.
It is certain that the same laws
control the results and influences that
government loan imitation has on
finance, that control the influences of
private credit nfation-industria and
private. If government imitation is
dangerous, then only when the credit
is used for values that are destroyed,
such as ammunition, guns, ETC., for
current expenses" of the war, why is
it not quite as true that the ordinary
credit imitation of the financial world
is harmless unless the public use the
extended credit for food and clothing
and champagne? Current expenses %
Then so long as loans are used for
things of permanent. value there can
be no dangerous imitation?
But that is what Mr.. Adams says.
fAnd that is absurd, Mr.. Adams.5
Further on Mr.. Adams states that if
excessive taxation would "stultify busi-
ness" great bond issues would also
stultify business.
And why?
Which brings up point that has
not been made clear to the average
man.
Mr.. Adams's reason for this asser-
tion is that since we cannot borrow
from any other country we must get
1T all here; therefore, what difference
d cs it make whether it comes in the
form of taxes or loans! I have OBJ
served this lack of comprehension be-
fore.
This difference:
Loans are largely not drain on the
current capital and money resources
of the nation.
Loans are changing from unavail-
able to available form of the perma-
nent values Of the nation--real estate,
bonds, stocks, mortgages. In their
original form these values are useless
as means of buying things. But when
their value has been partially COM
promised by means of loans against
them the current creditor currency
resources, if you will--are enlarged,
and thus entirely new reserves of
financial power are tapped that could
not be utilized except through the in
strumentality of credit
A $4,000 real estate parcel is
chaneed by this financial transmuta-
tion into a $4,000 equity, say, and a
$1,000 loan; hence credit, hence cash.
And what we need now is cash. Where
Would Mr.. Adams get this if we were
not to resort to borrowing? Surely
not from income, for the nations in
come is not large enough.
| The power to make loans is the logi-
cal result of the accumulation of prop
erty values--it permits these perma-
nent values to be used in liquid form
by the Individual without losing con-
troll of them.
Thus it is clear that because ex-
cessive taxation would stultify bust
ness 1T does not necessarily follow that
equal amounts of money raised through
credit issues would stultify BUSINESS;
for the credit system opens up vast
stores of resources that simple taxa
tion of income and cash savings could
not touch.
DELMER F. HUBBELL.
Saranac Lake, n. Y.
Note.-The Tribune did not sub
scribe to Mr. Adams's statement that
up to the present time high prices
have not been caused by credit infla-
tion; on the contrary, we are con-
vinced that such imitation has been
one Of the principal causes of the
great advance in commodity prices
an advance so fantastic that it is nee
essary for the government to borrow
$4,000 100000 to buy about the same
quantity of goods and services as
could have been purchased for $1,5OO,-
100000 before the war. AS for the
rest. we prefer to let Mr.. Adams an
swer in his own words, which he will
do at an early date.-Financial Editor.
IT,. W.