Evening star., 1933-04-23
BY THOMAS NIXON CARVER,

University.
"HERE is danger that the Presi-
dents conferences on economic
relations Will try to tell him
i what can aad cannot be done
instead of telling him how to
do what obviously has to be done Be-
fore telling him how to get out of the
jam, they must tell him just how we
got into it.
From our entry upon the World War
until about 1928 We we're III one of
the worst periods Of imitation the coun-
try has ever seen. We fondly imagined
we were avoiding imitation. We ought
to have known that there are other
forms of imitation, notable among
which Is the imitation of credit through
the multiplication of negotiable in
struments and the use of these instru-
ments as collateral for bank loans.
The policy of imitation began with
the silly way in which We financed the
war. We did 1t by issuing vast num-
bers of Government bonds, every one
OF which was excellent collateral This
collateral enabled any bondholder to
expand his credit at the bank. The
Government got the money which the
bondholder paid for his bond, and with
this money the Government bought
supplies and paid its men. If the
bondholder, having turned his money
over to the Government, had cut down
his own purchases to that extent, there
would have been no increase in pur-
chasing. The Government would have
spent more money, private individuals
would have spent correspondingly less
and the total purchasing would not
have increased.
But the bondholder did not cut down
his purchasing in proportion as the
Government increased its purchasing.
He used his bond as basis for credit
expansion, and continued purchasing
almost as much as he would have done
If he had never turned any money
over to the Government. With private
individuals purchasing almost as much
as ever and the Government purchas-
ing vastly more than ever, there was
a vast increase in the sum total of
purchasing. That inflated prices.
Causes of Imitation.
Imitation may come from Increasing
the total number of dollars in cir
Sulation or 1t may come from making
each dollar do more work 1t Is quite
possible to make each dollar do more
work, for a time, than it can con-
more work by the multiplication of
credit instruments, such as Government
bonds or anything else that is bank
able.
One fact, so patent as to amount
to a truism. few practical men will
admit. That is, that every one of us
had exactly as much money with which
to buy tax receipts as we had with
which to buy Government bonds. Buy
ing tax receipts is less pleasant than
buying Government bonds, but that
does not affect the physical fact. Every
dollar that I or any one had with
which to buy Government bond we
could have paid for a tax receipt.
Tax receipts are not bankable and
cannot be used as a basis for bank
loans. Every dollar which I paid for
tax receipt cut down my purchasing
power to the extent of dollar. When
I spent a dollar in this way the Gov
eminent had dollar more, I had
dollar less to spend. The purchasing
power Of the country as whole is
neither increased nor decreased by
that transaction. 1t would not initiate
prices.
Every economist who was worth his
salt was actively warning the Govern
ment at the time of the consequences
of its policy of financing the war by
borrowing 1t seemed horrible that
those Of us who stayed at home should
not pay for the war. 1t seemed unfair
that we should lend money to the Gov
eminent and ask the fellows who fought
the war, those of them who came back,
to buckle down and pay us back what
We had loaned at good rate of inter-
est. Nothing which the Legion has ever
done or is likely to do is SO narrow,
greedy or corrupt as that which our
financial interests did in persuading the
Government to borrow rather than tax
to the bone. The most horrible thought
of all is that great many of our peo-
pie actually made money out of the war.
Nothing they are likely to suffer from
this depression can eXpiate the guilt of
those who profited by that great catas-
trophe. The trouble is that the punish
ment falls on the innocent as we'll as
the guilty, on those who bore the bur-
den of the war as well as on those who
stayed at home and feathered their
nests. The only good thing we can say
of our method of paying for the war is
that it was no worse than that of other
countries.
Loans and Imitation.
The imitation SO ignobly begun by our
@AiSeAiOu Va AAld4lSAls tAiC wal was COll-
ttnued by our international loans. These
include loans to countries other than
our allies, and by private individuals
and banks as well as by our Govern
ment. These flooded the country with
credit instruments which for a time
could be used as basis for bank loans
Besides, the credit which we loaned
these countries enabled them to buy
lavishly. Some of their purchases were
made here. All this tended still further
to initiate prices.
Then came that orgy of installment
buying. The trouble was not with in
stallment buying itself 1t was with the
expansion of credit which installment
buying made possible. During all those
years the country was literally buying
more than it had income to pay for.
This is possible SO long as credit can be
expanded.
Suppose, for example that have an
income of dollar day. So long as 1
pay cash can only buy a dollars worth
of goods day. BY stretching my credit,
however, I can buy two dollars worth of
stuff in one day: /. e.. one dollars worth
with cash and another dollars worth
with promise. But when quit
my credit, even though I
continue buying on credit, I can buy no
more with credit than with cash. That
is, If buy every day with promise to
pay week later, can only buy a dol
lars worth day. However, if I can
stretch my credit sufficiently to buy
with promises to pay two weeks rather