The potters herald. [volume] (East Liverpool, Ohio) 1899-1982, 1943-01-07
INITIATION: ITS CHIEF CAUSES and REMEDIES
BY PROFESSOR IRVING FISHER,
Yale University

University, who has made life
long study of Initiation and Defla-
ton and has written a dozen books
on the problems of money.
We have seen that the really impOr-
tant reason for the imitation which Is
going on today consists of invisible
greenbacks" generated by Uncle Sans
borrowings of the commercial banks.
/ have stressed this fact because it
is commonly overlooked or miSunder-
stood. For instance, you hear it COM
monty said that the reason for intia-
ton is government spending. But this
is misleading If what the government
spends were obtained from private
individuals, thereby curtailing their
Spendings by the same amount, the
government spending would not be in
flatiOnary.
1t is not mere spending as such
which makes imitation but it is spend
ing of newly created money.
Another misconception is that it is
the governments deficit which is the
cause of imitation. This is not correct
either. If the governments deficit
represented merely more debt to indi
viduals who had lent their own pre-
existing money-their savings-tO the
government, there would be no infla
tion.
1t is not the deficit as such which
makes imitation, but il is Il deficit mer
by newly created money instead Of
pre-eXiSting money.
The more costly the war becomes,
the more danger of financing it by in
visible greenbackS instead of financing
it out of taxes or out of loans made
from saving pre-eXisting money.
But most people have no picture OF
this mechanism by which our in
sihle greenbaclis" operate. 70 them the
problem of keeping prices down seems
merely Il matter of passing Il law for
individual price control. As to this
policy, historical experience has not
been too encouraging, not even in this
war where the most drastic individual
price control has been tried, both on
the German side OF the war and on
our side
In almost all cases, prices have been
rising in spite of such attempts at con
troll. In the year l94l between January
and December, we find that in Canada
foods rose from 10 to l24. The cost
Of living rose from lOS To ne. In the
United States foods rose from % to
1l3; the cost of living from 1Ol to Ill.
In R,.it. t.i hn nf
rose from 1876 To 2O1 The only case of
II fall was in Great Britain; the cost
of foods falling from l72 to 1863.
Probably this slight fall was not
genuine, and probably the rises were
actually greater than these records
show, since the records can take no
account of the black marliets'-the
bOotlegging of goods outside of the
regular channels of trade.
AS | write, the newspapers report
that "blaci markets." or at any rate
cases of diSobedience to the O.P.A.
price restrictions, are already eX-
tremely frequent and that only $50
ont of ,57J retailers which have been
checked We're found to be obeying the
rules fully.
Another sort of concealed imitation
consists in paiming off inferior quail
tiles, smaller lOavcs, or short weights.
If all these factors could be mea-
sured we would find that our cost of
foods instead of rising 1870 this last
year and 1870 since Hitler began this
war, as present figures show, may
have actually risen much more.
TO control individual prices requires
Il strong exercise of the police power.
An. individual price is almost as dis
tinct from the general level of prices
aS The height of an individual wave is
distinct from the level Of the sea or of
Il lake
If you were to try, by main force, to
hold down the level of Lake Michigan
by pressing down every individual
square foot of the surface, you would
not succeed. As more water flowed in
ii would break through. Bul the level
could be easily controlled by draining
off the water through the Chicago
pressure everywhere and permit keep
ing down the high waves.
When we all the time generate more
money SO that people have ii on hand,
they want to spend IL and this tends
Ia bid up prices. When people, with
more money than usual, are trying 10
buy as usual and at usual prices while
there are no more goods than usual,
they Will find themselves with surplus
money left over. This creates the so
called "intlationary gap between the
increased money and the nun-increased
goods. And when, because of prioriticS
and shortages, people cant find the
goods they want 10 buy, they accumu-
late money unused-a strange case
of boarding.
The important problem, therefore,
Is what can he done to reduce or per
haps even abolish the inilatiOnary gap
and intlatlonary pressure,
We can do several things, one Of
which is the following:
We can change our banking system