Page:Stabilizing the dollar, Fisher, 1920.djvu/87

9] loans which gave them birth are paid off, these deposits stay in circulation like money, being transferred by check from the original bank customer to the Government (as his subscription to bonds); then from the Government to munition makers, etc.; then from them to steel producers, and so on, indefinitely.

Even gold inflation became transformed into credit inflation because the gold was used as bank reserves, the basis of bank deposits. During the war the people of all gold-using belligerents were asked to turn over their gold to the banks to become bank reserves. Thus gold was "mined out of the people's pockets" and intrusted to the banks where it had a multiplied effect; for every dollar of reserve can support several dollars of deposits.

It was failure of individuals to save the funds loaned to the Government which chiefly inflated deposits; they lent by borrowing. A Committee of the American Economic Association appointed to study the problem of the purchasing power of money in wartime reported: "The public should understand that lending by borrowing, though much better than nothing, is still a very unsatisfactory way to help the Government. By raising prices, such a procedure tends to shift the cost of the war to the poor who pay it in a higher cost of living."

In England it was found (as might have been expected) that the introduction of "continuous borrowing," advocated by Mr. Drummond Fraser, which absorbed savings as rapidly as they could be made, and before they had a chance to be dissipated in