Page:Walter Renton Ingalls - Current Economic Affairs (1924).pdf/83

Rh The contention that the fall in prices and the crisis are due to deflation—that is to say, to intentional contraction of the circulation and of credit—is in reality only an advocacy of a return to the extravagant methods of war-time finance in some milder form. The banks have been accused of having aggravated and contributed to the outbreak of the crisis by withholding credit. Their balance sheets, however, show that they went to the very utmost limit of prudence. What happened, as a result of stoppage of war-time finance, was that the banks ceased to receive fresh deposits and new cash and could, in consequence, not increase their commitments.

Looked at from this point of view, there is no reason why the pre-war level of prices should not be re-established in a fairly near future in the world’s market. At the moment there is, however, a break in the fall and even a slight tendency to rise, the index number fluctuating round about 50 per cent to 70 per cent above the pre-war level in countries with normal exchanges. The immense increase of taxation and the restriction of production, which necessitates increased overhead charges being borne by smaller production, might well militate against a continuation of the fall and toward maintaining the present level.

On the other hand, the fall in prices has not been uniform in all trades; in fact, it has been much more pronounced in the case of international commerce, no doubt owing to the competition of countries with depreciated exchanges, than in those trades which in every country hold a kind of monopoly, such as the railways, building, printing and retail trades. An adjustment has to come sooner or later and may well be accompanied by a further drop in prices.

Whenever an individual has sustained a financial loss, this is brought home to him as a reduction of income. In the same way the impoverishment of the world, through the war, finds its expression in a decrease in production.

We can not, even in the United States, return quickly to the situation in which we were before the war. For one thing we have outstanding a large volume of internal indebtedness, which was contracted during a period when prices were very high. When the bonds representing this indebtedness are paid it may be possible for their holders to buy with the proceeds two pounds of goods against one pound at the time of issue of the bond. Deflation will therefore be in favor of these bondholders and against the tax payers. Moreover, the bonds, which of course are good for their face value will be a basis for expanded credit so long as