by the public before the war, let us say approximatel to the amount of 125,000,000l. As the process of subst tution was and could only be a gradual one, it was no until the month of November 1916 that this point chei equivalence was reached. This will be apparent from the following table of the issues of the Currency Notes: 101 CURRENCY NOTES OUTSTANDING (excluding Currency Note certificates as not being a circule tion element). Oct. 13 76,443,513 Mar. 6 198,379,32 vent Apr. 18 136,630,647 Oct. 2-248,318,248 We are now in a position to draw a general conclusion. After a year of uncertain policy, from August 1914 to August 1915, during which the Currency Note issue was looked upon as a mere emergency relief measure, the State deliberately adopted a paper issue policy, and achieved the transition from a metallic currency within the space of fifteen months from September 1915 to November 1916. When the latter date was reached, the currency of the country was back again to its ante-bellum normal or level, so far as mere quantity is concerned; and it had become entirely paper. A great deal hangs upon the elementary fact which we have thus deduced; but, before going further, I wish to clear the ground of a prevalent and persistent misconception. The advocates of a metallic currency have attacked the Currency Note, and have assailed the policy of the Treasury on the plea or pretext that it has led to inflation, and that the issue of prices of commodities has resulted therefrom. This argument falls to the ground at a glance. For in the period of the twenty-seven months during which the currency was stationary, viz. from August 1914 to November 1916, commodity prices had risen just about 100 per cent. The following table gives the Economist' index numbers for England, and the Statist' index numbers for England and for Germany: 'Economist' Index No. 1914 June 118 'Statist' Index No. 'Statist' ditto. At this point the 'Statist' figures fail us, but it be convenient to give the remainder of the Econom figures so far as published: It is now therefore clear that by November 1916 tl had occurred a rise in prices of nearly 100 per cent.; this was in the period in which the currency had mained stationary, while gold was being withdrawn v the one hand and paper being substituted with the ot and before ever the Currency Note had exceeded quantity the gold for which it was being substitu that is to say, before there was any possibility whate of asserting that the currency was redundant or infla The real reason for the rise in prices is of course far to seek. The withdrawal of men all over the w from the active work of production brought abou shortage of essential commodities of every kind; the moment the shortage was felt, the moment exis stocks were exhausted, prices inevitably rose-so le at least, as they were uncontrolled. Surely this wil granted. If so, we can proceed a step further; and process will be found an illuminating one. Firstly, if prices rise and the volume of the curre media remains stationary, there will be a currency pi or hunger, for a stationary denominator has to carr greater numerator. There must inevitably result irresistible demand for more currency. That is to y the tendency of increasing prices is to induce an incre in the currency medium, simply to enable it to bear greater functional or factorial strain. In such a ca nexion I deliberately ignore the question of cheques. am thinking only of the ordinary wages-bill payments wages expenditure or domestic expenditure of the m of the people; and that is a domain into which cheque enters very little at any time, and during war has entered hardly at all, because of the almost universal insistence on cash payments. Secondly, after the first tremor of distrust and uncertainty, the war caused an immense outburst of industrial energy. That energy did not devote itself to the production of commodities essential to consumption, and therefore did nothing to counteract the rise in prices. It was devoted to the production of war material. Now, in its turn, this increased industrial activity became of itself and of necessity a potent factor in the increase of the Currency Note. The wages bill of the country has undoubtedly doubled and may have trebled-no one an say; but the consequent demand for increased currency media was insistent and insatiable, as every babanker knows. For it must be borne in mind that, although five or six million men were eventually withdrawn from the production of essentials, they still remain on the national pay-sheet and absorb a great deal of currency; and, further, that their place has not been left vacant in the industrial domain but has been filled by a possibly equal number of women, who are taking similar wages and therefore requiring currency facilities as abundant as these displaced men did before the war. There has therefore been an addition to the national wages sheet on account of these women. Moreer over, there has been an immense speeding-up of production, prolonging of hours and intensification of effort, and, as a consequence, a great increase in wage earnings, involving in its turn an increased demand for currency. Finally, when the increased prices became oppressive and the demand for higher wages and war bonuses ecame irresistible, the net outcome was simply an ntensification of the call for currency to carry the greater burden of payments. Thirdly, it is claimed in the Currency Committee's eport that the credit operations of the Government have been a correlated factor in the increased production the Currency Note. It is certainly safe to say that, ith a restricted currency, the immense credit operations the present war could not have been successfully rried through. But I think that this effect has been econdary and not direct or primary, and that there is ere a confusion between currency and credit. Some be portion of the unprecedented profit and wage ear has been saved and has formed bank deposits, w have themselves been made the basis of Govern: advances through the Bank of England for the pur of further credit creations. But this cycle of opera reposes on credit, not on currency. All that Currency Note has done towards it has been to 1 possible the large earnings which have yielded t bank deposits, and so made possible these still la credit creations. This is quite a different thing from German system of Mortgage Bank notes or Darlei kassenscheine. Beyond the single instance quotec the outset, that of the 12 millions issued to assist Loan of 1915, I cannot find any trace in our war fin of an issue of Currency Notes for the specific purpo assisting any form of lending to the Government. assistance which has been given for such purposebeen a credit assistance, not a currency creation. Leaving this last item out of account as a very putable and imponderable one, we can, I think, s marise the life history of the Currency Note in a co of sentences. By November of 1916 it had comple displaced gold and had drawn level with the ante-bel gold currency in amount. From that date onward has increased in amount, until to-day it is just al double the total of the ante-bellum gold currency. T increase has been automatic, unforced and inevita and has been due entirely to an irresistible curre demand on the part of the wage-earner. I do not th that credit creations have had anything to do with increase. Finally, as to the movement of prices, increase of 100 per cent. had already taken place November 1916, while still the currency was normal amount. Since that date there has been a furt increase of 100 per cent. in the Currency Note issue, & a further increase of possibly 60 per cent. (or less) prices. As to the connexion between the two increa since November 1916, it is safer and more in analo with facts to say that the rise in prices has produced increase in Currency Notes than that the increase Currency Notes has produced the rise of prices. The foregoing historical exposition is intended to cle |