therefore, tending in conjunction with other causes to a great rise of prices, has brought about a corresponding demand for legal tender currency which could not have been satisfied under the stringent provisions of the Act of 1844.”  Here we have the story of bad war finance put as clearly as it can be.  Because the Government was not able to raise all the money needed for the war on sound lines—­that is, by taxation and loans to it of money saved by investors—­it had recourse to credits raised for it by the Bank of England and the other banks against Treasury Bills, Ways and Means Advances, War Loans, War Bonds, and loans to customers who were taking up War Loans, etc.  Thereby as these credits created fresh deposits there was a huge increase in the community’s purchasing power; and since the supply of goods to be purchased was stationary or reduced, the only result was a great increase in prices which made the war, perhaps, nearly twice as costly as it need have been and produced all the suspicion and unrest that has already been referred to.  Considering that the Committee included an ex-Governor of the Bank and the Permanent Secretary to the Treasury it could hardly have been expected to use much plainer language concerning the failure of our rulers to get money out of us in the right way for the war and the vigour with which they made use of the demoralising weapon of inflation.

It followed as a necessary consequence that the volume of legal tender currency had to be greatly increased.  As prices rose wages rose with them, and so much more “cash” was needed in order to pay for a turnover of goods which, fairly constant in volume, demanded more currency because of their inflated prices.  As the Committee says in its Report (page 5):  “Given the necessity for the creation of bank credits in favour of the Government for the purpose of financing war expenditure, these issues could not be avoided.  If they had not been made, the banks would have been unable to obtain legal tender with which to meet cheques drawn for cash on their customers’ accounts.  The unlimited issue of currency notes in exchange for credits at the Bank of England is at once a consequence and an essential condition of the methods which the Government have found necessary to adopt in order to meet their war expenditure.”

The effect of these causes upon the amount of legal tender currency (other than subsidiary coin) in the banks and in circulation is summarised by the Committee in the following table:—­

“The amounts on June 30, 1914, may be estimated as follows:—­

“Fiduciary Issue of the Bank of England L18,450,000

“Bank of England Notes issued against
   gold coin or bullion 38,476,000

“Estimated amount of gold coin held
by Banks (excluding gold coin held
in the Issue Department of the
Bank of England) and in public
circulation 123,000,000
                                           ___________
“Grand total L179,926,000
                                           ___________