CURRENCY AND HIGH PRICES.
(To THE EDITOR DF THE " SPECTATOR.") SIR,—The opinion of your correspondent Mr. W. Bothamley that high prices are due to increase of currency, and may bo measured by that increase, seems to contain only a small modicum of truth, and to be altogether too general and sweep- ing. As the war went on two things happened—a large increase in the national wages bill as a result of the large increase of wage-earners, and higher prices as a result of the latter and of the greatly reduced volume of commodities available for pur- chase, both involving larger currency requirements. A great part of the wages bill went to pay for the manufacture of armaments, &c., that brought in no return, i.e., no commodities in exchange for those manufactured, so that the scarcity of available commodities went on increasing while the wage- earners and, therefore, the wages increased, and so prices went on increasing and involving still larger wages. Serving eoldiers were also wage-earners, and took their large toll of commodi- ties. Thus it seems true to say that scarcity of commodities and corresponding high prices were the cause rather than the effect of increases in currency. Increase of the currency in cir- culation is itself an effect of a higher wages bill and of higher prices: you cannot force into circulation any more currency than is required for the operations of industry, Le. But all this is only one small corner of the question of the why and the wherefore of high prices. Vast purchases are being made constantly with credit instruments, which only affect the volume of currency in so far as they too raise prices, and so indirectly increase currency requirements. Obviously, then, no such simple formula as Mr. Bothemley's nearly covers the ground. It is the whole demand made by credit instruments as well as currency which determines prices by its relation to the volume of commodities. The volume of currency in circula- tion will adjust itself automatically to the requirements of industry. Not so the much more important volume of credit. Nothing but the payment of debts by means of saving and as increased output of commodities can be of any real avail for the reduction of prices, or for enabling us to get gradually back to a gold standard and out of our present dangerous and
unstable position.—I am, Sir, &c., E. H. B.
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