Probably every reader is familiar with the doctrine of deflation in one form or another: it is incorporated in almost every current report to stockholders, and echoed by every conventional-minded and earnest capitalist. The following specimen is taken from an address by a very patriotic citizen whose mental attitude is that of the landlord’s wife—not of his agent. “But prices must come down. The merchant must bear his losses with the others; coal must sell at a lower figure and railroad rates and the wages of railroad employees must drop. All must do their share and co-operate in putting the damper on depression and restore prosperity.” As the situation now stands the danger is that some must do the share of all to restore prosperity to others. If it should seem unfair to quote a very genuine appeal for adjustment, such as the above, in contending that the gospel of deflation has some tremendous implications apart from its prima facie virtue, let us turn back and see what one of our leading economists thought of it before the situation was so acute. Professor H. G. Moulton, of the University of Chicago, in 1916, stated as follows:
“Obligations payable in money that are entered into at one price level may be payable at a future date when the prices may be substantially lower or substantially higher. If lower, the borrower finds that he has to repay a greater purchasing power than he received, or, what is more to the point, he finds it difficult in consequence of lower prices (and wages) to repay his loan than would have been the case at the former level of prices.”[1]
The foregoing is a general picture of our present[2] extraordinary situation, and gives some idea of what deflation involves. It may be worth while to take two specific details in this picture and look at them still more closely:
During our period of national emergency, every one was asked to lend, particularly those in modest circumstances. They were not only encouraged; they were helped; and in some cases
