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good trade, has during the last few years exercised a larger and more enduring influence upon the distribution of income. For during that period the necessities of government in every belligerent and most neutral state led to the creation of vast quantities of credits, issued either directly by governments as uncovered and inconvertible currency notes, or by banks as advances to governments or private customers, for a purpose wholly different from the commercial purposes of ordinary bank credits. The latter, as we see, help in ordinary times to stimulate production by applying more purchasing power to the employment of unused factors of production, or to the better grouping and intensive utilisation of factors already employed. Although the first immediate effect of issuing such credit is to raise prices, this effect is counteracted so soon as its secondary effect in stimulating production has been attained. So far as bank credit enables more goods to be produced, or, what is the same thing, to move with greater rapidity and facility through the economic system, it does not raise prices and is not 'inflation.'

There are, however, conditions under which bank credit does act as inflation. Where, as during the latter half of the war, the full resources of the country were already fully mobilised for production, further bank credits could not perform this stimulative work. They could at most enable the businesses which received them to secure a larger share of the more lucrative contracts than other businesses, i.e. they gave a merely competitive advantage without producing any appreciable net economy. This applies to ordinary