VOLUNTARY SAVING

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me to be such as to make it very unlikely thatwe can achieve our maximum war effort by"normal" methods of taxation on existing linessupplemented by voluntary saving. The dangerof depending on voluntary savings lies in the factthat, if we adopt no drastic method, we are liableto slip insensibly into stimulating voluntarysavings by inflation. And that leads us to themain theme of this chapter.

There is no difficulty whatever in paying forthe cost of the war out of voluntary savings;—provided we put up with the consequences. Thatis where the danger lies. A Government, whichhas control of the banking and currency system,can always find the cash to pay for its purchasesof home-produced goods. After allowing for theyield of taxation and for the use of foreign reservesto pay for the excess of imports over exports, thebalance of the Government's expenditure neces-sarily remains in the hands of the public in theshape of voluntary savings. That is an arith-metical certainty; for the Government havingtaken the goods, out of which a proportion ofthe income of the public has been earned, thereis nothing on which this proportion of income canbe spent. If prices go up, the extra receipts swellsomeone's income, so that there is just as muchleft over as before. This argument is of suchimportance and so little understood that it isworth our while to follow it out in detail.

Let us suppose that the value of the output 1

1 1 am taking round figures in the neighbourhood of the facts. ButI simplify the illustration by ignoring the depletion of capital as asource to meet government expenditure.