Defense, Controls, and Inflation.pdf - The Ludwig von Mises Institute

8 Defense, (]ontrols, and Inflationto the fact that in contrast to World War II experience the businesscomluunity was today solidly behind an increased taxprogram. But there ,vas deep disagreement about the use ofadditional nlonetary measures to the exclusion of other devicesfor inflation control. 7The controversy centered on the position, strongly held andstrongly challenged, that additional monetary measures bythemselves were the best method of preventing inflation. Those,vho stressed nlonetary control urged that the Federal Reserveauthorities should sell securities and thereby contract the moneysupply by whatever alllount necessary to prevent prices fronlrising-and this irrespective of the effect on interest rates. Thealternative urged was the use of direct controls, either generaldirect controls on "rages, prices, and credit or some combinationof selective controls.The advocates of n10netary controls urged not only that themonetary controls would work without aid {roln the direct controlsbut that direct controls, even if vigorously and effectivelyenforced, would, except for its possible effect in reducing thedeficit, luerely delay inflation. The converse challenge was that7. ~1R. HALEY: I doubt whether the issue between the advocates ofmonetary controls and direct controls was as clearly joined as it luighthave been. The former appeared to maintain that, no 11latter how inadequate,say,for political reasons, fiscal policy might be, it would be feasibleto nlake up for this deficiency bya sufficiently rigorous monetary· policy.Those who disagreed and who believed that there nlight be circumstancesunder which price controls or rationing, or both, luight be useful doubtedwhether it would be any more possible poliUcally to n1ake monetary policyeffective than it would be to make fiscal policy effective. Both groups\vould have agreed, I believe, that monetary policy under the assumedconditions probably would result in very high interest rates and that this\vould create political obstacles to the continuance of the policy. But inthe discussion there ,vas not adequate examination of (1) the effectivenessof high interest rates for discouraging less essential private investment andfor encouraging saving and (2) the alleged serious economic consequencesfor the economy as a whole of very high interest rates.There was, I think, a third group who felt that the issue was discussedat too high a level of abstraction to be very interesting. They had mentalreservations to begin with about the implicit assumption that there wassome one best method of preventing inflation. They felt, furthermore, thattoo much time was devoted to debating a position which was so far isolatedfrom political considerations as to be not very useful. I shared thisview.