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

14 Defense, Controls, and Inflationopponents of direct controls contended that if it had to be achoice between evils they would prefer their inflation now,since it would then not be necessary to forego the very importantadvantages of relative price changes.The main argument, however, was whether the direct controlsactually reduced the inflation which would subsequentlyoccur when controls were lifted. 12 There was the opinion thatinflation resulting from so-called price-wage spirals which werenot related to more basic monetary causes could be prevented 13by controls and that the inflationary effects. of removing controlscould be greatly mitigated by keeping the controls. onafter the mobilization crisis was· over until production.in theprivate sector began to catch up with the demand. This positionwas challenged by the advocates of monetary policy whoclaimed that price controls only delay inflation, because there,must be a monetary concomitant of inflation, and that there isnothing in the direct control mechanism or in the subsequentrestor'ation of the premobilization level of civilian output whichremoves this basic factor. In any,event, it was clear that theappropriate timing of removal of price controls provided a usefultest question for both positions.Are direct co'ntrols undesirable because they prevent relativepsychological incentive which would have a very favorable effect onproductivity, if the .workers work, meet their bills, and save money ratherthan work and merely meet their bills.12. MR. LEVENTHAL: If I recall correctly, it was argued that the deferralof. inflation is important even if deferral cannot be contained to theperfect moment when it will mean·no price increase. Even if controls arelifted in a time of insufficiency of supply, so that there is a strong increasein prices, the resulting inflation will in any event be smaller in amount inview of the fact that it has been deferred. Thus if there has been a doublingof prices due to the UinHation" following WorId War II, there wouldhave been a tripling :0£ prices, reflected in the 1949 price level, if the inflationhadtaken place during World War II and then been compounded,etc,.13. MR. HITCII: Not "prevented" but slowed down. If one realisticallyassumes a fairly elastic supply, the amount of money created duringmobilization and therefore the amount of inflation we ultimately experiencewill be reduced by any measures. which slow down increases inprices and incomes. The choice is. not merely between inflation now andlater but also between more andless inflation.