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

26 Defense, Controls, and Inflationaffect particular segments of the economy, such as particularindustries, particular occupations or commodities, etc. We haveto use monetary policy on the assumption that it is going tohave a very general influence, and then, if there is an influencein any particular direction, it is a reflection of that general influence.From that I come to the conclusion that so far as monetary. policy is concerned what we have to say pertains almost exclusivelyto the matter of inflation versus stable prices as ameans' of bringing about the necessary mobilization of resources.For that matter, what I shall say applies equally wellto an outright war economy.In this connection, I think there are three problems that areof primary significance. First, the allocation of resources to theproduction of war goods. How can that best be brought about?Second, the problem of inducing all able persons to enter occupations,productive occupations, and to put forth their bestefforts therein. The third problem is that of managing thewhole program with a minimum of injustice. We cannot avoidall injustice, perhaps, but at least we can do something to minimizeit.Let me briefly comment on each of these three points.First, the allocation of resources. I think, in all honesty, wemust conclude that the answer here is inconclusive. We cannotbe quite sure whether stable prices, with the correspondingtaxes that are required to prevent an inflationary movement,will be better than inflation for the purpose of bringing aboutthe necessary allocation of resources. I myself am inclined tothe belief that it at least will be as good as an inflationaryprogram.Briefly, if we follow a noninflationary program, so far as thebudget is concerned, it means that the budget must be substantiallybalanced. There might be some minor amount of borrowing,noninflationary borrowing, but I will not bother with that.The required taxes would reduce disposable incomes of consumers,thereby causing losses in some peacetime industries.Consequently, resources would be released for the war industries;and the rise in the q.emand on the part of the government