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

30 Defense, Controls, and InflationI was going to talk ~bout SaIne of the arguments that havebeen put forth in defense of the bond-support program andwhat seemed to me to be the objections to them, but I thinkI have taken all the time that I should take.CHAIRMAN LEVI: We will have another general statementat this session from Mr. Harrod.MR. HARROD: Gentlemen, I hope you "vill excuse me, from aprocedural point of view, if, while saying something about myviews on this subject, I try to state very briefly my general viewon how to combat inflation, in which monetary control is a part.I think that that will help our purpose.May I begin by saying that my background of thought is verymuch hostile to physical controls, on the ground, primarily,that they are so inefficient. By physical controls I mean particularlyprice controls and the allocation of materials. I believethose methods to be essentially inefficient and obstructive tothe flexible working of the economy.I think that perhaps we here in this country, and everywhere,are too much influenced by the fact that Britain had to adoptsuch methods very quickly in 1939-40. She did so because shehad to act in a very great hurry, in a rapid step-up, and therewas no time to think out more elaborate plans for having aneconomy which would run rather more freely in time of war.Also, in the British case, it is important to remember thatthere was from the very beginning the limiting factor of theshipping shortage, which made an import program absolutelyessential, and from the import: program all other controls overthe flow of materials, components, etc., sprang.It may be that these physical controls will be necessary.Nonetheless, I think it would be very important in institutingphysical controls here to give them a tin1e limit. I suggest atime limit of two years, because it seems to me that that is thetime of maximum danger of the inflation gathering momentum.I am assuming, of course, we are not to be involved in totalwar. If that happens, then the whole picture changes.Assuming not total war but a maintenance of high defenseexpenditure, I submit that the crucial period is when we arestepping up the defense expenditure. Presumably, at the end