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

32 Defense, Conttols, and Inflationfew words-I do not want to take up too much time-aboutmy own line of approach.We are going to discuss at. another session the fiscal methodof preventing inflation. Mr. Mints has already said somethingabout whether you have to balance your budget, or whetheryou can have a little bit of borrowing, which might easilybecome a little more, etc.I should say that if you are going to rely on fiscal methodsfor preventing inflation, and on those only, you have to do whatwe have been doing in Britain for three or four years. You haveto overbalance your budget and overbalance it by quite a lotfortwo reasons.If you look away from the budget to the balance of the wholeeconomy, you have two further things to think of. As you stepup your taxes-and you have to step then1 up mightily to coverthis vast defense program-private and personal saving will undoubtedlybe affected, and you will get less private and personalsaving. That is one reason. On the other side, the wholeof this expansionary situation is going to·lead to a good deal ofadditional investment outlav, with all the different firms toolingup and getting ready to"'meet government orders which aregoing to flow out over the whole economy.Quite apart from the actual outlay of the government., whichon this heroic scheme of relying solely on fiscal controls, onewould seek to cover by taxation, you have a double factormaking for inflation: personal savings being reduced by hightaxes and nongovernment investment expenditure being stimulatedto meet the direct government expenditure. So I concludethat, however, heroic you are on the fiscal side, you·will still notsucceed in preventing inflation by that alone. That brings meto the hub of the matter.The fiscal side of things, the high taxation, is designed torelease resources for defense expenditure by making the consumersconsume less than they otherwise would; and that youhave to do, of course. You can go a long way along that line.But I do not think that, with this step-up of expenditure at thepace "ve conten1plate in these two years while we climb theplateau, you can get all you need out of cuts in consumer