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People of the United States are beginning to wonder whether expenditures necessitated by the defense program will result in inflationary prices and thus carry is to another pinnacle from which we will inevitably descend into another depression. It may be said at the beginning that the first requisite for another depression is a period of inflation. Consequently, responsible economic experts, in and out of the Government, are agreed that steps should be taken to prevent advancing prices which will culminate in a wild orgy of buying.
With the increased tempo of defense spending, the people of the United States will have more money to spend. It is also certain that as industrial plants are turned from normal production into the production of defense materials, the shortage of goods may become pronounced. Given more money and fewer goods, it is certain that prices will go up as prospective buyers bid against each other for decreasing supplies. This would be the case in any free economy. Consequently, the Government is almost compelled to take steps to limit the buying power of the public.
As we understand it, and we admit that we do not know too much about it, this can be done in several ways. One is to set a price upon goods and commodities. Another way is to provide heavy taxation in order to drain off excess purchasing power. This end is also accomplished by persuading the people to invest in Government bonds for defense financing.
The British Government recently attempted to inaugurate a new system of control. It provided heavy income taxes, which included a plan for compulsory saving. Thus, a man who paid $188 a year in taxes was given a credit of $48, which sum would become available to him at the end of the war. This plan has several advantages, including the absorption of excess purchasing power during the emergency and an automatic provision for a savings account to cushion post-war decreases in the income of individuals. It may be copied in this country.
We hope the people of the United States will be smart enough to encourage the Government to take whatever steps are necessary to prevent a repetition of the inflation orgy which developed in the United States during the last war. The remedy may seem to be harsh now but it will be easy if it enables the nation to avoid a disastrous depression.