View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.




By: Alvin H. Hansen

Ifc/Xhe calendar year 1943 we faoe the crucial test in the
program we have undertaken to stabilize the cost of living and
to prevent chaotic prioe developments in our economy.
1942 proved a severe test.


The President's price stabilization

program in April, supplemented by the Ootober aotion to close
serious gaps, succeeded in stemming the inflationary tide which
was rapidly developing at the beginning of the year.

We must

now firmly hold the oost of living where it is.
We are reaching a cruoial test this year for various

On the one side, the large stocks of consumers' goods

built up in 1941 and early 1942 are now rapidly being drawn down
under the pressure of sustained heavy purohases by consumers.
On the other side, the inoome is still expanding partly by the
continued rapid increase in employment in the military foroes
and industry combined.

Young people, old people, women, and

self-employed persons are being added to the labor foroe.
Working hours are being inoreased with time and a half for over1


There is thus going on a triple expansion of income

through inoreased employment, inoreased hours, and overtime pay*
In some oases oosts will impinge upon prioes, necessitating a
Judioious use of subsidies in order to hold the prioe oeilings.
These developments foroe us to faoe up to a serious problem*
I do not think one oan state too emphatically the plain
fact that we have reaohed a fresh crisis in the program of prioe

We are in great danger from the pressures arising

from all sides.

The urgently neoessary rationing,and the direot

controlB are not pleasant, but they are necessary bulwarks
against the inflationary spiral.

The test of democraoy is self-

discipline in a great crisis. We oan and must meet the test.
If we are to hold the fort in 1943, we shall have to
strengthen our defenses at every point and resist policies that
unnecessarily inorease the flow of money income.

We shall have

to withdraw purchasing power through rigorous taxation and
through compulsory and voluntary saving.
tent rationing controls rapidly.

We shall have to ex-

We must rigorously hold the

prioe oeilings.
We must not let the cost of living rise. Once that dike
is broken the flood gates all around will open.

Then the spiral.

The rise in the cost of living leads to wage increases, increased
cost to the government for war contracts, inoreased outpouring of
government funds, unrestrained inorease in the flow of inoome,
and thenoe again to an inorease in the oost of living.
No economy in the world is more vulnerable to the destruotive effects of price inflation than our own*

Our population, by

far more than mass populations elsewhere, has accumulated vast
savings in insuranoe funds, in government bonds, and in savings

The wiping out of mass savings, in an eoonomy suoh

as ours would strike at the foundations of our social stability.
We know from past experlenoe the destructive effeot of price Inflation and subsequent disastrous deflation upon employment and

Violent price Instability and the ohaotio conditions

following therefrom, would doom all reasonable prospeots of a
stable and prosperous post-war world.

The test of our capacity

to reach a full-employment eoonomy in the post-war is now upon

If we oannot prevent inflation during the war, there is





l l t t l e hope of reaching the s t a b i l i z e d , full-employment economy
whloh we are eagerly hoping and planning for In the post—war