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Summary Statement Yjhat Will Our Dollar Be Worth? "What crur dollar will be worth will depend on what the American economy can produce. Suppose that we have a depression after the war and prices fall as they did in the early thirties,--then our dollar will be nworthw more, technically speaking. But surely, this is not what we are interested in. ITIhat we must ask is? Will the /onerican economy be healthy; will the people earn the dollars which they need, so that they can make a decent living? And this will be so only if we can accomplish a smooth transition to peacetime production, and if we can maintain a high level of economic activity after the war. I. The Transition Problem There are great inflation and deflation potentials in the transition period: Deflation potentials; (1) A drastic cut in government mean a drastic cut in incomes, and hence in spend. This factor may result in a drop of tures, by, say 25 billion dollars a year or of hostilities, (p. 1-2) expenditures will what people can consumption expendi two after the close (2) Increased production of consumers* goods will also tend to ease the inflation pressure, the more so, the more rapid the reconversion, (p. 2) (3) Government supplies can be liquidated; govern ment inventories S'ftbld by consumers now amount to about 7 bil lion dollars, (p. 3) Inflation potentials: (1)Consumers will save less out of current income and may draw on their accumulated liquid balances to finance purchases They may "dissave" for various reasons,— to maintain their level of living, or to finanpe backlog demands or to nbeat the price rise." If they are^£Kat the value of the dollar will be main tained, consumers should be willing to wait until goods are available, (p. 3*U) (2) Business expenditures for repairs, expansion and inventories will add to income without immediately placing more goods on the market. iSmpJiasis should be on con sinners* goods production as long as inflation pressure continues. (P* 5) (3) There will of course be continued and, perhaps increased price pressure on some scarce commodities. Continued controls are needed to hold the line* (p. 5) Balance between inflation and deflation potentials: As long as the type of buying which comes from inflation fear is avoided, there will probably be a good deal of - 2 - leeway for increased spending out of ourrent income or for dis saving. This will not increase inflation pressure but merely replace the gap in spending left by curtailed government activity. To avoid price rises and inflation scares, controls must be maintained, (p. 7) Unemp loyment: Considerable unemployment in the transition period appears hardly avoidable. (For figures see p. 6). IX • The Post Adjustment Period Assuming that by 1947 production adjustments have been made, what will be our output if there is little or no unemployment, and what will be the chanoes for obtaining such a level of output? 1. The gross national product would have to be about 165 billion dollars in 1943 prices. (This assumes a labor force oi 60 million, with some 56 million employed and a somewhat less them normal increase in pro ductivity from 1940 to 1947* (for figures and derivation, see p. 8.) 2. National income would be about 135 billion dollars and dis posable income left in the hands of consumers after direct taxes about 120 billion dollars. (See p. 8 for derivation.) V. 3. Out of their disposable income of 120 billion dollars, con sumers might save about 14 billion dollars, (in normal times, after backlog demand has worn off, they would be more likely to save 18 billion dollars.) Of the 107 dollars spent, about 18 dollars would go for the purchase of consumers' durables, including 4 billion dollars of special backlog demand, (p. 9-10) 4. To individual savings of 14 billion dollars would be added about 16 billion dollars for business savings,— 4 billion dollars of undistributed profits and 12 billion dollars of depreciation and deple tion allowances. (See p. 10). 5. Yfould there be enough investment to take care of this 30 billion dollars of savings without a government deficit? Some figures on investment, which might make up this total are given on page 11. All these investment figures are based on very optimistic "guesses." For instance, residential and farm construction are "estimated" at 9 billion dollars? These levels of investment may be reached for immediate post transition years, but it is hard to see how they could be maintained for very long, (page 12). That is, it is hard to see how it will be possible to maintain the assumed high level of employment without the support of public policy. Notes Pages 13-17 of the attached statement give supporting material for the estimates.
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