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INFLATION: Talk by Karl R. Bopp to the City Business Club Friday, Septem 25 ber 1942, at the Bellevue Stratford Hotel. I fa i n n l to Preliminary Disclaim any official inspiration for this talk. Bill G l e n "I do not call them the way I see them I I oall them as they are. " Do not know how well acquainted with the field you are so may repeat some things well known. Definitions not as important as understanding what is taking pla ce Farmer Jone s : "Is it correct to say, 'A hen is sitting or 'a hen is setting'? Farmer Brown: "When a hen cackles, it is much more im p o rtan t to k n o w w h eth er sh e has been laying or lying. I . Setting of the problem A. Winning thi war, not inflation, i s the m s ost important problem today. Wars are won by the side which puts Into the struggle the better quality and quantity of resources-human and m aterial. In o ther w o rds, it is m o ral, lo g istic s, strategy, manpower, and equipment that win. As a corollary, wars are never lost b n i f o s u a c e ability to finance them. finance Is important only i n a s f ar :as It effects the real factors. B* Finance does influence the distribution of the costs of war. Inflation is a topic of importance because it is one of the methods of financing a war— or determin ing who shall bear the burden* IX* Financial requirements of the war* A* The amount of funds involved* 1. Expenditurea by fiscal years* 1942-4 3 1943- U 2* % 77 billion 100 billion Rapid growth in monthly expenditures * March 19*1*• Maroh 1942** August 1942* 3* $0*8 billion 3*1 ” 5*2 ■ Growth in the public debt. (In billions) v ax±^ ana) ^ Non-market issuas Market isauts.... Totftl* ••*••* B* ® bob # J 1842 J&JL $24 J>2 $86 + (8 ♦ U 11 7|22 ♦ #22 tel Sources of funds and their significance. 1* National income* Chang* alncB (In billions) * Sp } & & __________ m o . II< o 71 . >9 Total*.•..*•*• + t T M + I3A.9 Spendable by individuals* ** 103*0 + + 29*1 let savings by individuals* ** 24*2 + 11* 5 + 16*5 14* 5 2* Distribution of national, income illustrated* a* In terms of goods* 3ttppO#*I national inoame*...* Government manta**** Ilia billion * Available for ©iviliana*. b* ♦ 50 Id W n i of mooay. |il2 hllHfi. ■ Matiottal imoQM*rt«« Oov^.tajea#.. $25 hrtliiiH of 0OT»t»##OUP1UM« 17 Qor*t* portion#..*#. M m & y available for eivilianj.......,,* a« IHaatraiioo of HJm • Cl). 13 |70 capa". Tb* d v l H a * gap. S w gr rrailahl#.. (toot* available.* O w i ir sap* ««#• () 2 |70 bill ion « • mmm. 79* l%l-L5k*lL+ a*r* • M biUlM to J& $ao Si ii n* lr^sifft that ^ Government cloee the gap in some way. Doth the ph^ie«U. gap and the consumer gap can be closed if civilians invest $20 billion additional in Government securities* If they do not, the Government will have to secure the necessary funds elsewhere— fro a the banka— And prices would have to increase 40 par cant to close the consumer gap* X. Inflation. A. How «uch have w« had? 1. Business; j T Production (IS)) . . • • • • • * • • teploym#nt*...................... . Payrolls*. * • • • * • . ♦ • • . * . . . * Rrtail t r a d # , , * . ....... .. Price*: Wholeaal#.. * . . . * ............ Farm* Food• + Sine# Sine# Jan. 1939 A942..+ 73> + 10% + ^2 *♦' 5 +122 + 19 + 54 + 15 52 + 32 75 + 11 h! Retail - cost of living + Food• • • • « . • . • • . • • • • * C lo th in g **............ House furnishing#* • * Hourly factory wage#.** 2* 19 + 35 + 25 +21 +32 + 7 + + ♦ + - 6 + 23 + ♦ 20 Credit and bankingt Investment in Goverrmenta. Hooey in cir<xilation* * * * . * B* +_____ 6 + ll + 9 + 4 29 75 50 88 Ef1'eot# of uncontrolled inflation. 1* 2* 3* 4* 5* 6* Impor*ri#h## the middle cla#i* luinou# to fixed income group* Endangers endowed institution#. Dlirupt* trad# and industry* Ooitly to th# Gcrrenwnt - taxpayer* Destroy# capital - mumiploymecit, stagnation* 7 . Impair# th# aorala of the people, C* Integrated polio/ and program against inflation* 1* Ineffectiveness of piecemeal approach. 2* Attack on all bamio front#* Heavy taxation. (1) Congress working on tax bill since March* (2) Majtlman expected %J 2> $27 billion. Control of price* - retail., wholesale, rent** (1) (2) A general maxim* price cel ling i*~ posed to keep cost of living down. But farm prices and wage rates are not controlled. Since December 1941Controlied prices*. . . . . + 2% Uncontrolled price*,* * * + U±% Stabilisation of wages - wage celling*. (1) (2) So definite policy - a body of prin ciple*. Ci ae-by-case method. i The famous "Little Steel* case in July# A "Yardstick* - 15% above Jan. 1 , 19 a * Two elevator clauses (a) "Substandard* wages. (b) * Inequalitie* n of wage®. 3aorifice? Stabilisation of f a n price* at "parity". ilV 2) (3) Many farm price* above parity# As food oo*t* go up, labor demands higher wages. As waged go up, production oosts go up. (4) (5) Farmer must pay more for what ha buys. Hence, a demand for a new and higher parity# The chicken and the egg dilemma* phasing its own tail. Or a dog Parity eaase* hlghr wage** iBlghmr wages aause hlghar parity* How to atop this upward spiral in the coat of living? The far® bloc and the labor bloc* ©• Rationing of essential scarce commodities. (1) (2) f# Control of consumer credit. !1) 2 ) (3) g. Only a few items - tires, automo biles, g as, sugar, Heed for an over— all program to avoid inequalities. How to avoid "black markets•* Reduce credit and instalment buying, encourage debt payments, Promote savings. Purchase of Government securities, (1) War Savings Bonds - (2) monthly rate****** $ 700 million First 8 mos. 1942* 5,600 * Other securities - b ills, notes, bonds. Taj: savings notes, (3) D, Effects of * controlled economy, 1« 2, 3# Invasion of Individual rights, but this is war. Controls upset the traditional pattern of living but * oar stake is great* Must win victory* Need for & new mental attitude, The task call* for " * * , pliancy and resiliency of m ind, for a willingness to discard old routines and ways of thought, for readiness to adapt one's self to the unexpected. It outlaws mental conservatism, it demands the same kind of self-reliant independence and readiness to experiment which the frontier demanded. Upon our ability to d*T«lap and those traits depends oar national sur vival today. That is a part of the challenge that ooefroatt jx k jt g*e«r*tla«u* Donald E» l*l*ont Dnlrwriity of KiMoarl, Jun« 9, 1*U*