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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*