Windham County Observer

This is the sixth of a series of articles on inflation based upon data prepared for the Consumer Banking Institute by its research staff with the assistance of its consultants Dr. John F. Sly, Dr. Harley L. Lutz, Dr. William S. Carpenter, members of the faculty of Princeton University.

Becoming Poor With Too Much Money

Five Possible Answers to Inflation

Can you become poor with too much money?

You can-and it works like this:

When everybody is working, and when there are no limitations on the supply of goods in the market, then prices are reasonable and our money incomes will buy enough goods to support our scale of living

But when everybody is working at good wages, and half of the goods produced are taken for war purposes, then there is more money than there are things which consumers can buy. The competition among buyers with more money to spend than there are goods to buy causes prices to rise.

This price rise, resulting from an abundance of dollars and a shortage of goods, is inflation.

We are making every effort to increase industrial production as rapidly as possible. But a large proportion of this production (over half in 1942) is war goods. This means that the total goods available for our home use can not possibly be increased-indeed, they must rapidly and drastically decline.

Total industrial production in 1941 was 27 per cent more than in 1940, but our goods for home supply remained constant.

Scheduled production for 1942 calls for a 15 per cent increase over the 1941 level. But this schedule is 53 per cent war goods and 47 per cent home goods-a one-fourth reduction in home goods over 1941.

We have more money with which to buy less-one-fourth less. Without control this means heavy price increases-they are otherwise inevitable.

During 1941, the cost of living increased about 10 percent. Wholesale prices increased about 15 per cent. The inflation spiral has begun.

Our government is attempting to control this dangerous movement by:

Taxation-syphoning off purchasing power for the war effort and restraining spending for home use.

Price control- "freezing" prices at all levels of production and sales.

Rationing-apportioning the distribution of available consumer goods so that each of us will receive our fair share.

Credit control-restraining unwise and excessive borrowing on the part of the consumer.

War savings-loans to the government to finance the war and to reduce consumer spending.

The following four articles will deal with each of these means of inflation control