POSTSCRIPT ON WAR INFLATION: A LESSON FROM WORLD WAR II.

This paper focuses on the bearing of U.S. fiscal policies on the problem of World War II and post-World War II inflation. Some elements of the analysis could be made to fit the usual developments during the cyclical process; others could not. The main point that remains true, even for normal periods, is that an ex ante inflation potential calls for higher taxes, while an ex ante deflation potential calls for tax reductions and--if the deflation potential is substantial enough--for consumer subsidies. It is, of course, possible to substitute other expansionary monetary policies for tax reductions and consumer subsidies, but the other monetary measures are either less effective or inferior in certain respect and it would therefore be highly desirable to combine them with those here considered. Measures other than those of a "monetary-fiscal" character are also very important, but we are not concerned with them here. A flexible tax policy is a promising means of reducing economic instability. A reasonable degree of flexibility could, however, scarcely be accomplished without maintaining the pay-as-you-go system and without the possibility of adjusting tax rates in, say, quarterly intervals. The difficulties standing in the way of such adjustments are political in nature. The necessary measure of flexibility cannot be accomplished without some delegation of power on the part of Congress--possibly to a committee of its own, rather than to the administration.