Tax Policy and Price Fixing as Economic Controls for Defense Mobilization

Abstract

T HE primary objective of the national defense program is to mobilize our economic resources as efficiently and quickly as possible. Secondary objectives, of course, should be to dislocate normal economic activities and relations as little as is consonant with effective mobilization and to minimize the severity of postdefense or postwar readjustments. A number of alternative or complementary procedures for mobilization are available; e.g., the direct method of complete governmental operation of industry, or indirect methods operating through fiscal policies, controls, rationing, and priorities. Furthermore, the needs of the defense program may be met in whole or in part by (1) increased production through the use of otherwise idle resources or through imports, (2) reduced ordinary consumption, (3) reduced new investment for nonwar purposes, or (4) depletion of capital in existence by use or sale of physical goods or securities or neglect of repairs and replacements.1 It is axiomatic that effective mobilization must involve a complex integration of economic procedures and processes. Further, the integration is essentially organic in nature; hence adjustments at one point or in given ways will determine both reactions and procedures elsewhere. Worse still, from the standpoint of simplicity in analysis, policies when possible should be developed from the point of view of postwar conditions as well as the current emergency. The statements up to this point are intended merely to indicate that the writers are thoroughly aware of the latitude and the complexities of the issues raised by the defense program and that they wish to make it clear they are addressing themselves to only two aspects of the problem of directing economic activities for effective mobilization, namely, tax policy and fixing. Furthermore, the discussion of controls is limited for the most part to price in order to hold the analysis within reasonable bounds. Prices may be influenced, and hence to some extent controlled, in a multitude of ways since almost any adjustment in particular and general supply and demand relations has a impact. Normally, if time, economic wisdom, and politics allow, governmental controls should be exercised through the manipulation of the fundamental supply and demand relations rather than through direct fixing. That is, controls typically should be indirect. It is often overlooked that fixing per se is superficial (unless it involves also an effort to mold market relations) because it attacks the surface phenomena instead of the underlying causal factors. But fixing eventually forces the government (or private fixing agency) to grapple with the basic underlying influences if it is to be reasonably successful.