/specialCollection/BerlinWall/1961-Summer/1961-07-12c.pdf

period of military emergency have three functions:

(a) To direct scarce resources from the civilian economy to the defense effort;

(b) To channel resources, even within the civilian economy, from unessential to essential uses;

(c) To prevent the general price-wage level from rising.

Unless and until the size of the additional defense burden, together with private spending induced by the rise incomes, becomes large enough to encroach upon the economy's capacity to produce, our main concern will be with the third of these functions. Moreover, the major immediate source of inflationary pressure is likely to be a surge of consumer and business buying motivated by uncertainty and panic or by expectations of the imminent imposition of price control and rationing.

## 10. Economic controls are classified as indirect and direct.

(a) Indirect controls work through income and the supply of credit to siphon general purchasing power away from the civilian economy. On the side of taxation the possible instruments range from personal income and corporate profits taxes, through general expenditure taxes, to selective excise taxes which verge on being direct controls. On the side of monetary and credit policy, the Federal Reserve Board has the general power to limit the supply of bank credit to households and firms.

(b) Direct controls include those that restrict the movement of specific prices and forms of income--ceilings on prices, rents, wages, and salaries--and those that restrict and direct the use of specific materials, facilities, and kinds of manpower allocation of materials, priority systems, consumer rationing.

11. Turning to the problem of containment of inflationary pressures primarily psychological in origin, we state the important principle that neither direct nor indirect controls can do the stabilization job alone.