ABSTRACT
An inflationary pressure arises in an economy whenever the planned expenditures on factor services by nonconsumption producers are greater than the planned voluntary release of factors through savings. Voluntary savings may be taken as a measure of the number of factors the economy willingly gives up for employment in the nonconsumption industries. Whether the inflationary pressure will result in price increases depends primarily upon the availability of factor services in the factor market. If there is unemployed labour and complementary factors are available in the right proportion, the inflationary pressure will lead to greater output and income and there will be no price inflation. However, if there are no unemployed factors, prices will rise to force sufficient savings out of the economy and thereby release the factors to satisfy the investment demand for factor services. In a condition of full employment, wherever savings are less than the investment expenditures on factor services, the distribution of factors between investment and consumption industries is not in accordance with consumer desires. Where prices alone act as the rationing agent for factors and goods in the respective markets, we have an open inflation. But if a government is determined to maintain a given proportion of factors in the investment industries which is greater than the willing release of factors through voluntary savings and, at the same time, prevent price increases in both markets, the surest method of increasing savings is the imposition of arbitrary controls in the factor and goods markets. Where the government takes this action, the nature of the inflation changes from that of an open to a repressed inflation. The controls are arbitrary in the sense that they operate outside of and not through the price system. Their purpose is the repression of price increases and the results that follow therefrom.
