ABSTRACT
There are a number of forces which are capable of causing demand in the modern economy to rise to the point where it presses with greater or less severity on the current capacity of the economy. One obvious possibility is defense or war spending. When there is an excess of demand, as noted, the self-regulatory mechanism based on countervailing power ceases to be effective. The Keynesian formula can be brought to bear on an excess of demand and on price increases resulting from wage-price interaction. Economists have regularly urged that taxation — drastic taxation — is both the sufficient and the only remedy for inflation in an economy which is under the pressure of wartime requirements. The problem of restraining an excess of demand, when the latter is occasioned by other than military spending, is in principle much simpler. Public expenditures can be reduced because increased expenditures are not an even higher objective of policy.
