Taruc and Alejandrino left this morning.
It is reported that there is terrible inflation in Manila. Prices, especially of foodstuffs, are very high. Rice, for instance, is reported cost 200 pesos. There must be a great deal of suffering. How can employees live on the salaries they generally receive? And it seems that nothing is being done to combat inflation. At least we have not read of any. On the contrary, it seems that reckless spending and speculation are being tolerated. War always brings inflation. It is because of the enormous expenditures that have to be made in connection with the war effort. Inflation is caused by over circulation or by the fact that the money circulating cannot be absorbed by production and the requirements of business. It cannot entirely be eliminated but it can be minimized.
There are many measures that can be taken for the purpose. The first step is to go into the source of money — and this is the large expenditures for the Army and Navy in the Philippines. Steps can be adopted in this connection as I am sure the Americans will be willing to help and to cooperate. During the Japanese regime this was inpossible as they ignored absolutely any request for their assistance. Japanese companies and even individuals compelled the sale to them of Filipino businesses, and they invested lavishly in almost everything. Necessarily, the circulation became so enormous that the purchasing power of the military notes went as low as 1 peso for 500 to 1000 military notes. The U.S. Army and Navy can help very much absorbing a good portion of the payments made by them. The soldiers could be made to send more money home or to invest in government bonds, etc.
Since the inflation is a result of under-production and of the fact that businesses can not absorb the money in circulation, no effort should be spared to increase our agricultural and industrial production. Likewise, our commerce must be increased. Every incentive should be given to normalize and develop business. In this connection, the Filipino merchants should be given encouragement as much as possible. To increase production and facilitate the movement of commodities, transportation and communications must be restored and improved. Sufficient trucks should be assigned to the sources of production. Boats should be secured at once to resume the inter-island intercourse.
When there is inflation every conceivable means must be adopted to curb and regulate prices. When there is a big demand and very little supply, the prices increase and if there is no limit prescribed or stock limits are not enforced, prices soar to heights that most people cannot reach. Foodstuffs specially must be controlled. Our experience during the Japanese regime was that rice affected prices immeasurably; it practically regulated prices. Every time the cost of rice went up, prices of all other commodities and services followed. When a market vendor increased his price, he alleged that he has to pay more for his rice. When a “cochero” increased his fare, he alleged that he has to pay more for his rice. The worst sufferers, the employees, demanded better salaries and those demands had to be granted. But everytime increases were made, more money circulated and the result was the worsening of inflation — a vicious circle.
The best remedy is to enable the employees to acquire essential commodities at reasonable prices. They are more interested in acquiring what they need to live rather than cash which cannot buy what they need. House rents must also be regulated. But we must not be unreasonable about this. During the Japanese regime landlords were treated rawly. Rents were fixed at not more than 75% of pre-war rents. Most landlords suffered, especially those who belonged to the middle class with a fixed income. The worst feature of this order of rent control was that the order did not apply to houses and buildings newly rented which were rented out at exhorbitant rates. But the present landlords must not be allowed to charge very high.
Another necessary measure is the control of banks, insurance and other companies that receive and invest funds. Banks should be required to have a larger reserve so as to tie up a good portion of the money. Their investments should be controlled. Under no circumstances should money for speculation businesses be allowed. On the other hand, all investments which will increase production or which will develop business should be encouraged. Wisely managed, this may be a very effective measure against inflation.
Also, efforts should be made to import commodities for trade. The purpose is to increase commerce and thus more circulation can be absorbed. Arrangements must be sought so that more bottoms could be assigned to the Philippines.
Another hedge against inflation is taxation. Big incomes must be taxed higher than the ordinary so as to withdraw more money from circulation or speculation. Higher taxes should also be imposed on speculative enterprises. On the other hand, the taxes on production and transportation enterprises should not be increased.
Another means against inflation is the issuance of bonds. Every effort should be made to make the people save money by investing in bonds. Unlike previous sale of bonds purchases by banks, insurance companies and other investment enterprises should not be emphasized. Instead, the public in general should be invited to invest to the limit. But if the proceeds of the sale of bonds will be circulated again, then we gain nothing. They should be impounded and if spent, they must be invested in production enterprises or in the construction or reconstruction of public buildings and other permanent improvements.
When there is inflation the laborers and other persons rendering services do not suffer very much. It is because they can charge for their services as much as might be needed by them to live. A “cochero”, for instance, can increase his fare if necessary to live.
There are other measures that can be taken to combat inflation.
As to whether inflation is highly undesirable, there are some differences of opinion. Some contend that it is desirable. The great majority of economists, however, hold the opposite view. There is no doubt that it benefits debtors. It is heaven for debtors. Producers are also generally benefited. The only trouble is that they seldom learn the lessons taught by previous inflations. They generally expand greatly, and when depression comes, and depression generally follows at the wake of inflation, they find themselves with equipment and facilities that they have to scrap. They find that they cannot continue their business at the same pace without leading themselves to insolvency.
But there is no doubt that inflation is a curse, and evil which must be combatted with decision and energy. The great majority of the people suffer from it and if allowed to go unchecked the whole economy of the country will be dislocated.