Full text: The Economics of Transition.

9 
skill. This industry is an obvious candidate for reconversion that 
is its equipment and manpower should be as far as possible be 
adjusted to civilian production rather than being dispersed and 
dislokated. This again is a task for industrial and technology 
policy. 
What are the sources of inflation? 
Cost inflation may arise from fiscal policy measures,for example, 
the reduction of subsidies, from trade union pressure on wages, or 
from a depreciation of the exchange rate. 
Demand inflation basically has either of two reasons (or both):An 
excess of spending or a dearth of disposable supplies. 
Excessive demand in the transition will probably be fed from the 
following sources: 
The accumulated saving of the consumers 
Government expenditure (deficit) 
Private investment (so far only potential rather than actual ). 
To get rid of the accumulated saving there are two ways. Either a 
currency reform which practically confiscates them above a certain 
minimum. Or an inflation, engineered conveniently by the abolition 
of subsidies (it means driving out one kind of inflation by 
another ).The second method has been tried abundantly (for example 
in Poland ) while nobody dares to touch the first one because it 
is feared, not without reason, that there is very strong popular 
resistance against it. Apparently this resistence did not matter 
so much in the conditions after the first world war in Germany and 
Austria, perhaps owing to the occupation. These currency reforms 
were clearly very successful because they restored the confidence 
of suppliers in the currency, thus untying supplies which had been 
held back, and rechannelling supplies from the black market to the
	        

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