IRS INCOME TAX

2021

20,000,000,000,000.

Liabilities

9,116,954,732,862

Visa & Master card. Each of these methods uses the amount to be invested in the capital project.

The net present value, internal rate of return, and payback methods use the amount of cash generated by the investment each year.,

Discover and then American Express

for most accounting rate of return method uses accrual accounting net income resulting from the investment.

For most investment projects, the difference between the cash generated each year and accrual accounting net income is

depreciation expense a non cash item that reduces accrual accounting net income.

Military and or High Risk.

Active Capital or Working Capital excluded.

net of taxes in the attempt to prevent an increase in consumption spending. Moreover, it would have prevented an increase in bank loans for nondefense purposes. But a policy aiming at

A Treatise on War Inflation
maximum physical output would have brought about a rise in aggregate money spending, including public and private expenditures on defense commodities, even if it had attempted to stabilize or curtail the flow of human consumption and of non- defense investment.
In the general discussion of this topic there frequently arises a confusion between the probable effects of alternative monetary and fiscal policies on aggregate output, on the one hand, and the probable effects of alternative policies on consumption,

Expansionary financing vs. induced consumption
and induced investment.-The rise in the real output flow of the American economy after the outbreak of the war in Europe was accompanied by a substantial increase in the flow of money spending. In fact, it is unlikely that the aggregate real output flow would have risen at a rate approximating its actual rate of increase had the flow of money spending been kept constant. A rise in real output implies a declining price level if the money flow remains unchanged. In principle, a process characterized by expanding real output and a declining price level is quite conceivable. In reality, we have to a limited extent experienced such a process. In the late 1920’s, for example, prices exhibited a slight downward tendency while output was rising rapidly. Yet a substantial decline of the general price level gives rise to frictions which are not easily overcome. A rise in the output flow by about 30 per cent in the course of two years would have created a substantial pressure on the price level, had the money flow remained unchanged. Flexible monetary policies were, in all probability, a necessary condition of this rise in physical production.
A reasonable monetary policy would have increased the sup- ply of money even if from the outset it had been the objective of the authorities to prevent a rise in consumption. Such a policy would conceivably have aimed at stabilizing incomes net of taxes in the attempt to prevent an increase in consumption spending. Moreover, it would have prevented an increase in bank loans for nondefense purposes. But a policy aiming at

ate stages), and (b) the necessarily existing lag between the accrual and the collection of taxes. In order to prevent the formation of a revolving consumption fund during the second of these two lags, income taxes would probably have to be de- ducted at the source. If in times of rising real output and of expanding money flows nondefense expenditures are to be curtailed (not merely stabilized), the budget should even be overbalanced with a lag although underbalanced in simultane- ous terms. In these circumstances the tax liabilities of the pub- lic should increase by more than the rise in money incomes. It is important to realize that no contradiction is involved in this proposition, because, as was pointed out in the introduc- tory chapter, there is a difference between (a) letting money in- come rise but conducting the increase (or more) back to the Treasury before it is spent on consumption, and (b) not letting money income rise.
To say that the methods of financing the defense program were expansionary from the outset is not the same thing as to say that defense outlays gave rise to an increased consumption and to induced nondefense investment. Expansionary financ- ing—that is, financing involving monetary expansion–was pre- sumably necessary to obtaining a substantial rise in aggregate real output. The increase in consumption spending, on the other hand, as well as the increase in nondefense investment, reflects the circumstance that an appreciable part of the previ- ously unutilized resources was taken up by the civilian sector rather than by the defense industries.
Some of the data referred to in the preceding chapters lend

plausibility to the assumption that the endeavor to maximize real output was not the sole reason for expansionary financing. It was pointed out that since early 1941 both the wholesale price level and the cost of living have shown a marked upward trend. Moreover, since the summer of 1941 the rise in indus- trial production has been slow while prices have continued to rise. There would be no plausibility in the assumption that this
64
A Treatise on War Inflation
was necessary, or that it was deemed to be necessary, in order to prevent a less favorable trend in the development of real output. A downward pressure on the price level might create an unfavorable trend for the real output flow, and a slightly rising price level may conceivably stimulate the expansion of

The Financing of Defense
63
ate stages), and (b) the necessarily existing lag between the accrual and the collection of taxes. In order to prevent the formation of a revolving consumption fund during the second of these two lags, income taxes would probably have to be de- ducted at the source. If in times of rising real output and of expanding money flows nondefense expenditures are to be curtailed (not merely stabilized), the budget should even be overbalanced with a lag although underbalanced in simultane- ous terms. In these circumstances the tax liabilities of the pub- lic should increase by more than the rise in money incomes. It is important to realize that no contradiction is involved in this proposition, because, as was pointed out in the introduc- tory chapter, there is a difference between (a) letting money in- come rise but conducting the increase (or more) back to the Treasury before it is spent on consumption, and (b) not letting money income rise.
To say that the methods of financing the defense program were expansionary from the outset is not the same thing as to say that defense outlays gave rise to an increased consumption and to induced nondefense investment. Expansionary financ- ing—that is, financing involving monetary expansion–was pre- sumably necessary to obtaining a substantial rise in aggregate real output. The increase in consumption spending, on the other hand, as well as the increase in nondefense investment, reflects the circumstance that an appreciable part of the previ-

tary and fiscal policies on aggregate output, on the one hand, and the probable effects of alternative policies on consumption, on the other. Methods of financing a defense program in which the creation of new money is involved are likely to stimulate a rise in aggregate output so long as the economy has a substan- tial stock of unutilized resources at its disposal, whereas the continuation of expansionary financing is likely to exhaust itself more and more in raising prices as the aggregate supply of commodities and services loses its elasticity. But an increase in the supply of money does not necessarily stimulate the production of consumers’ goods. A government, for example, might borrow from banks part of the funds to be expended on defense and might raise tax revenues with a lag, so as to force the consumer to spend his additional money income on taxes rather than on consumption goods.’ Such a policy would bal- ance the budget with a lag, although it would create no balance between simultaneous revenues and expenditures. The rev- enue of a period would balance with the expenditures of the previous period, but would fall short of the expenditures of the “present” period. The appropriate way to reach this objec- tive presumably would be that of raising the tax liabilities of the public simultaneously by the full amount of the rise in aggregate money income. The lag in balancing revenues with expenditures would reflect (a) the possible lag between Treas- ury spending and the formation of net incomes (via intermedi-
1 In principle we should add: “except for that part of the additional money income which goes into additional savings.” In the event of noninflationary war finance this qualification would presumably be unimportant. 2 With the same qualification as is contained in footnote 1 above.

production. Even in an economy in which priorities, alloca- tions, and public investment direct resources into the required channels, and in which the government has means to enforce the utilization of idle stocks, it is inopportune to create a down- ward pressure on the price level and thereby to increase the difficulties involved in the task of allocating resources. But a sharp rise in the general price level is neither a necessary nor a welcome stimulus. Furthermore, it is clear that the shifts within the general price level were not, for the most part, of a kind to promote expediency in the defense program. Farm prices were and are the conspicuous leaders in the race. The
The Financing of Defense
65
ratio of farm prices to other prices has shifted substantially in

feasible degree in each subsequent stage. It is impossible, how- ever, to verify this. The effort to borrow from the public rather than from banks has obviously increased, and the absolute amount of borrowing from the public has risen substantially; but the increase has not been sufficient to prevent a consider- able upward pressure in the price level since the early months of 1941.
In spite of increased taxation and increased borrowing from the public, the rate of new money creation has risen appreci- ably since the outbreak of the war in Europe. In the fiscal year ending with June, 1940 (“fiscal 1940″), about 5 billions of new money came into existence. In the next fiscal year (“fiscal 1941”) the supply of money rose by about 7.5 billions to slightly more than 48 billions. “Money” is here defined as in- cluding (1) demand deposits other than domestic interbank deposits and (2) hand-to-hand currency other than that held by the Treasury and by banks. The inclusion of time deposits and of savings accounts would not change our figures sub- stantially, as far as the increase in the stock of money is con- cerned. These balances did not rise much.*
The first fiscal year.-Up to the start of the American de- fense program, in June, 1940, monetary expansion was but indirectly related to the war. As can be seen from table 1 in the Appendix, American industrial production rose appreci- ably in the first year of the war in Europe, although the rise became much more substantial in the second year, which roughly coincides with the first year of the American defense program. It can be seen from the same table that, already in

ratio of farm prices to other prices has shifted substantially in favor of the former. It is clearly not, however, the aim of the government to shift resources from other industries to farming.
Expansionary financing, as opposed to induced consumption and to induced nondefense investment, did serve the purposes of the defense program since it promoted a considerable rise in real output. Furthermore, some degree of expansionary financing is still appropriate since real output has not as yet entirely ceased to rise. But the degree of expansionary financ- ing was and is greater than that which would be determined by these considerations. The amount of expansionary financing was and is greatly influenced by the limitations to which other methods of financing are subject. In principle, expansionary financing comprises borrowing from banks, borrowing from previously accumulated idle balances, and such taxation as results in the depletion of idle balances. There are strong indi- cations that idle balances were increased rather than depleted up to the time of the Pearl Harbor attack, with the result that expansionary financing was, in practice, confined to borrow- ing from banks. The amount borrowed from banks was greatly influenced by the fact that the Administration did not want to-or conceivably could not-press taxation beyond certain limits which changed with changing conditions, and by the fact that borrowing from the public (i.e., from lenders other than banks) was limited by the voluntary demand of the public for government securities. These considerations do not deter- mine the amount of expansionary borrowing in any rigid manner. To say that because of these circumstances the amount

the first year of the war, the largest rise occurred in the typical defense industries. The expansion of the period between the outbreak of war and the start of the American defense pro- gram should be viewed as the first stage of the American war expansion. But at that time the expansion could not be re- garded as a consequent of American government activities. • See table 9 in the Appendix.
The Financing of Defense
67
The increased demand of warring nations for American commodities was the medium through which the “stimulat- ing” impact of the war was mainly transmitted. Table 8 in the Appendix shows the large increase in exports to which the war gave rise in the first year. This stimulus was much greater than could conceivably have arisen from the verv slight in.maximum physical output would have brought about a rise in aggregate money spending, including public and private ex- penditures on defense commodities, even if it had attempted to stabilize or curtail the flow of human consumption and of non- defense investment.In the general discussion of this topic there frequently arises a confusion between the probable effects of alternative mone- tary and fiscal policies on aggregate output, on the one hand, and the probable effects of alternative policies on consumption, on the other. Methods of financing a defense program in which the creation of new money is involved are likely to stimulate a rise in aggregate output so long as the economy has a substan- tial stock of unutilized resources at its disposal, whereas the continuation of expansionary financing is likely to exhaust itself more and more in raising prices as the aggregate supply of commodities and services loses its elasticity. But an increase in the supply of money does not necessarily stimulate the production of consumers’ goods. A government, for example, might borrow from banks part of the funds to be expended on defense and might raise tax revenues with a lag, so as to force the consumer to spend his additional money income on taxes rather than on consumption goods. Such a policy would bal- ance the budget with a lag, although it would create no balance between simultaneous revenues and expenditures. The rev- enue of a period would balance with the expenditures of the previous period, but would fall short of the expenditures of the “present” period. The appropriate way to reach this objec- tive presumably would be that of raising the tax liabilities of the public simultaneously by the full amount of the rise in aggregate money income. The lag in balancing revenues with expenditures would reflect (a) the possible lag between Treas- ury spending and the formation of net incomes (via intermedi-1 In principle we should add: “except for that part of the additional money income which goes into additional savings.” In the event of noninflationary war finance this qualification would presumably be unimportant. 2 With the same qualification as is contained in footnote 1 above.About this book|||OGet Book