Last Tuesday's headlines screamed that Secretary of the Treasury Henry Morgenthau, Jr. was asking Congress to double income taxes. He wants to up them $7,600,000,000 a year in war revenues, thereby hitting the pocketbooks of all except the very poor, and "mopping up" part of the surplus earnings of persons with incomes under $1,500. This is specially designed to "prevent people from engaging in the futile effort to buy more goods than can be produced."

The first period of our national defense program, then, is over. That was a filling-out period, when we had several million unemployed workers and a great stock of natural resources to use up before inflation could show its ugly head. The government did most of the financing then, and raised money by selling securities and expanding the credit system. The U. S. paid for war goods out of a rise in national income. Now the slack in men and materials has been used up, and any further stretching of the credit system would send prices bolting to the skies. We are entering into a second period in the national defense effort: a stage of curtailed consumption and deferred purchasing power.

What would happen to the pocketbooks of the country if Morgenthau didn't take the money out in taxes is good material for a major nightmare. What purchasing power the people could keep would be undermined by a wage-price spiral; small business would be wiped out by the sky-rocketing of wholesale prices; and Washington alone would have enough lucre to make even the smallest investment.

But even that situation would be economic ambrosia compared to the potion we would have to swallow when the war is over and the government expenditures sag from something over fifty billions of dollars to a meagre ten billion. The big post-war problem will be filling in that forty billion dollar gap. Unless there is enough private investment and consumer spending to fill it in, we will experience a gum-shoe stagnation that will make 1929 look like prosperity without the corner. We won't be able to fill it in unless new outlets for investment are opened up and business is willing to risk the capital--which, in turn, depends on effective consumer demand. You can't have consumer demand if inflation has wiped out savings and undermined purchasing power. What you have in its place is government regimentation, indefinite deficit financing, and a popular demand for high tariffs that can only throttle international reconstruction and provide the perfect embryo of another war.

The first essential to the resumption of private investment after this war is to avoid uncontrolled inflation now. Morgenthau has taken the first big step. Alvin H. Hansen, Professor of Political Economy at Littauer Center, prophesies that "we may be compelled to spend one-half our national income on the war effort." This is a post-war necessity that must be taken care of while the war is still being fought.