Central-Bank, and, Inflation and Employment

Central Banks has been provided with the most important job of deciding between the rate of inflation, and, the rate economic-growth and employment, and their relationship is a positive one. The rate of growth involves the rate of un/employment of resources, both that are scarce and that which are not. To keep it simple, we can take only labor and capital, where capital is scarce and labor is not that scarce, at all, in an economy like India. And, when the level of investment decreases the worst thing that comes into play is the fall in the level of employment and in India to a greater extent. Any change in the prevailing rate of interest results in a corresponding change in the supply of credited along the length and breadth of the economy, which is a very direct kind of control and gives result in just a matter of days since it is just a matter of liquidity, upward movements may be sticky because organizing business takes more time. The situation is more or less just like a stock-market, and changes in variables are very prompt. But, when it comes to control wages and consumption and thereby prices, all these variables are flexible upwards and their downward movement is often painful - unemployment and decreased wages, except prices (food-inflation) when they go down it is a moment of relief for the majority, but that seldom happens, moreover the case remains the same, when prices reach a level they provide a floor, itself, for future upward movements, which provides an important insight for long-run trend of prices and their control, for essential commodities. But, in case of wages, even though they are flexible upwards they are also sticky to their current level. However, its control is not that direct and is only through credit-control and investment. Therefore, results, to obtain, like lowering wages, consumption, and prices- which has to be actually affected, in the very short-period of time with an indirect mechanism is a difficult task and can be obtained easily and in lesser time by more direct price controls, price-control, itself.

And, i do think it can be justified on the same ground as the control in credit, investment, employment, wages, consumption and savings, and then prices. This is no different than a more direct price-control. Both are equally painful but the merit with direct price-control is that it doesn’t affect the industrial out-put and economic-growth and, can rather be expected to complement it. The process will not be that painful.