1. At (yesterday's) meeting of the Allied Council the subject of
wage and price fixation was again raised. I reminded the Council
that at the previous meeting I had insisted that this was
primarily a political and not an economic question. I said I
maintained that view. Nevertheless it appeared that GHQ Officers
would welcome the views of members on some of the administrative
and economic questions involved. In a desire to help in every way
possible I would table a number of detailed recommendations.

The following is a summary of my conclusions and recommendations.

1. The destruction and wastage of war and the dislocations of
defeat present the Japanese Government with a series of major
economic problems.

2. Japan to-day is faced with a twofold task. First to restore
capital equipment for the production of peace time goods and
second to ensure that the goods produced are justly distributed.

Efficiency and social justice must be the key note of economic
policy.

3. Inflation must be stopped. It has produced inefficiency since
available resources have been wasted [in] non-essential uses. It
has caused injustice by throwing the main burden of sacrifice on
wage and salary earners while other sections of the community have
profited.

4. While the immediate cause of inflation is the unbalanced budget
a more fundamental cause is the failure to make price control
effective by strictest control over the distribution of raw
materials and consumer goods.

5. The control of raw materials must be enforced to make price
control effective and to ensure that materials are reserved for
essential use. It should be based on a permit system. Permits
should be necessary for both the purchase and transport of
controlled materials. Records for Government inspection of
movements of controlled materials should be kept by suppliers,
merchants, carriers and users.

6. Rationing of essential consumer goods is necessary to ensure
just distribution and should be controlled by a coupon system.

7. Prices should be fixed to restrict profits to a minimum.

Control of prices to prevent profiteering is more important than
fixing particular level by money wages since in the present
circumstances of Japan's economy increases in wages simply raise
costs and prices and do not increase real wages.

8. Provided profiteering is eliminated by price control, wages
should be pegged as an additional safeguard against excessive
increases in costs and prices. These pegged rates should however
be periodically received [1] and raised as production effectively
increases.

9. Every effort must be made to ensure that Government revenue
keeps pace with expenditure. Taxes should be based on current
incomes. Returns of business and professional incomes should be
made at intervals of less than one year if possible each quarter
so that taxes may be adjusted to current earnings.

10. Government expenditure should be pruned to eliminate all but
the most essential items. Accounts submitted by Government
contractors should be carefully audited to prevent excessive
charges.

2. A S.C.A.P. officer presented a comprehensive description of the
Japanese banking system. Discussion of this was held over.

3. Derevyanko spoke on the present state of public health in
Japan. He said the system of state and private hospitals was
utterly inadequate and that only the well-to-do could afford
medical attention. He claimed that there was a very high death
rate and that contagious diseases were increasing.

Further discussion was postponed.