120 MULTIPLE PURPOSE RIVER DEVELOPMENT 



monetary policies were moderate, endeavoring to keep the economy 

 within a narrow range of balance, without drastic inflationary or 

 deflationary measures. Consumer indebtedness reached an all-time 

 high, but the strong upward trend in the use of credit suggests that 

 the debt position of 1955 will be typical for future years. 



How wide then is the range of error of our estimates? We believe 

 that the actual level lies within a range of 1 per cent of our esti- 

 mates for the general economic conditions postulated for our 

 analysis. This statement is based both on judgment and upon 

 experiments in which those assumptions most open to question 

 were varied. Combining all reasonable assumptions that would raise 

 the rate yields an estimate of 7 per cent; conversely, all plausible 

 assumptions that would produce a low rate yield an estimate of 5 

 per cent. It is our conclusion that the probable value for the 

 economic conditions postulated lies between 5 and 6 per cent. 



AN alternative: a TIGHTER MONETARY POLICY 



So far, our analysis has assumed that the expenditures for water 

 resource projects would be offset by taxation sufficient to preserve 

 balance in the economy. Let us also consider briefly the case where 

 monetary rather than tax policy is used to restore equilibrium. 

 An expansion of the federal program would then have to be offset 

 by a tightening of monetary policy of sufficient degree to release 

 the quantity of resources needed for the program. To estimate the 

 social cost of capital under this assumption, it is necessary to 

 discover which economic activities would be curtailed by the 

 diminished supply of credit. 



It is unlikely that a change in monetary policy would be a per- 

 manent method of compensating for a change in expenditures, 

 because this would reduce the remaining potential of this stabiliz- 

 ing weapon. But the initial offset might well be in this form, 

 subsequently to be converted into a change of tax rates. 



We shall not undertake a full-scale quantitative effort to measure 

 the incidence of monetary policy. The kinds of assumptions 

 required would be considerably more arbitrary than those of our 

 tax study, and the rates of return that would be earned by the 

 marginal borrowers to whom credit would be denied could not be 

 estimated with sufficient accuracy. However, we can get some idea 



