Inflation in the Postwar Period
In the last few months before the end of the war Free China was on the verge of exhaustion. All the savings and marketable possessions of the average consumer had been used in the struggle to subsist. The depredations of tax collectors and soldiers had left the peasants disheartened and embittered, and the list of deserters from the army grew daily. Throughout China the spirit of resistance was being smothered by the relentless inflation. If victory had not come when it did, the economy of Free China would have disintegrated rapidly.
The task of rehabilitation and reconstruction confronting China at the end of the war was of unprecedented magnitude. Some fifty million displaced persons were awaiting return to their former homes. Millions of acres of farm lands had been devastated and lay deserted and unproductive. Internal communications were in a state of disrepair, and in a number of strategic areas of the south many miles of railways had been destroyed. The rehabilitation of refugees, the repair of damage in rural areas, the re-establishment of industries on the coast, and the provision of equipment and raw materials to enable factories to resume production required an astronomical amount of capital resources.
Two major obstacles prevented China from settling down to the task of reconstruction. The Nationalist government found itself unable to reach agreement with the Communists, and the tenor of discussions at the end of 1945 suggested that a compromise would be difficult to achieve. While antagonism and the possibility of resumption of open conflict prevailed, the army was maintained on a wartime basis, and the work of repairing railways and other lines of com