VI. The Consumer (and Taxpayer_ Be Damned

If prices are raised, the cost of higher wages falls ultimately on the consumer. That includes the 48 THE CONSUMER (AND TAXPAYER) BE DAMNED workers and their families, of course. As the price inflation spreads, their dollar gains tend to evaporate. It may take some time when the infla tion is the creeping kind. When it accelerates, the gain rapidly turns, by all historic evidence, into a loss of. real income. It should be remembered, incidentally, that the process of inflating incomes is in itself expensive. Except in revolutionary situations, no country has ever lost as many labor days, either absolutely or percentagewise, due to strikes as has the United States in this post-World 'War II era. Strikes mean lost wages; the losses the employer suffers mean less demand for capital goods and less employment; shortages caused by strikes raise the cost of living; and the unions take a share of the worker's pocketbook, if not of his freedom.

Suppose the demand for the product is elastic, that is the consumer refuses to pay the higher price and the market shrinks. Anthracite is a textbook example; by extorting ever more wage dollars, Mr. John L. Lewis raised the unit costs so high that the consumer turned to substitute fuels. The industry is dying slowly but surely, and so are the jobs. Again, labor as a whole sooner or later pays the bill, partially or fully, for the wage increases. The employ~r may recoup the increased labor costs by drawing public subsidies. In that case, taxes rise. And who pays those, if not the people engaged in production? There is one way, to the 49 AN INFLATION PRIMER trade union way of thinking, to get "something for nothing": by taking the pay raise out of profits. That is the laborite (and self-styled liberal) battle cry: Let the capitalist pay. All arguments of the unions converge, openly or by innuendo and in sinuation, on the contention that as a matter of equity the "high" profits should be trimmed in favor of the workers. The idea seems to be always present in the back of certain minds that wages could be substantially higher, and without in flationary repercussions, if profits were lower monopoly profits, in particular.

THE POT CALLS THE KETTLE BLACK "Monopoly" is a nasty word. It connotes supply restriction in order to exploit the buyer. Under the Sherman and Clayton acts it has a legal, or rather illegal, status. The Department of Justice seems to be anxious to prosecute every case, real or alleged. (To do so is "good politics.") No one but an outright Communist charges American business in general with illegal conspiracy. How ever, economists have invented two novel terms which carry by innuendo the' same connotation. Big Business is supposed to enjoy "oligopoly" quasi-monopoly exercised by the few-or to "ad minister prices." Bigness somehow enables the largest firms of each industl\Y to co-operate in con trolling the respective markets. Proof is, sup posedly, that (1) in industries such as steel, auto50 THE CONSUMER (AND TAXPAYER) BE DAMNED mobiles, tobacco, and aluminum, two to four of the largest corporations control 50 per cent and more of the output; (2) they sell their wares at virtually identically fixed prices, following the "leader"; (3) prices are being "listed" or an nounced by the big suppliers.

In reality, there are no ingrained oligopolies or administered prices on the American scene, except where the government promotes them. The truth is that bigness per se provides IJ.O power in the price-making process; sharpest competition pre vails among "leaders." The truth is that without governmental protection scarcely any industrial monopoly could carryon clandestinely in the face of prosecution, consumer resistance, and compe tition by substitutes. In fact, it is the government that limits competition and fosters monopolies by high tariffs, price supports; stockpiling, military procurement, subsidized housing, .and many other policies. 1 The truth is, also, that "administered" list prices may represent either the outcome of compe tition or mere balloons ~o test the market forces.2 The truth is, finally-and this is economics on the (much neglected) undergraduate level-that price uniformity is an essential characteristic of the competitive market. Under free competition the price is set by the cheapest producer whose output is large enough to affect the supply; the others must follow the "leader," or lose out.

51 AN INFLATION PRIMER Monopoly power is the ability of the supplier to exact a price higher than that prevailing under competitive conditions. There is such power in operation, not subject to the antitrust la,vs and exempt from the provisions of the criminal codes as well. The big unions have it-often the small ones, too. They enjoy a monopoly power of a width, breadth, and intensity the like of which never before existed in the United States. They use it ruthlessly" without any concern about the consumer or even about the future employment of their own members. PROFIT INFLATION Wage increases need not raise prices, union spokesmen say, if profits were not excessive. What makes for "high" (pre-tax) profits, one may ask? The answer is, ironically, that the unions them selves are largely responsible. Time and again, the unions come out for public spending projects. They are most determined advocates of public housing and of credit (FHA) guarantees for private-dwelling construction.

Their political influence, in alliance with the "construction lobby" of the business interests in volved, goes a long way toward putting over what they advocate. This gives a great boost to the building industry-and more profits to the firms engaged in it. This is one example of many. The unions are 52 THE CONSUMER (AND TAXPAYER) BE DAMNED most vocal supporters of almost any special (profit) interest that can be promoted at the expense of the consumer or the taxpayer. Some union leaders outdo the exporter, whose pocketbook is directly affected, in enthusiasm for our interminable foreign-aid program. They are motivated, or so they claim, by humanitarian senti ment for their fellow man. But no bleeding hearts inhibit their simultaneous lobbying for higher tariffs and quotas, which hurt that same foreigner's exports, in order to secure employment at higher wages for the union members-and more profits for the employers.

One would expect organized labor to object to farm subsidies which are ~ real burden on both the living costs and the tax bills 'of the urban masses. (The number of organized farm hands is too small to be of any weight.) Futile expectation! Greedy pressure groups may fight each other; they are brothers under the political skin when it comes to the common enemy, the general public. There has been much comment on the lack of employer resistance against demands for wage 'raises. To a large extent, political pressures have been to blame. But often, much too often, a cynical sort of cooperation prevailed in labor.. management disputes. A standar~ bargaining argument is: Why do you, the employer, object to raising wages when 52 per cent of the added cost is deductible from the corporate income tax 53 AN INFLATION PRIMER and the remaining 48 per cent is easily shifted on the consumer's income? Let someone else worry about the fact that the Treasury's revenues may decline and its expenditures increase.

Above all, by promoting price inflation, the unions promote the dollar volume of sales; if the profit margin per unit of turnover remains the same, or does not fall too much, the gross return of business-in dollars of declining purchasing power-cannot go but upward. Actually, margins did drop in the last decade, but not enough to off set the effect of a growing volume of dollar sales. In any case, it is the inflation of the money supply that, by distending the demand for consumer and producer goods, creates the sellers' markets on which rising costs can be unloaded and profits maintained, or even increased. A sellers' market is a short way of saying that "too much money chases too few goods." In the course of a price inflation, situations are bound to arise in which groups of entrepreneurs and speculators reap extraordinary windfalls. Yet, considering the decline of the money's purchasing power and the progressive rate of personal income taxation, the average real return on shares of stocks lags far behind real remuneration for the average labor-hour. s Atthat, a large sector of busi ness itself does not even layaway enough reserves to provide for staying in business, still less to ex pand it. Insufficient reserves for the replacement 54 THE CONSUMER (AND TAXPAYER) BE DAMNED of plant and equipment (at inflated prices!) and for future capital needs is a devastating effect of the prolonged currency dilution. In other words, we consume a large fraction of the capital required to provide a rapidly growing population with the tools and facilities for its livelihood. (The cost is $20,900 per worker in the country's largest corpo rations, according to an analysis of balance sheets by the First National City Bank, New York.) Extraordinary (pre-tax) profits of the riskless kind, (lower-taxed) capital gains in particular, are sparked by the inflation. Capital gains remain largely on paper until either the estate levies or a depression wipes them out. Government orders on a cost-plus base often are another rich source of rewards for no-risk-taking, in violation of the free market's prime distributive rule. The consequent deterioration of business standards is a major con tributory factor to the degeneration of union prac tices. If profits can be earned without incurring risk, why not wages without doing work?

1. This has been well brought out by Walter Adams 'and Horace M. Gray in Monopoly in America (New York: The Macmillan Company, 1955). 2. Allegedly administered prices may be just as flexible, up and down, as others. "The price on steel bars got changed as frequently as those on men's suits, wrist watches, and baseball gloves," reported the First National City Bank, New York (May, 1959). 3. From 1948 to the end of 1958, wages and salaries (includ ing fringe benefits) paid by corporations increased from $90 billion to $158 billion. Corporate (after-tax) profits decreased from $20 billion to $18 billion a year. 55 VII THE "PHILOSOPHY" OF INFLATION OPPORTUNISM VERSUS PRINCIPLES The sophisticated reader, if he has followed us so far, may raise a quizzical question. Our reason ing was based on an unproved thesis, he may say. It was taken for granted that monetary stability is a categorical imperative of policy. But we have seen axioms fade out even in geometry. In the age of relativity and four-dimensional space, doubt has. evicted dogma, probability has replaced causality. (Did opportunism oust principle?) On what relevant grounds, other than an "antiquated"