Back to Police-State Controls?

December 1, 1947

As a result of the shortages brought about primarily by their own economic policies, the nations of Europe have turned to the United States, the last great free market in the world, to make up the deficiency. Yet in asking Congress to aid them, President Truman proposes that we imitate over here the very network of allocations, rationing, licensing, trade controls, wage controls, and price controls that has precipitated the present European crisis.

This major irony involves minor ironies. Mr. Truman wants price controls and allocations because “grain, for example, is too badly needed to permit wasteful feeding to livestock.” Yet it is precisely government price control in France which, by underpricing wheat, has caused wasteful feeding of wheat to livestock and intensified the very wheat shortage that we are now asked to make up. It was precisely price control by our own wartime OPA that caused wasteful feeding of wheat to livestock as well as over-fattening of hogs because the OPA did not know how to set up the right corn-hog ratio.

Price fixing here, as in Europe, could only intensify shortages. American producers and consumers can solve these problems through a free market incomparably better than any army of bureaucrats bossing them around.

Mr. Truman wants legislation permitting his new price-fixer to “impose price ceilings on vital commodities in short supply that basically affect the cost of living.” He thinks that this would not at all involve “staple food and clothing items not in short supply or . . . any delicacies or luxuries.” “Vital commodities” and “short supply,” however, are both a matter of arbitrary definition. It is difficult to imagine the future Chester Bowles making his list a short one. No producer would know when his own product was going to be added to the list.

Holding down or reducing the prices of “vital commodities” in “short supply,” moreover, would reduce the comparative profit margins on such commodities and reduce their output. The price controller and the CIO would then protest that producers were making luxuries and not necessities because the profit margin on luxuries was greater. They would demand a return to the very “overall wartime price control” which Mr. Truman says he is avoiding. It is precisely on such grounds that the OPA continued to fix the prices of Cadillacs, caviar, and mink coats, not only during the war, but after V-J Day.

Mr. Truman is trying to stop inflation by all the wrong remedies because he has forgotten its causes. When he declares that “price inflation threatens our entire program of foreign aid” he reverses cause and effect. It is the huge program of foreign aid, adding to purchasing power in this market and reducing our supply of essential goods, which has been the marginal cause of the present price rise. The basic cause of inflation here has, of course, been the increase in money and bank credit brought on by the government’s own fiscal policies. Mr. Truman wants new powers by the Federal Reserve authorities over consumer credit and the banks. But he does not tell us why they have failed to use (except in order to increase the inflation) their traditional and more than adequate powers over open market operations, rediscount rates, and reserve ratios.

The spectacle of a government’s assuming to protect us from the consequences of its own policies by asking for more powers against “speculators,” producers, and “profiteers” is not novel. Writing a century ago, John Stuart Mill declared: “It is not, however, so much the general or average price of food, as its occasional high price in times of emergency, which governments have studied to reduce. In some cases, as for example the famous ‘maximum’ of the [French] revolutionary government of 1793, the compulsory regulation was an attempt by the ruling powers to counteract the necessary consequences of their own acts; to scatter an indefinite abundance of the circulating medium with one hand, and keep down prices with the other; a thing manifestly impossible under any regime except one of unmitigated terror.”