How Not to Cure Inflation

May 3, 1948

Last week, suggesting a positive anti-inflation program, I referred to President Truman’s April 17 speech before the American Society of Newspaper Editors in Washington. This speech so gravely misconceives the causes of inflation and the remedies for it as to call for some line-by-line comment.

“I cannot sit by silently while inflation continues to creep up on the American people.” It is precisely the fiscal and credit policies his own Administration has followed that have caused the inflation he wishes to combat.

“I have repeatedly urged businessmen to exercise voluntary restraint in setting prices.” Once more the effort to blame business. High prices are the consequence of inflation, not the cause.

“By last fall, it had become clear that we could not place our main reliance on voluntary methods”. The totalitarian touch: lack of faith in freedom; government coercion as the sovereign cure. Secretary of Agriculture Anderson assured the House Banking Committee on Dec. 3 that without price controls meat might reach “fantastic prices” by April or May. Meat prices on the hoof are now lower than when his prediction was made.

“The total demand for goods is still outrunning production.” Why, with production at record levels? Because “demand” means monetary demand. Whose policies have been responsible for the added money and bank credit?

“Some key prices have been increased, unwisely and unnecessarily. The outstanding case was, of course, the increase in some important steel prices.” A discredited myth. The February increase (averaging about 1 percent) left steel prices—as the report of the President’s Department of Commerce showed—43 percent above the 1939 level, compared with an increase of 80 percent in hourly steel wages, of 108 percent in all wholesale commodities, and of 179 percent in farm products. Last week’s price cuts by United States Steel virtually wiped out its earlier price increases.

“In addition to these price increases, inflation has been encouraged by some unnecessary interruptions to production. The outstanding example, of course, was the work stoppage in the coal industry.” Mr. Truman neglects to add that he was all in favor of the Wagner Act, which gave John L. Lewis power to stop the coal industry; and that he denounced and vetoed the Taft-Hartley amendments, which enabled the government to get production going again.

“Another new factor making for inflation is the bill recently enacted by the Congress reducing government revenues by $5,000,000,000.” A valid point. But Mr. Truman neglected to remind his listeners that he himself favored a tax-reduction bill more cynically political than the one passed over his veto.

[Both foreign aid and increased national defense] “can add to inflation.” Correct.

“The anti-inflation program I recommended to the Congress last November should be enacted at once. . . . It includes measures to reduce the excessive amounts of money and credit which are lifting prices.” It includes no measure to stop the government’s cheap money policy that feeds inflation: no measure to restore the former legal reserve ratio of the Federal Reserve Banks, or to repeal old inflationary legislation.

“It includes measures to deal directly with specific high prices . . . designed to hold prices down while keeping production up.” Holding prices down by coercion and ukase has proved to be the surest of all ways of holding down production. “Selective” price fixing reduces most of the production of precisely the goods that are most wanted.

It is disheartening that the President has learned nothing not only from our own postwar experience in price fixing, but from the appalling consequences of existing price control in Europe. The most important thing America can do today is to continue to demonstrate to the world the enormous production possible through free prices and free enterprise. We must not cripple ourselves by imitating the very controls that have forced Europe to turn to us for help.