The Phony War against Inflation

August 2, 1948

It is one of the supreme ironies of the political situation that not only President Truman but many editorial writers, and even a number of Republicans themselves believe that he has put responsibility for inflation squarely in the Republican lap unless they give him price-fixing powers. Nothing could more clearly reveal the appalling confusion of thought in the country concerning the real nature, causes, and cure of inflation.

The truth is that Mr. Truman and his government have been following a reckless inflationary policy. The Democratic platform insists on an even more reckless inflationary policy. The Republicans do share responsibility for inflation, but chiefly because they have done so little to stop him. The special session on which he has insisted gives them the opportunity to make up for past negligence.

In this column of April 26 I suggested the form that a Congressional anti-inflation program might take. I pointed out then that “inaction on this subject would be a mistake not only from the national standpoint, but even from the standpoint of Republican prospects in November. Unless the Republican majority in Congress itself frames and passes a positive anti-inflation program,” I continued, “its criticisms of President Truman’s policies will seem very unconvincing by election day if inflation resumes its progress in the next six months.”

The four-point program that I suggested is, in summary: (1) Congress should authorize or direct the Federal Reserve Board to restore the former legal requirements of 35 and 40 percent reserves in the Federal Reserve Banks instead of the present 25 percent reserve requirement. (2) It might authorize the Federal Reserve Board to increase the reserve ratios of member banks, but only after the board had first restored the Reserve Bank ratios.(3) It should terminate inflationary monetary measures still on the books. (4) It should make a general declaration of policy directing the Federal Reserve Board to stop further inflationary expansion of money and bank credit. “Only by such a comprehensive measure (combined with sounder expenditure and tax policies),” I concluded in the April 26 column, “can Congress prevent the present inflation from going farther. Only by such a measure can it take the offensive in the battle against inflation and center public attention on the fact that it is, above all, government fiscal and credit policy that creates inflation. Otherwise President Truman will continue inflationary monetary policies while declaring, as in his speech to the American Society of Newspaper Editors, that the only cure for inflation is to give him power to fix prices.”

As Mr. Truman has followed precisely this course and as inflation has resumed its progress, something must be said about the new demands for rationing and price-fixing, particularly with regard to meat. Nothing could be more illogical or hypocritical than these demands in view of all the other government policies that are being followed. The price of meat is inescapably linked to the price of feedstuffs. When we ship feedstuffs abroad in great quantities, when we put high government support prices under them, we inevitably increase the price of meat. Rationing and price fixing are not merely irrelevant but fraudulent cures. They intensify the evil they seek to remedy. If we legally push down the price of meat, while bolstering up the price of feedstuffs, we remove the incentives for feeding and growing meat and so still further reduce the meat supply.

In following inflationary policies and then demanding price-fixing powers to stop inflation, Mr. Truman is like a man who throws a child into the water and then tears off his coat and proclaims himself to be the ideal and only possible rescuer. The one sensible reply that Congress can make is to order the culprit to arrest himself. If Congress passes a program that goes to the heart of the monetary cause, it will put Mr. Truman on the spot. If he vetoes the bill the phony nature of his demand for an end to inflation would be exposed and if he accepts it inflation could really be stopped.