Inflation Has Two Faces

December 29, 1947

In his message to the special session of Congress, President Truman correctly declared: “We already have an alarming degree of inflation; and, even more alarming, it is getting worse.” Yet like the present leaders of most other countries, Mr. Truman and his economic advisers refuse to attack inflation at its source by halting the further expansion of money and bank credit.

The chief reason for this failure to attack fundamentals is not merely that the public in general does not understand the real cause and cure for inflation, but that it presents no united front against inflation. Its feelings about it are confused and ambivalent. And this is because inflation, like Janus, has two opposite faces. Whether we welcome or fear it depends upon the face we happen to look at. Or, putting the matter another way, we are each of us sometimes Dr. Jekyll and sometimes Mr. Hyde in our attitude toward inflation, depending upon how it seems to affect our personal interest at the moment.

All this is vividly illustrated by Mr. Truman himself. He points with pride to the results of inflation at one moment and denounces them the next moment. He claims credit for its popular consequences and blames the Republicans for its unpopular consequences. Like the rest of us, the President wants to have his shoes small on the outside and large on the inside.

For it should be obvious that high prices, which everybody affects to deplore, and high money incomes, which everyone wants to achieve, are two sides of the same thing. Given the same amount of production, if you double the price level you double the national income. When the President boasted last July that we had “surpassed previous high records” with a gross national product of $225,000,000,000, he was boasting in large part of the higher dollar totals you get when you multiply volume of output by higher dollar prices.

At one point in his “anti-inflation” message Mr. Truman declared: “In terms of actual purchasing power, the average income of individuals after taxes has risen [since 1929] 39 percent.” But a little later he was asking, inconsistently, how “the cost of living can be brought and held in reasonable relationship to the incomes of the people.” Yet if the incomes of the people have in fact already risen so much faster than living costs that the individual can buy nearly 40 percent more goods than he could before, in what does the present “emergency” consist?

“Rents are rising,” complained Mr. Truman at another point, “at the rate of about 1 percent a month,” and such a rise imposes an “intolerable strain” upon the family budget. But as the average weekly earnings of factory workers have gone up 112 percent since 1939, while rents have gone up only 9 percent, the average worker pays, in fact, a far smaller percentage of his income for rent than he did before the war.

“The harsh effects of price inflation,” said Mr. Truman at still another point, “are felt by wage earners, farmers, and businessmen.” Clearly this cannot refer to the inflation of their own prices, but of somebody else’s. It is not the prices they get for their own goods and services, but the prices they pay for the goods and services of others, that they must regard as “harsh.” Why, of all groups, does Mr. Truman now shed tears over the farmer? It should be pointed out that the wholesale price of farm products has gone up 191 percent from the 1939 level as compared with an average of 107 percent in all commodities.

The real evil of inflation is that it redistributes wealth and income in a wanton fashion often unrelated to the contribution of different groups and individuals to production. All those who gain through inflation on net balance necessarily do so at the expense of others who lose through it on net balance. It is an illusion to suppose that the losers can ever be brought abreast of the gainers except by setting the gainers back. And it is often the biggest gainers by inflation who cry the loudest that they are its chief victims. Inflation is a twisted magnifying lens through which everything is confused, distorted, and out of focus, so that few men are any longer able to see realities in their true proportions.