Party of Inflation?

November 11, 1957

Inflation has not been stopped by the Eisenhower regime. But it would be worse if the Democrats returned to power. This is the conclusion one is forced to draw from the economic statement issued Oct. 20 by the Democratic Advisory Council.

“This is the worst peacetime inflation in our history,” it tells us. The authors of that apparently don’t think the American public can either count or remember. In the nearly five years under Eisenhower, wholesale prices have risen about 5.4 percent, and consumer prices, 6.7 percent. Under the Democrats, in the three years from the end of 1945 to the end of 1948, wholesale prices rose 51.7 percent. In the seven years from the end of 1945 till the end of 1952 wholesale prices rose 62.2 percent and consumer prices 47.6 percent.

In those seven Democratic years total bank deposits and currency increased from $151 billion to $195 billion, or more than 29 percent. From the end of 1952 until now, under Eisenhower, they increased to $220 billion, or about 13 percent. The Republican inflation is “worse” than the Democratic only because it comes on top of it. But the annual rate of inflation has been lower.

The Democratic statement goes on to denounce the Republican Administration’s “characteristically negative” policy of “raising interest and tightening the money supply.” The truth is that the Republicans have expanded the money supply, which is now at record levels. What these Democrats must want is a still faster expansion-in brief, more inflation.

HOW TIGHT IS MONEY?

As for our so-called “tight money” policy, whereas the discount rate is now 3½ percent in the U.S., it has been within the last couple of months 4.28 in Canada, 4.5 in Germany, 5 percent in France, Holland, and Sweden, and 7 percent in Great Britain. Are all these central banks “negative” and sadistic, and bent on creating a depression in their own countries? Or are they, perhaps, at last trying to curb inflation?

The DAC statement charges that “tight money” is ineffective, and that it is too effective. “By the ordinary tests of results,” it says, “this policy has failed.” Well, prices have continued to rise. But so has the volume of money and credit. By the ordinary tests of logic, this should simply mean that interest rates were not raised enough to discourage inflationary borrowing. Yet the DAC statement is afraid that raising interest rates “may stabilize living costs by causing unemployment and economic recession.”

The attack of the DAC on Republican inflation is a self-contradiction and a fraud. It pretends to deplore inflation while denouncing the only policies that can stop it and recommending the very policies that create it. The DAC wants cheap money and more credit expansion, which is the essence of inflation. It is “committed unequivocally to the principle of a vigorously expanding economy”—i.e., to a policy of perpetual boom.

BACK TO PRICE-FIXING

Though the DAC statement expresses fear of “unemployment” even with rising prices, it nowhere admits that this could happen only under one condition—that wage rates rose faster than prices and squeezed out profit margins. But even the possibility of excessive wage rates is never mentioned, let alone any proposal to do anything about them. When it comes to prices, however, the DAC wants to get tough. “We must have an active, firm, and broadly based policy to insure price stability. . . . Those who do not respond to leadership in the public interest must understand that this is the course which leads inevitably to controls.” Here then, thinly veiled, is the Democrats’ program: Cheapen money, expand credit, increase inflation, and then “fight” it by discriminatory and totalitarian price controls. This is “repressed inflation,” a policy whose results are typified in present-day France.

It is true that the Democratic Advisory Council is made up mainly of political has-beens and assorted left-wingers; but it has the blessing of the Democratic national chairman. Until this statement is explicitly repudiated by the majority of Democrats in Congress, therefore, it makes the Democratic Party officially the party of inflation.