Price-Control Follies of 1952

February 25, 1952

No one seriously expects that Congress will obediently extend price control for two more years, repeal the Capehart and Herlong amendments, and “strengthen” the Defense Production Act by giving the President the still more sweeping discretionary powers he now demands. What seems most likely to happen is an extension of substantially the present or a “weaker” price-control law for another year. But unless this is accompanied by stringent Congressional curbs (which are improbable) on further monetary inflation by Federal Reserve policy, Mr. Truman will have achieved the real purpose of his message, which is both to continue price control and to throw the blame on Congress for any further inflation.

The basic cause of inflation is the increase in the supply of money and credit. This increases most people’s monetary purchasing power, cheapens the dollar, and forces up prices. Not once, however, does Mr. Truman’s message acknowledge this overwhelmingly dominant cause. True, after devoting seven-eighths of his message to the need for “strong price control” as the remedy for inflation, he does get around in the end to “other” (and presumably subordinate) “anti-inflation powers needed to do a completely effective job.” Even here, however, he throws his whole stress on the alleged need for curbing the kind of credit which is least inflationary—consumer installment credit. He says not a word about curbing the overall growth of bank credit, particularly the most inflationary kind, Federal Reserve credit.

What, then, is Mr. Truman’s own theory of the chief cause of inflation? It is almost impossible to tell from his message. He implies reasons that are clearly wrong, and then contradicts even some of these. He talks at times as if inflation were caused by “scarce supplies” of goods. This, however, is contradicted by the Federal Reserve Board, which shows industrial production at an index rate of 218 in January 1952, compared with 199 in June of 1950 and 109 in 1939. Moreover, he himself goes on to point out that “the wholesale price index rose 17 percent in the seven months from June 1950 through January 1951, and the consumers’ price index rose 8 percent”—when, as he adds, “there were no shortages of any kind.”

Then what caused the price rise? According to the President, “consumers” and “businessmen” went on a “buying spree.” But he never asks where they got the extra money for the buying spree. Had those who drafted his message looked up the figures, they would have found that in this same period when wholesale prices increased 17 percent, the country’s bank loans increased 17 percent; and in this same period when the consumers’ price index rose 8 percent, demand bank deposits increased 8 percent! It was this increased bank credit that financed the price rise.

In calling for “stronger” price control, Mr. Truman is particularly outraged by the Capehart amendment, under which price ceilings must allow for cost increases incurred between the Korean war outbreak and July 26, 1951. But his own examples prove how necessary this amendment is, in common fairness, if we retain the folly of price control. One product, he says, had to be granted a 5 percent price increase under the amendment, though the OPS had previously scheduled a 4 percent reduction. But this simply means that without the amendment the OPS would have blindly or ruthlessly imposed a further squeeze in the profit margin of a firm whose profit margin had already been reduced by rising costs!

His whole attack on the Capehart amendment reveals that Mr. Truman wants to use price control to effect a political redistribution of income by cutting profits even below the pre-inflation level to make possible still higher wage awards by the WSB—the “Wage Stimulation Board.”

Price control is a fraudulent “protection” against the money inflation that the government itself permits or creates. Congress should force a halt to any further increase in the money supply, and let price control expire.