Price Fixing as Red Herring

July 16, 1951

The present outlook is for continued inflation and a bad “control” law, but not for the reasons assumed by Administration propaganda. The new law threatens to be bad not because it will give the Administration too few “weapons” to “fight inflation,” but because it will give it political weapons it ought not to have at all. And the Administration will still be free to follow inflationary policies.

Says Michael V. DiSalle, head of the Office of Price Stabilization, in fighting the ban against rollbacks: “If all you can do is grant increases, then necessarily your price level will be continuously higher.” If this is not a non sequitur, it must be because it implies: (1) that the Administration will continue to print more money to force prices up further; (2) that the OPS must grant requested increases; and (3) that the intention of the OPS was to grant wage and price increases to favored groups and then hold the index numbers level by forcing price reductions on unfavored groups.

Never before has price control been treated quite so openly and shamelessly in this country as a device for handing out political favors to some groups and penalizing others. A year ago Bernard Baruch recommended “an overall ceiling across the entire economy,” which would roll back all prices and wages to their level of June 25, 1950. This was economically unsound, but sincere and politically impartial. Among its implications were that everyone should be locked at precisely the income he was already receiving, and that relative profit incentives and deterrents should have been kept just where they were for “peace” production on the day before Korean hostilities broke out.

Hardly anyone seriously advocates this today. Now everyone talks of “correcting inequities.” But how do you determine precisely what constitutes an economic inequity? And how precisely do you measure the extent of the inequity? No one is seriously and openly proposing to legislate an absolute equality of incomes. No one, in fact, has even suggested consistent and coherent economic standards for measuring “inequities.” The standards applied in practice are not economic but political. Where the votes are, there the favors go.

Thus the so-called Wage Stabilization Board raises wages with practically every major decision. Eric Johnston, the Economic Stabilization Administrator, insists that “good reasons” have been shown for every exception that has been made in the so-called wage ceiling. The most favored class next to the wage earners are the farmers, but their political strength is spotty. Congressmen from the city districts want to hold down farm and food prices by edict; congressmen from the rural districts want to boost farm and food prices by “parity” formulas, support prices, and other edicts. Those who are least likely to get price-increase awards in Washington are the landlords and the manufacturing corporations.

What chiefly stands in the way of any serious effort to prevent further inflation is sheer economic illiteracy. It is this that has made it possible for the politicians to blame inflation on “the selfish private interests,” the “greedy sellers,” the “profiteers”—in short, on the producers of the country. The naïve faith in price fixing rests on a complete lack of understanding of the function of free markets and the function of relative prices, costs, profits and losses in directing, balancing, synchronizing, and maximizing production. Punitive price fixing pretends to benefit consumers by killing the incentives to production. It pretends to benefit workers by undermining the sources of their employment.

Meanwhile, in the whole hullabaloo about an “antiinflation” law, no attention whatever is being paid either by the price fixers or by Congress to the real cause of inflation, which is the government-created increase in the quantity of money and credit. Instead of putting curbs on the money factory—i.e., on the Federal Reserve System—Congress is having its attention diverted to a fraudulent cure for inflation, price fixing.