Total Muddleization

December 25, 1950

The President’s proclamation of a “national emergency,” however well intended, is a rhetorical gesture that creates more problems than it solves. It will not of itself produce a single additional gun, tank, or plane. It serves no other purpose than to give more powers to an Administration that has not known how to use the huge powers it already had. It was not needed to “arouse” a country already more aroused than Washington.

The phrase “total mobilization” is also a rhetorical solution based on a false analogy. “Mobilization” has hitherto meant the actual assembly of armies for war. It is now being used metaphorically to mean the imposition of rationing, price fixing, and wage fixing. Such controls do not “mobilize” anything. They reduce, unbalance, and disrupt production, and tie the economy up in bureaucratic red tape.

We have once more stumbled into price control by a chain of blunders and bad thinking. On Dec.7, Alan Valentine, Administrator of the Economic Stabilization Agency, asked Ford and General Motors to rescind the price increases on their 1951 passenger automobiles until his agency could examine and determine “the entire question of price.” Both refused. Henry Ford II pointed out that the proposal was discriminatory. General Motors pointed out that its new prices were less than 5 percent over its pre-Korean-war prices, though the increase in its wages and raw-material prices had ranged from 7 to 300 percent, and “no stabilizing action has been taken regarding the prices of these materials.” These replies were good as far as they went. But they did not point out that the chief cause of inflation was the government’s own spending, deficit, and monetary policies. Nor did they emphasize the absurdity of “fighting inflation” by beginning with automobile prices. Here was a government which was not only failing to hold down food prices, but was still deliberately boosting food prices, not only through monetary inflation but by creating artificial shortages and “supporting” the prices of eggs and potatoes. And its first concern was not to reverse these food policies but to protect the poor from paying too much for Lincolns and Cadillacs!

Government price control is inevitably political, and such absurdities are not accidental but systematic. Politicians are afraid to hold down wages for fear of losing the labor vote. They are afraid to hold down food prices for fear of losing the farm vote. They will hold down rents, in war or peace, because the tenant vote is bigger than the landlord vote. And “the big automobile companies” are of course easy political targets. It is naïve to put the power to fix prices in the hands of politicians and expect that power not to be used as a discriminatory political weapon.

But even if the Bernard Baruch dream of completely “nonpolitical” price control could be realized, it would still be harmful economically. The “selective” price control that Mr. Truman wishes to begin with must lead inevitably into overall price control. And overall price ceilings must unbalance and disrupt production.

Price control never offsets inflation; it increases it. It directly discourages production, encourages consumption, and intensifies shortages. It helps to lull the public until too late into believing that “inflation” is being “controlled.” It draws public attention away from the real cause of inflation, which is the government’s own creation of more money and credit. If the public can be led to believe that the culprits are private “profiteers,” then it will not demand the reduction of wasteful public spending, the termination of bond-pegging, the increase in interest rates, and the overall control of credit which are the only real cures for inflation.

Politically, President Truman’s radio address was conciliatory in tone and in parts courageous. He was sincerely trying to act in the national interest. But his proposed economic program can only lead on net balance into muddle and disorganization.