Toward a Free Economy

February 16, 1953

President Eisenhower’s State of the Union message to Congress marked a turning point in American history as dramatic and unmistakable as the early messages and fireside talks of Franklin D.Roosevelt twenty years ago. Roosevelt proclaimed the birth of the New Deal; Eisenhower delivered its funeral oration. The Roosevelt-Truman philosophy led us deeper and deeper into a managed economy; Eisenhower reasserted the philosophy of a free economy.

The contrast with the previous Administration was most striking in the discussion of price control. This lay not merely in Mr. Eisenhower’s decision not to ask for a renewal of the present price- and wage-control legislation which expires on April 30, but in the reasons that he gave for this decision. He began by pointing out—what has never been clearly acknowledged in the executive branch in the last two decades—that the basic cause of inflation is government policies themselves. He knows just what those policies are and what must be done to halt them:

“The first order of business is the elimination of the annual deficit. . . . A balanced budget is an essential first measure in checking further depreciation in the buying power of the dollar.” He wisely warned that expenditures should be reduced before any reduction of taxes. He called on the Federal Reserve Board for proper restraint on credit expansion. And then he pointed out: “The great economic strength of our democracy has developed in an atmosphere of freedom. . . . Direct controls, except those on credit, deal not with the real causes of inflation but only with its symptoms. . . . American labor and American business can best resolve their wage problems across the bargaining table. . . . Controls in their present forms . . . have proved largely unsatisfactory or unworkable. They have not prevented inflation; they have not kept down the cost of living. . . . I am convinced that now—as well as in the long run—free and competitive prices will best serve the interests of all the people.”

With equal wisdom Mr. Eisenhower recommended that “material and product controls should be ended, except with respect to defense priorities and scarce and critical items essential for our defense.” In spite of this clearly thought-out position, which apparently has the full support of Congressman Wolcott, who heads the Banking Committee of the House, of Speaker Martin, and of Senator Taft a group in Congress headed by Homer E. Capehart, chairman of the Senate Banking and Currency Committee, still wish to give the President “stand-by” powers over prices that he has not asked for. The mere existence of such stand-by legislation would bring an element of crippling uncertainty into innumerable; business decisions, particularly those? involving long-range plans and long term price contracts. Senator Capehart even wants to retain a skeleton controls organization. This would mean the retention on the public payroll of people with nothing to do—but nonetheless with a vested interest in persuading the President, Congress, and the country that the imagined “emergency” for which they had been retained had already arrived.

The economic soundness of the Capehart proposal needs to be seriously examined. Inflation can be prevented by proper monetary and fiscal policy; but if it is not, then it only does added harm to try to disguise the inflation by price control. For in time of total war, price rises for particular products, and relative changes in prices, induce conservation in the use of scarce goods, and lead to maximum production most quickly of the things that are most needed. Efforts to prevent these relative price changes do not speed up economic “mobilization” for war, but retard or prevent it.

As for the immediate situation, the Administration will probably find that once a definite date has been set, a few months off, for the termination of price and wage controls, it becomes almost impossible to relinquish such “controls “gradually.” The simplest and most workable procedure is to lift them immediately.