When Prices Go into Politics

September 25, 1950

In their ostentatious “fight against inflation,” Congress and the Administration have made nearly every wrong decision possible.

The direct cause of inflation is an increase in money and credit. Practically every other cause is indirect; it operates through this. Yet in its economic-controls law Congress did nothing to prevent expansion in the total volume of money and credit. Nor did the President in his radio talk on the law say a single direct word on the necessity of limiting the total quantity of money and credit. Congress legislated specifically only on such derivative forms of credit as consumer installment and housing loans. And the Treasury insists on financing the war by methods that must swell the volume of money and bank deposits.

Mr. Truman rightly insists that we should pay for defense “as we go.” But the budget balance he speaks of is entirely to be achieved, apparently, by an increase in the already ominous burden of taxes. Not once did he mention a cut in the government’s own unparalleled nondefense extravagance. The sacrifices are all to come from the taxpayers, and none from the bureaucrats or pressure groups that live at their expense.

“The supply of civilian goods will not keep pace,” Mr. Truman blandly predicts, “with the growth of civilian incomes. In short, people will have more money to spend, and there will be relatively fewer things for them to buy. This inevitably means higher prices....” He neglects to say that this will happen only if the government itself continues to spend wastefully or fails to tax away from civilian incomes the amount needed to pay for defense. The way to prevent inflation is to prevent a gap from developing between civilian incomes and civilian goods—not by the hoax of price control.

Not only the Defense Production Act, but Mr. Truman’s radio speech and executive orders foreshadow political discrimination in price and wage control. Mr. Truman tells the businessman: “Hold your prices down.” But he tells the wage earner: “Do not ask for wage increases beyond what is needed to meet the rise in the cost of living.” This sets a double standard. What would have been thought had he reversed it, and said to the unions: “Hold your wages down,” and to the businessman: “Do not ask for price rises beyond what is needed to meet the rise in other prices”?

This double standard is not inadvertent. It appears in the text of the President’s executive orders. Sec. 401 (b4) provides that the Economic Stabilization Administrator shall “establish price ceilings and stabilize wages and salaries where necessary.” It does not say either that he shall establish wage “ceilings” or that he shall merely “stabilize” prices. Is different language applied to the two cases for any other purpose than to discriminate in favor of wages as against prices?

Moreover, the Administrator can “establish price ceilings” all by himself, but before “stabilizing” wages he must consult a Wage Stabilization Board of nine members, three to represent labor, three industry, and three “the public”—all appointed by Mr. Truman. For any businessman to raise his prices unless his costs have increased correspondingly is, Mr. Truman thinks, “just plain profiteering.” No such harsh label is applied to unions that raise wages more than living costs. On the contrary: “Existing inequities in wage rates, of course, can and should be corrected.” If experience in the last war is any guide, all “inequities” in wages will be straightened out by raising the lower wage, never by lowering the higher, and the government will allow wages as a whole to push up while it tries to hold down prices and squeeze profit margins.

Of course neither the honest advocates of “selective” price control nor the doctrinaires who want “an overall ceiling across the entire economy” approve of this kind of political discrimination. But what both of them overlook is, first, that price control, selective or overall, is a spurious remedy for inflation, and, secondly, that once we put in the hands of politicians the power to say what specific prices and wages shall be, that power will inevitably be used as a political weapon.