Who Told Us What?

November 10, 1947

Those who now demand a restoration of price control have one favorite propaganda device. This is to declare that those who urged the termination of price control a year and a half ago told us that prices in a free market would be lower.

Some of those who urged the end of price control did make this mistake. Why did they make it? They made it because they assumed that prices are determined primarily, if not wholly, from the side of supply. But this is precisely the error that they shared with the leading spokesmen of the Administration, including the price controllers themselves. On Feb. 14, 1946, President Truman declared: “Production is our salvation . . . Production will do away with the necessity for government control.” And even Chester Bowles before

a Congressional committee on Feb. 18, 1946, declared: “Production is the only answer to inflation.”

Answering these contentions in The New York Times of Feb. 25, 1946, 1 called attention to the simple fact that “prices are determined not only from the side of supply, but from the side of demand”; that demand was “far greater than it was before the war because money incomes are far greater; and money incomes are greater principally because the supply of money and bank credit has been almost tripled since the outbreak of the war.” I concluded that “the solution to the problem of high prices . . . is not production alone; but that as long as money and bank credit continued to mount “they will continue to push up demand and to push upward against prices.”

In his radio address of two weeks ago Mr. Truman admitted that “we are producing more goods for civilian use than ever before in history.” So we now have the production that Mr. Bowles once thought was “the only answer to inflation,” and that Mr. Truman himself announced would “do away with the necessity for government controls.” Yet the inflationary menace seems greater than ever, and the President is demanding “emergency” controls. Why? Because, for one thing, the government has continued to follow artificial low-interest-rate and other policies that continue to increase the total volume of money and bank credit. Adjusted demand deposits of reporting member banks of the Federal Reserve System as of Oct. 22 this year were $47,467,000,000, an increase of $1,278,000,000 over the corresponding date last year.

Another inflationary factor is the government policy of foreign loans. As early as March 18, 1946, when price control was still in full force, I wrote in The Times: “Our aim should be to halt inflation, not to increase it. Yet increased export trade financed by governmental loans is clearly inflationary.” At that time, however, the Administration’s “economic experts” were declaring that “deflation, and not inflation, will be the big problem six months to a year from now.” Replying to this contention in The Times of June 17, 1946, I wrote: “It is precisely groundless fears of deflation, combined with a complacent assumption that inflation is no longer a danger, that help to increase the inflationary danger.” I concluded that “the prospect is still inflation.”

Even today, however, Mr. Truman insists: “An attempt has been made to place the blame [for higher prices] upon our foreign-aid program, but this is not borne out by the facts.” Yet it ought to be as clear as daylight that the abnormal foreign demand for our goods, coming on top of the demands of our own people, is the marginal factor that has been chiefly responsible for the further rise in American prices. This may not be a reason for refusing help, but the Administration should at least be candid with the American people as to what the real situation is. It is a glaring self-contradiction to impose emergency “food-saving programs” and to urge us daily to make great sacrifices to supply the European demand, and in the same breath to pooh-pooh this European demand as a factor in raising American food prices.

Yet this is what Mr. Truman did in his radio address of Oct. 24, and this is apparently to be the Administration line in the special session of Congress.