Why Living Costs Have Risen

June 16, 1947

In recent months there has been increasing concern, as there ought to have been, about rising prices and living costs. And in political discussion the chief blame, as so often in the past, has been placed on the American businessman. Producers and sellers have been asked by the President to hold prices down, as if everything depended solely on their decisions, and as if all they had to decide was whether to hold out for “reasonable” or “unreasonable” profits. But the plain truth is that the rise in living costs has been brought about overwhelmingly by governmental practices. It is the very people who now point accusatory fingers at the businessman whose policies have done and are doing most to bring about the rise in prices.

The primary cause of the rise in prices has been the mounting volume of money and credit. This has more than tripled since the outbreak of the war. The increase has been mainly the result of the cumulative deficit in the Federal budget financed chiefly by borrowing from the banks. You cannot give people three dollars for every dollar they had before and not expect them to bid up prices. For the rise in the price level must be mainly explained from the side of increased money rather than from the side of shortages of goods. Industrial production in March, in fact, was estimated by the Federal Reserve Board to be running 89 percent higher than in 1935–39. But this was more than offset by income payments 163 percent higher than in 1935–39.

The Administration has certainly made no vigorous attack on this basic cause of higher prices. It continues to spend five times as much money a year as in the immediate prewar period. Through Federal Reserve manipulations it continues to keep interest rates dangerously low. This policy maintains the vast excess of bank deposits and money circulation and encourages further monetization of the public debt.

The government, again, has adopted a consistent policy of promoting wage rate increases. It has done this through Federal laws which take the risks out of striking and make it all but impossible to resist wage-increase demands. It has done it through direct imposition of higher wage rates by so-called “fact-finding boards,” by Presidential intervention, or by property seizure and direct government negotiation of higher wage contracts with unions. As a result of these policies, average weekly manufacturing wages in March, before the latest 15-cent-an-hour increase got started, were 99 percent above the 1939 level and the highest on record. Hourly wages in March, also at the highest point ever reached, were 86 percent above the 1939 level. Wages are normally about eight times as great as profits. To force up wages is to force up prices.

Another major cause of the rise in prices in recent months, which is only now beginning to receive the attention that its real importance warrants, is our national policy of creating a huge export surplus by government gifts and loans to foreign countries. Our exports of goods and services to the rest of the world during 1947 are officially estimated to total $16,000,000,000, an all-time peacetime high, compared with annual exports of goods and services of only about $4,000,000,000, before the war. Against this we are expected to import only about $8,000,000,000 of goods and services. The export surplus of $8,000,000,000 a year is inflationary. It means that we are paying out $8,000,000,000 in wages, salaries, and profits for goods and services that we do not get. It adds $8,000,000,000 to the excess purchasing power competing for the goods that are left.

Mr. Truman keeps making his drive for “voluntary price reductions” against industrialists. But the great rise in prices has in fact taken place in foodstuffs and farm products. It is on these that the abnormal foreign demand made possible by our gifts and loans has chiefly concentrated. On May 31, on Mr. Truman’s own figures, wholesale prices of farm products were 78.4 percent above the 1926 level. All commodities other than farm products and foods were up only 32.3 percent. All this does not mean we should halt forthwith the gifts and loans to Europe that create our export surplus. We have world responsibilities that we cannot evade. But we must frankly recognize the major inflationary effects of this policy and try to offset it by other means. The government can at least stop artificially supporting prices of farm products.