Why Price Control Should Expire

May 14, 1951

The President’s message to Congress asking for extension and “strengthening” of the Defense Production Act is a very curious document, replete with passages that cannot be reconciled with each other.

At one point he even declared plainly: “Price and wage controls do not cure the basic cause of inflation—the inflationary gap between the supply of goods and the volume of buying power. The cure can come about only by closing the gap.” In other words, price and wage controls are not only irrelevant, but distract attention from the real cure for inflation.

Yet Mr. Truman nevertheless went on to insist on “stronger” price and wage controls. He even announced that government policy planned to permit or encourage the very “inflationary gap” that causes inflation. In the next two or three years, he said, there will be “more money available for people to spend” at the same time as there will be “much less civilian goods for people to buy.” This can only mean that while Mr. Truman talks bravely about taxing away surplus income, “paying for government expenditures as we go,” and tight credit restrictions, he does not seriously expect to adopt these programs.

There are other inconsistencies no less serious. In one breath he urges “holding the line on food prices.” In the next he praises the “parity principle,” which forces up food prices, as “the basis for our agricultural laws” and “the best guide we now have available to judge what is a fair return to farmers.” And then he seeks to conceal this contradiction by advocating food subsidies—apparently on the theory that if the American people are forced to pay part of the higher food prices as additions to their tax bill instead of to their grocer and butcher bills they will never notice it. The fiasco of England’s food subsidy program seems to hold no lessons for Mr. Truman except a yearning to imitate it.

Again, Mr. Truman continues to apply a double standard to price control and wage control. He asks for “ceilings” on prices and rents; but wages and salaries he merely wants to “stabilize.”

He urges everybody to invest again in U.S. savings bonds. “After the war,” he says, “those savings helped many a family.” He neglects to add that as a result of his own and his predecessor’s “inflationary gap” policies, which he proposes in the main to continue, those bonds have a much lower purchasing power than when they were bought. He is trying to get savings through exhortation while ignoring incentives.

If Congress is well advised, it will not give Mr. Truman the kind of Defense Production Act for which he now asks. It will allow the present wage-and price-fixing powers to lapse entirely, on the following grounds: (1) As even the President now concedes, they do not cure the basic cause of inflation. (2) They divert public attention away from the real cure. (3) The price regulations put into effect in January, as the President himself admits, “inevitably . . . froze all sorts of distortions and inequities into the price and wage structure.” (4) Our present price fixers have apparently learned nothing from the mistakes of OPA; their new meat-price-control orders threaten to bring on a meat famine paralleling that in the fall of 1946. (5) Even the best-intended price control unbalances and reduces production. (6) No political-minded administration can be trusted to refrain from using price-and wage-fixing powers to propitiate powerful voting groups and to make scapegoats out of weak ones.

(Example: If the “parity principle” is “the best guide” to what is “fair,” why apply it only to farmers? Why not to everybody? Yet no one has proposed to apply the parity principle to rents, say, as well as food prices.)

Mr. Truman wants the life of the new Defense Production Act extended for two years. But Congress could assure more careful executive compliance with the act by extending it only for one year, and by providing, in addition, that it could be terminated at any time even before then by a majority vote in either house.