Will Inflation Stop Inflation?

August 9, 1948

More than any other single man, President Truman is responsible for the inflation that has developed here since the end of the war. Yet no one seems more blissfully unaware of this fact than Mr. Truman himself. Let us look at his new eight-point “anti-inflation” program:

1—An excess-profits tax “to provide a Treasury surplus” and “a brake on inflation.” This cannot be taken seriously as a revenue-raising measure. Corporation taxes are already dangerously excessive. They are preventing the accumulation and investment of new capital essential for increasing national output and real wages. An excess-profits tax would reduce and unbalance production and increase inflation.

2—Consumer credit controls. Mr. Truman wants the government itself to extend more inflationary credit to build and buy houses, but wants to curb private credit to buy refrigerators to put in the houses.

3—More authority to the Federal Reserve Board to “regulate inflationary bank credit.” The board keeps demanding new powers while refusing to use those it already has. It wants power to raise legal reserve ratios of member banks. It should first be granted the power—for which it has not asked—to restore the former legal reserve ratios of the Federal Reserve Banks themselves. Reserve-bank credit is far more inflationary than member-bank credit.

4—Power to “regulate speculation on the commodity exchanges.” Speculation smoothes out price fluctuations and continuously adjusts demand to supply. Speculators do not do this perfectly, because no one can perfectly foresee the future; but they do it incomparably better than could politically motivated politicians.

5—“Allocation and inventory control of scarce commodities.” Free markets can do this far better than any government. Government allocation breeds political favoritism and corruption.

6—“Strengthening” of rent controls. Rent controls have intensified the housing shortage by encouraging existing tenants to use space wastefully, and by discouraging repairs, improvements, and new construction.

7—“Stand-by” powers to ration products “in short supply.” To the extent that rationing really does cut down demand and lower prices, it also lowers production of the rationed product. It intensifies the very shortage it is designed to counter.

8—Price control for scarce commodities. This is the very thing that makes them scarcer, by lowering the relative profit margin in producing them. Mr. Truman would approve “non-inflationary wage increases”—a wonderful phrase. Mr. Truman is sure in advance that many wage increases can be “absorbed within the price ceilings.” This means that he would boost wages further at the expense of profit margins and give officeholders life-and-death powers to determine the profits of every industry and firm. The totalitarian nature of price fixing should be clear.

Mr. Truman does think that the government should have power “to limit wage adjustments which would force a break in the price ceiling.” But he would even break price ceilings “to correct [wage] inequities.” This lip service to wage control should deceive no one who remembers our experience before Congress took price-fixing powers away from Mr. Truman.

After this eight-point “anti-inflation” program, Mr. Truman recommends every inflationary measure in the book. He wants an inflationary minimum-wage increase, which would raise production costs throughout the economy. He wants more Federal expenditures for housing projects, education, electricity, and a further boost in Federal salaries. Not once does he stop to announce or even to express any interest in how much these new inflationary expenditures would raise our already fantastically inflated Federal budget. He never mentions the budget deficit predicted even before these demands by his own Secretary of the Treasury. It is deficits that make inflation.

The cure for the evils of inflation, he thinks, is more inflation.