Inflation Is a Burglar; S. Pettengill

INFLA TION IS A BURGLAR t'J SamuelB. pettengill WHEN I was a boy in Vermont, there was a year when the apple crop was so huge that the apples did not bring enough to pay for the barrels to put them in. All we could do was to turn the hogs loose in the orchard to eat their fill. This was hard luck, but not deflation. 'Contrarily, freezing weather in Florida last winter made oranges scarce and their price high. But scarcity or glut of one commodity or another is not inflation or deflation, even though it makes the price of the commodity rise or fall. Nevertheless, these apples and oranges illustrate an im portant way by which inflation causes a general rise in the price of nearly all commodities, like groceries, or services, such as pulling teeth or hospital care. Such a general price rise has no necessary connection with the scarcity or glut of commodities or services. Under "runaway" inflation, the cost of hospital care would be sky high even though hospitals were as thick as service stations.

Mr. Pettengill, noted attorney and author, was formerly a congress man from Indiana. This article first appeared in the June 1958 issue of The Pure Oil News. 148 INFLATION IS ABURGLAR 149 Inflation, which· makes practically all prices rise, has been chiefly due in recent years to an excessive increase in the money supply which distorts the price balance be tween money and commodities. This can be seen clearly if we were to imagine a gov ernment decree which made every leaf on the trees a "dollar." As you raked up bushels of these leaf dollars, what would happen to prices? No government has ever made dollars out of leaves, but dozens of governments have made "dollars" or marks or francs or rubles out of paper which can be made from leaves! In short, paper money can be made as worthless as leaf money. Prices move up during inflation because the value of money goes down, due to an oversupply. This fools mil lions of people. They can easily see prices go up because a price tag is fixed to whatever they buy, but they can not see the value of money in their pocketbooks going down.

Because this "sleight of hand" fools people, during in flation practically every consumer blames the producer, farmer, manufacturer, middleman, or merchant for the rise of prices, just as some people blame the oil com panies for even the small increase in the price of gasoline today. This causes hard feelings between the different eco nomic groups in a country, a demand for price and wage controls, and in some countries even revolution. The terrific inflation in Germany in the 1920's was a big factor in the rise of Hitler to power, which finally 150 SAMUEL B. PETTENGILL cost US billions of dollars and the blood of our own sons. Yet the German inflation probably caused little or no change in the exchange value of one commodity for an other commodity. If a bushel of potatoes exchanged for a bushel of sugar beets in a German town before the in flation, it is likely that they still exchanged, bushel for bushel, at the height of the inflation, even though a bushel of potatoes or sugar beets was "worth" a million marks!

In short, commodities probably did not rise in Ger many at all! It was only the German mark (money) which fell to zero in value by reason of the glut of marks. This was due to the government running the monetary print ing presses night and day, not to the producers or dealers in commodities. It can, I think, be laid down as a universal rule that all inflation is caused by the acts or politics of govern ment, among which is any large increase in t~e debts of the central government. A large increase in government debt by harrowing at the banks creates a glut of money, which causes money to lose value just as each apple lost value when there was a glut of apples .. (Why government debt increases the money supply requires more space than the editor has available in this issue.) However, it is plain that no government will permit any private person (counterfeiter) to manufacture dol lars. Consequently, a large permanent increase in the dollar supply which reduces the exchange value of dol lars for commodities and services. is always due to actions taken by the government-not the people, except that beINFLATION IS A BURGLAR 151 cause so many do not understand inflation, the people permit the politicians who run the governments to pro ceed with their sleight-of-hand magic.

Savings Lose Value Now then, why is inflation a burglar robbing millions of hardworking people while they sleep? It is because most of what we save during our working years, other than a home, is in the form of life insurance, company pensions, government bonds, social security, and savings accounts payable in a fixed number of dollars. As infla tion proceeds and dollars lose purchasing power, all of these savings lose value. Since 1940, inflation has eaten away 200 billions of dollars of these nest eggs, and right now is doing so at the rate of billions of dollars a year. While we continue to work, most of us can keep abreast of our losses from inflation. But sickness comes, and old age advances when you no longer can work. The dollar is now worth less than at any time since George Washington's day. If the government had taxed you what you have lost in the value of your savings, you would raise Cain. What we need to know is that inflation is a hidden tax, with no exemptions or deductions! It is, in fact, the cruelest of all taxes because it falls on the poorest the hardest.

This is a serious subject. But we can still get a laugh out of it. Before inflation hit Germany, an old man was put in an insane asylum. At the height of the inflation he was declared sane, given back his purse with a few 152 SAMUEL B. PETTENGILL old coins in it, and told to take a cab to his brother's home. When he got there, he asked what the fare was. The cab driver said, "200,000 marks." The man said, "That's more money than I ever saw. I can't pay." The driver said, "Let me see what you have." So the man opened his purse; the driver took out a coin and gave him 1,000,000 marks in change! The poor old fellow said, "Take me back to the asy lum. I'm not cured after all." The only cure for inflation is public understanding which will demand sound money.