The Only Way to Sound Growth; L. Fertig

THE ONLY WAY TO SOUND GROWTH t'J ofawrence :J.erfig WARNING! Inflationists (and those who fall under their influence) are now operating under an effective disguise. Since they know that the word inflation is unpopular, they do not dare to openly endorse it. Instead, they try to achieve their objective by hiding behind a more popular word. The inflationis ts' new device is to wave the banner of "growth." Of course, they say, we are against infla tion. Of course, they assert, we are not in· favor of zoom ing prices. But after all, they quickly ask, isn't growth the really important thing-shouldn't we achieve growth (with government in the driver's seat as planner and spender) even at the expense of some inflation? By phrasing the issue this way they imply that infla tion promotes growth. They imply that anti-inflationary measures and a stable or declining price level actually prevent growth. These assertions are made despite a long history which proves that the opposite is true. Inflation actually endangers sound growth. Much factual evidence Mr. Fertig is a columnist on economic affairs, New York World Telegram and Sun and other Scripps-Howard newspapers, in which this column first appeared August 24, 1959.

268 THE ONLY WAY TO SOUND GROWTH 269 on this growth-inflation subject is available, but within this brief column we have room for only a few instances. Take the course of the Federal Republic of Germany and of Great Britain from 1948 to 1955. Germany turned her face against inflation while Britain inflated at the rate of about 4 per cent per annum. German in dustrial production increased 134 per cent as opposed to the British 24 per cent. German real wages increased 90 per cent, whereas in the United Kingdom they went up only 7 per cent. All of this is related to the fact that German prices actually fell 5 per cent while British prices increased about 45 per cent. Currently, says Eco nomics Minister Dr. Ludwig Erhard, Germany has "reached a new stage in its steady growth over the past ten years." This he attributes greatly to stable prices and a German currency freely convertible into gold.

Another historic instance of growth is the period in the United States from 1873 down to the turn of this century. During this time an anti-inflation policy caused prices to decline about 40 percent while production more than doubled. These are just two instances of growth and anti-infla tion going hand in hand. Other recent cases are the Philippines, Burma, and Ecuador.· The opposite-where inflation throttles growth-can be seen in Brazil, Chile, Argentina, and many other countries. Recently, statements by several important figures re veal how widespread is this growth-inflation policy. Dag Hammarskjold, Secretary-General of the United Na tions, recently stated that modern industrial nations 270 LAWRENCE FERTIG have· been inclined to favor policies aimed at price sta bility instead of encouraging growth. (Note how he poses a false conflict.) Price stability has not been well won, he said, if its cost is economic stagnation-even though the stagnation is on a high level. Mr. Hammar skjold's statement turns out to be a slightly disguised brief in favor of inflation, which has nearly ruined so many European nations. In this country, on the TV program "Meet the Press," Governor Nelson Rockefel ler was asked whether he agreed with President Eisen hower that inflation is "the great issue of our national life." Governor Rockefeller hesitated and· said, "I'm not sure. I think this is certainly an integral part of the total issue. I think the economic growth of our country and the adequacy of job opportunities ... are the root, really."

Now it certainly would be unfair to call the Governor an inflationist, although his liking for expanded, costly government activities is well known. But it is evident from his statement that he has come to the same fal lacious assumptions that the inflationists make. His thinking is no different from that of Professor Sumner Slichter of Harvard, who must be given due credit for openly and honestly advocating "creeping" inflation. Similar logic is employed by the Democratic Advisory Committee and by Mr. Leon Keyserling. They persis tently urge cheap money, giant-sized government ex penditures, and budgets unbalanced temporarily (they hope) to create growth. There is only one way to achieve growth-that is, by THE ONLY WAY TO SOUND GROWTH 271 increased savings and by increased investment in the tools of production. In this way there is a greater flow of goods resulting from every hour of human labor.

Anti-inflationary policies encourage growth because peo ple are inclined to save more when they have a convic tion that the dollar they put aside today for future use will not be eaten up by the price increases of tomorrow. People save less when they are convinced that the dollar saved today may be worth only50¢ or only a dime after many years. Those who think that it is up to the government to create growth overlook the fact that increased produc tivity depends upon the intelligence, work, and thrift of individuals and corporations. People-not government create growth. All the government can do is to encour age people to save and invest. This is accomplished by curtailing government spending and encouraging sound fiscal and monetary policies. The evidence is plain that sound growth is achieved by fighting inflation, not by encouraging it.