The Cost of Living; P.L. Poirot

With so much governmental ac- ' tivity for their protection, Ameri can consumers might be expected to be grateful and let it go at that. But, not so. Housewives continue to complain about the soaring cost of living and their inability to make ends meet when meat is priced at more than a dollar a pound. Meanwhile, Department of 1966 THE COST OF LIVING 9 Agriculture statistics show that "the farmer's share of the con sumer's dollar" persists in its long downward trend, despite the bil lions of Federal aid pumped an nually into various compartments of the farm price support pro gram. Since food processors, pack agers, and distributors stand be tween producers and consumers, they are bound to be prime sus pects in this situation. And the government is determined to dis cover and discourage all business practices that may be accountable for the high cost of living. Under such intensive search and scrutiny, some sharp opera tors and some unethical practices doubtless will be found. Even the most ardent advocates of com petitive private enterprise would expect some participants to fool ishly try to pursue their supposed self-interest to the detriment of others. But the Federal govern ment never will find the real cul prit behind rising living costs. In deed, no power structure should be expected to recognize and cor rect its own abuse of power. The Federal government probably can not see, and certainly could never admit, that its own actions are causing the high prices consum ers deplore. If such a situation is to be corrected, it must be done by individual citizens, one by one, as . each comes to realize that governmental compulsion is not an effec tive substitute for the market price system of bringing supply and demand into balance in the real world of scarce resources and insatiable human wants.

The Government as Consumer In the market economy, the con sumer is the ultimate decision maker. His purchases determine what may be profitably produced and sold. The market, as such, is neutral; market prices may serve to guide but never to compel a consumer to choose one commod ity or service above any other. Nor does the market distinguish among consumers or discriminate against one as compared to an other. As far as the market is con cerned, the government is just an other consumer bidding for the available supplies of scarce goods and services. The government, of course, would be expected to police the market to see that honesty pre vails among buyers and sellers and that fraud and violence are curbed. A supplier's package ought to con tain what his label says it does. And a buyer's money, or whatever he brings in exchange, ought not to be counterfeit. The apprehen sion and punishment of counter feiters presumably is a govern mental duty.

In the customary market trans10 THE FREEMAN October' action, each party offers some thing the other party wants. A buyer also is a seller, and vice versa. That a buyer offers money customarily signifies that he has earned it and saved it from a prior market transaction. Sellers accept money in faith that it may be used to purchase some other useful item in turn. But a counterfeiter cre ates money fraudulently without bringing any useful goods or serv ices to the market. If he can pass the counterfeit money undetected, he withdraws from the market useful goods and services but leaves in the market an extra sup ply of money. This means that more money is chasing fewer goods and services. The level of prices may be expected to rise in such a situation. Fluctuations and Trends Now, a crop failure or disaster of one kind or another may result in the temporary scarcity and higher prices of certain market able items. Or, more or less sud den changes in consumer pref erences may cause some prices to fall, or perhaps to rise, for a time. Prices of individual items may be expected to fluctua te to re flect changing supply and demand in an open market. But if the cost of living soars across the board for nearly all items, and continues to rise month after month and year after year, the great prob ability is that a master money maker (inflater) has entered the market on a major scale. And this is precisely what has happened to the cost of living in the United States in our time.

So, it is important that counter feiters be apprehended and kept out of the market; and this task ordinarily is delegated to govern ment. But the rub is that the Fed eral government itself can be and has been the great inflater, with drawing scarce goods and services from the marketplace in exchange for irresponsible promises to pay. This is not to say that all gov ernment purchases are inflation ary. To the extent that the govern ment withdraws money from tax payers or bond buyers who have earned it in the market, the gov ernment has more money to spend, other buyers have less, and the total quantity of money in the market remains substantially the same as before the taxes were col lected or the money borrowed from bondholders. But the Federal government al so obtains purchase orders on the market by issuing bonds and sell ing them through the Federal Re serve banking system, the banks in turn using those bonds as legal reserves and thereby adding enor mously to the total supply of money in the market. And this 1966 THE COST OF LIVING 11 deficit financing through a frac tional reserve central banking sys tem is the process by which the Federal government acts as the national inflater of the currency.

The prices of pork and beef and red meat generally are high in the United States today, not because farmers are deliberately withhold ing supplies or packers taking extra margins or distributors and retailers gouging consumers, but because the government as the leading consumer has been buying not only meat but all kinds of other goods and services, with drawing them from the market and pumping into the economy billions upon billions of fiat money which the market has no way of distinguishing from the dollars of its honest customers. Fiat Money Inflation Everything the Federal govern ment spends in the so-called "pub lic sector" - public housing and urban renewal, Federal aid to edu cation, farm support programs, special privilege handouts to strik ing unioneers, foreign aid, mili tary expenditures, moon shots, and on ad infinitum - every dollar government spends in excess of what it currently collects from tax payers and bondholders other than banks comprises fiat money the presence of which is reflected in the so-called "private sector,"

showing in the family budget as high priced bread and meat and a rising cost of living VVhen the government buys guns with fiat money, that money flows through the market and eventually into the hands of house wives who use it to bid up the prices of butter and of other con sumer goods that go to make up the cost of living. If the housewives of Podunk want the price of food in local grocery stores to decline, then they'll have to vote down Podunk's proposed new Post Office, Podunk's Federal Urban Renewal and Pub lic Housing projects, Podunk's share of Federal aid for education, and every other VVashington prom ise of something for nothing. The Federal government has nothing stored away from which these handouts may be painlessly plucked. They can only be handed out insofar as they are currently withdrawn from the market. And every such withdrawal by infla tion - by consumers who put back nothing useful in returnis bound to show up in the rising price of bread and other necessities, in the higher cost of living. ~ PETER A. FARRELL THOSE among us who persistently support economic arrangements of a compulsory nature and who, ironically enough, are called liber als, have rallied stoutly to the proposition that no worker should be allowed to withhold support from a union favored by the majority.