How To Stop Inflation; L.E. Read

LEONARD E. READ INFLATION To know truly is to know by causes. - Francis Bacon How TO STOP INFLATION? Remove the cause! Stopping inflation is as simple and as difficult as that. Everyone says he's against infla tion; yet, what do we find? Nearly everyone overlooking the sole remedy and, instead, conjuring up schemes to soften inflation's dis astrous effects. Interestingly, all schemes or nostrums which ignore the cause, if and when adopted, sink us ever deeper into the mire. As if inflation weren't bad enough, most proffered "cures" would worsen the situation! Many years ago a professor of economics told a group of us about his experiences at the University of Heidelberg during the German inflation. Faculty members were paid once a month. As the infla tion began to gallop, they were paid twice a month, then each 674 week, then each day. Finally, they were paid in the morning, rushing the checks home to their Frauen before going to their classrooms.

Why? Prices were multiplying many times each day, so shop in the morning! There came a time - August 1923 - when 100 billion marks would not buy a loaf of bread. What was this professor's rec ommendation to those in our group who foresaw similar prob lems in our own country? His ad vice was to outproduce inflation! Imagine a professor. of economics not understanding that all produc tion creates its own purchasing power! A few thoughts inspired by the professor's naive thinking : Pro duction involves the efficient com bination and use of scarce re1973 HOW TO STOP INFLATION 675 sources, in the process paying for each resource a price high enough to pull it away from other owners and other uses. To produce more housing, for instance, involves paying higher wages, higher prices for lumber, hardware, ma sonry, and the like, to attract those scarce resources from other uses. Meanwhile, each supplier of such resources has the additional income to spend, a process some times expressed as Say's Law: "Production creates its own pur chasing power."

The truth is that inflation does not result from the lack of hous ing or other goods or services. It is nothing more nor less than the printing of what the government has declared to be legal tender, that is, printing ever-increasing quantities of fiat money. Unless house-building or other produc tive activities stop those printing presses - an absurdity - then try ing to outproduce inflation is as futile as trying to out-run one's own shadow. So the professor's cure is on a level with most reme dies now being dinned into our ears. Trying to Live with It It is not that the inventors of these schemes agree with infla tion. Quite the contrary! Rather, it is that they see no way to be rid of it; inflation is here to stayeven worsen - thus, why not find a way to prosper and thrive in a monetary holocaust! The fact that this requires nonexistent skills in legerdemain deters them not. Two such schemes recently came to my attention. The first proposes that all contracts - loans, for in stance - be repaid (legally en forced) in dollars of the same pur chasing value as when contracted.

If the value of the dollar should decline at the rate of 15 per cent a year, then a 10-year loan of a thousand dollars would be repaid in the amount of more than $5,000, plus interest. Even in the face of the current inflationary pattern, what bor rower would be willing to sign such a contract? Only the person who cannot see "beyond the end of his nose." There would be little if any futures trading; indeed, contractual relations would all but cease, production would decline at a frightening rate. Further, there is nothing in this scheme to halt the outpouring of fiat money; it would go on its merry way and, because of the fall off in produc tion, the dollar would buy far less than were the scheme never adopted. Approval? Indeed, not! The other scheme requires that all business ventures be compelled to adopt the "profitsharing" pro cedure - employees as well as en trepreneurs sharing in the gains.

676 THE FREEMAN November This is inspired by some remark able successes such as Lincoln Electric of Cleveland. The assump tion is that if Jim Lincoln could, by this arrangement, earn a great deal for himself, pay higher wages than others, and undersell all of his competitors, so could everyone else - hundreds of thousands of businessmen from hamburger stand owners to General Motors. Simply pass a law and make every entrepreneur operate like Mr. Lincoln! Overlooked is the fact that only one Jim Lincoln ever existed. There are no two entrepreneurs who operate their businesses alike, nor could they do so if they tried. Each is novel to some extent; and consumers - that's all of us - are thus advantaged. Any profitsharing arrangement should, in all fairness, be also a loss-sharing arrangement. But most wage earners would shy away from any employer who re quired employees to share any losses his business might incur.

Why? Tens of thousands of busi nesses fail annually, as everyone knows. Were profitsharing made com pulsory for everyone, production would dramatically decline, just as in the first scheme. There would be other results, no less disastrous. Outproducing inflation or ful filling contracts at a constant purchasing power or forcing every business to engage in profitshar ing are no more than "pipe dreams." Adoption need not be feared. These schemes merely illustrate how people avoid pin pointing the cause of inflation and, thus, propose remedies which com pound the problem. Price Control and Rationing However, what do we find in the day-to-day world of "practical" politics? The worst of all possible schemes: price control and ration ing as edicts by the Federal gov ernment and wage controls in the hands of labor unions. Below market prices and above-market wages! Inflation is not ques tioned; we have instead only futile attempts to escape the effects, which make the effects increas ingly disastrous. In what way?

Production is both diminished and distorted. Figuring out how to out-scheme the political schemers takes the place of discovering how best to satisfy consumer prefer ences. Schemers with political and coerci ve power make schemers of everyone of us they overpower. To illustrate: By reason of gov ernmental intervention, the supply of gas and oil is curbed and the demand increased. What to do? Ration the fuel! To the station at tendant say, "Fill 'er up." "Sorry, only $3 worth to a person." So the 1973 HOW TO STOP INFLATION 677 car owner takes what he can get and goes to another station repeat ing, "Fill 'er up." Gas wasted go ing from station to station! Even tually, all the gas is gone, but con sumers still have "gas money" burning holes in their pockets. The best way to ration gas or any other scarce resource is to let the price rise to a point where the supply is sufficient to meet the demand.

We need only come to our senses to stop inflation; nothing is re quired beyond discovering its cause and then being rid of it. The cause? Overextended government. To repeat what many of us have written over and over again: when the costs of government rise be yond the point where it is no longer politically expedient to de fray the costs by direct tax levies, governments all over the world resort to an expansion of paper money - inflation - as a means of making up the difference. Infla tion dilutes and depreciates the medi um of exchange as a means of syphoning private property into the coffers of government.t Here we have the cause, so simple to see through. But being rid of the cause is not simple. Why the difficulty? The difficulty is rooted in an 1 For a more complete explanation of the cause, see my pamphlet, "The Es sence of Americanism." Copy on request. unintelligent interpretation of self-interest. 'Today, all of us with out exception are feeding more or less at the Federal trough. True, there are a few who are forcefed, not dipping into the trough will ingly. Finding it necessary to live in the world as it is, they partici pate in the deficit-burdened, so cialistic mail system - to name but one of many examples. But most citizens today - a number per ilously approaching 100 per cent - mistakenly feel that they have a vested interest in the continu ance of one or more, if not all, Federal "programs" that go to make up the deficits that can be met only by inflation: fiat money made possible by legal tender laws.

Various Vested Interests Perhaps this citizen only wishes to be paid for not farming, an other to receive social security or Medicare, still others to be pro tected against competition, or to have their education subsidized, or a Gateway Arch for their home town, or whatever. It would take a book just to list the titles of all the Federal handouts and discrim inatory edicts. 2 Anyway, count the persons you know who completely 2 See Encyclopedia of U.S. Govern ment Benefits, a tome of more than 1,000 pages with over 10,000 "benefits." (Union City, N.J.: Wm. H. Wise and Co., Inc., 1965.) 678 THE FREEMAN November ignore the "gravy train," who would concede nothing to govern ment beyond a peace-keeping, justice-dispensing agency of so ciety, who are free from the feel ing that they have a vested interest in this or that deficit creating, political gimmick. They are "as rare as hens' teeth!"

If an individual could perfectly identify how his self-interest is best served, he would be all-wise. However, I am not alluding to perfect wisdom but to that level of intelligence any adolescent should possess. Most youngsters know that their self-interest is not advanced by stealing -living off the fruits of the labor of others coercively exacted. They would not regard face-to-face thievery as in their own interest. And there are thousands of high school students who are bright enough to see that there is no distinction be tween pointing the gun oneself and getting the Federal govern ment to do the "stick-up." The loot would be ill-gained in either case. Self-interest is not served by either method. One need not be overly brilliant to see this. Yet, what do we find? Millions upon millions identifying self interest with legal plunder! The more political largess they can get - regardless of the force used the better. It is not that these people, many of whom are college graduates, could not rise above this infantile level of thinking; they could if they would, but they don't. Further, these millions do not see how their self-interest is subverted rather than served by this socialistic plundering, and they cannot be expected to under stand why inflation is not also identified with their self-interest.

They see inflation, if they see at all, as the means of filling the thousands of troughs from which they feed without either thought or effort. They love the role of parasites! Given these millions who thoughtlessly behave this way, plus the political exploiters of nonsense, the situation, on the surface at least, looks hopeless. Stopping inflation appears to be impossible, and certainly this would be the case were it a num bers problem. But, thank heavens, it never has been a numbers prob lem, is not now, nor will it ever be. It is strictly a matter of in spired and intelligent leadership. A Natural Aristocracy Statesmen - in and out of office - are more and more in evidence, persons who think for themselves and stand forthright for their enlightened convictions. These few - thousands, of course - un derstand that self-interest is to be identified with individuals in the 1973 HOW TO STOP INFLATION 679 role of hosts - producers, not para sites. They also know that infla tion is deadly - for parasites can not exist without hosts. As the troughs empty, attrition increases, especially among the parasites.

As this natural aristocracy comprised of men of virtue and talents - approaches the pink of condition, rises to the top in think ing how self-interest is best served, the nonsense is stopped dead, then subsides ! Your role and mine? Try one's best to be this kind of an exemplary aristo crat. This, I submit, is the sole formula to stop inflation. , IDEAS ON $ LIBERTY Fiat Money Inflation in France OUT OF THE INFLATION of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all businessmen, gamblers. In city centers came a quick growth of stockjobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in. This, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official busi ness, women set fashions of extravagance in dress and living that added to the incentives to corruption ....

Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or lesser degree, always been the result of irredeemable paper .... ANDREW DICKSON WHITE The Rightto BeWong and the Obligationto Be Right CHARLESR. LADow IT IS DIFFICU~T to remember the time when most of us were reached by one newspaper a day, perhaps one radio newscast, and when public opinion polls were infre. quently promulgated and ana lyzed. However, we hardly have to go back thirty years to find the time when such 'conditions pre vailed. In the short intervening period we have come to be bat tered, on a twenty-four hour schedule, with opinion-making news and punditry including sta tistically analyzed samples of pub lic opinion, brought up to date by the day. Man has progressed materially by stand,ardization of parts and functions and it is not too hard to understand the standardization of ideas which has been the product of the mechanization of the mass media. It is likewise possible to see why media-men react to critics of their product much as motorMr. LaDow, of San Diego, recently retired as a teacher of social studies in high school.