How Can We Stop Rising Prices?


By ROBERT A. TAFT, U. S. Senator from Ohio

Address on the Town Hall of the Air, October 30, 1941

Vital Speeches of the Day, Vol. VIII, pp. 90-91.

WHAT is the cause of rising prices? Undoubtedly it is the tremendous government deficit, which amounted to five billion dollars in the year ended the first of last July, and will be between ten and fifteen billion dollars, including R.F.C. borrowings, during the current year ending the first of next July. This great outpouring of government money goes almost entirely for wages and materials, and produces a great purchasing power and demand for food and clothing and every other kind of non-defense goods. At the same time the supply of these goods is restricted because of the requirements of the defense program, and the law of supply and demand forces higher prices. Also, the demand for labor, particularly skilled labor, is such that wages tend to rise, a gain increasing costs and prices. Increased business activity is reflected also by an increase of bank loans, amounting already to more than three billion dollars during the first nine months of the calendar year. But the basic cause of the crisis is undoubtedly the tremendous borrowings of government for the defense and lend-lease programs.

This deficit can be reduced either by cutting expenses or increasing taxes. So Remedy Number One is to cut expenses. There is no doubt in my mind that a billion and a half dollars can be cut out of non-defense expenses, as shown by the Budget Director's report to the Finance Committee. W.P.A. can be returned to the states, with a federal subsidy one-quarter of the billion dollars now being spent on the work program. N.Y.A. and C.C.C. can be combined. Every non-defense department can be cut. There is no sense in paying a billion dollars for agricultural subsidy when agricultural prices are rising by leaps and bounds. We certainly should not proceed with a great pork-barrel bill for public works, which includes the St. Lawrence Seaway, the Florida Ship Canal, the Tombigbee River project and every other wild dream of the last ten years. Even defense expenses can be cut without hindering the defense program in any way. There is no longer any excuse for the waste which occurred when the program was new and little was known about the needs.

Remedy Number Two is to increase taxes. I believe Congress has made a good beginning in the three and one-half billion dollar tax bill. Taxes should be increased further, but in the right way. Some kinds of sales taxes may well pyramid costs and tend to increase prices. But surely it is right that some part of the purchasing power created by the government, which would never have been enjoyed

by the people except for the defense program, should be taxed away from them to help pay defense expenses and reduce the tremendous pressure for goods which do not exist.

Remedy Number Three is to persuade the people to save the additional income they are receiving and invest it in government bonds. Looking at it from the government's side, let us attempt to sell our bonds to the people and the savings institutions instead of to the banks. Secretary Morgenthau has made a good start, but even with success I believe a large majority of the bonds will be sold to the banks, and to that extent they will create deposits and purchasing power out of thin air.

Remedy Number Four seems to me a determined attempt to stabilize prices voluntarily. This was done to a considerable extent in the World War. I don't think it ought to be done by issuing orders, as Mr. Henderson has done, which he has no legal authority to issue. The only result is to create resentment and discredit the whole attempt. But something can be done in many industries to secure and approve a voluntary fixing of prices. There should be an attempt to stabilize farm prices, certainly an abandonment of the determined effort of the Department of Agriculture to raise all farm prices. These prices have been too low in recent years, but today we can at least abandon government stimulation and further increases.

Remedy Number Five should be an attempt to stabilize wages so that during the emergency period they do not increase faster than the cost of living. At least there should be an abandonment of the government policy of recent years to increase all wages as fast as possible.

Remedy Number Six is to control the inflation of private credit and currency. Last January the Federal Reserve Board recommended that it be given increased power to limit bank reserves, which would check the increase in bank loans. The Board also recommended that the President's power to devalue the dollar, to issue three billion dollars of greenbacks, and to issue silver certificates in excess of the cost of the silver, be repealed, so that these potential means of currency inflation no longer exist to create a fear that prices might rise still more through currency inflation.

Finally, Remedy Number Seven, we come to compulsory price control as embodied in the bill now before Congress. My own view is that price control by itself would be wholly ineffective. It is no panacea. It is only one remedy out of many. On the other hand, I think it is necessary to prevent runaway prices, hardship and poverty for all those

depending on fixed incomes, and perhaps currency inflation itself. I have reached this conclusion, although I am violently opposed to permanent price control. Such permanent control could not be carried through without government fixing of wages also, and of every business practice in every industry in the United States. That would lead to socialism and a complete abandonment of the American system of free enterprise. But during the existence of the real emergency I think it can be effective without danger.

I do not favor even now government fixing of wages. I do not think it necessary to destroy that freedom even temporarily. I do not see how the government can fix compulsorily the wages of five thousand men in a plant, and make them go to work if they refuse to do so, unless we are prepared to adopt the techniques of Mr. Hitler. I think price control can be effective temporarily without wage control. It was so effective during the World War without wage control. Of course, as wages rise, prices must be adjusted, but the important thing is not to prevent all price rise, but only to delay it and prevent the rapid spiral of increasing prices and wages which is so dangerous. Of course it is necessary to control agricultural prices, although I see no reason why they should be fixed below 100% of parity. The 110% proposed in the House bill is a denial of the very principle of parity, and should be eliminated.

In order that it may be clear that this price control is temporary, it should end on a date certain. I suggest January 1, 1943, and not the end of some vague emergency period. The power given is so tremendous and may be so destructive and confiscatory that I believe it should not be given to the President to be delegated as he sees fit, perhaps to Mr. Henderson, but should be vested in a board established by Congress, appointed by the President, and confirmed by the Senate. That board should be required to give adequate hearings to every industry concerned. An administrator should be given power to fix prices temporarily for sixty days while a hearing is being given. I do not care how fair the

individual administrator may be, after he has once made up his mind and fixed prices, an appeal to him and a hearing before him are necessarily prejudged, and give no one what in this country we regard as justice.

I would prefer to eliminate control of rents as being a local question, which can be dealt with locally when and where it becomes serious.

I am opposed to an arbitrary ceiling on all prices. I think it should be confirmed to the basic commodities and their products. In the first instance, it would be simpler to issue a ceiling, but the board would be swamped within a month by thousands of applications for thousands of products, every one demanding, and probably justly, an immediate increase. The bureaucratic control required would be indefinite.

In conclusion, I wish to say again that direct price fixing is only one part of the program. It is going to be utterly vain if the A.A.A. continues to limit farm production and raise farm prices. It is utterly vain if the Labor Department and the National Labor Relations Board and the National Mediation Board continue the policy of stimulating the rise of wages and the closed shop. It is utterly vain if the President insists that every New Deal agency established for depression periods shall continue at full blast. It is utterly vain if the President insists on proceeding with St. Lawrence Seaways and canals and public works not immediately necessary for the defense program. It is utterly vain if bank loans are allowed to rise without an increase in reserves, and if we retain the potential inflation threats of a devalued dollar and the issue of greenbacks. When we see all of these government policies still in effect, and when we see the lack of administration pressure behind the price control bill, which has allowed it to delay in the House Committee for two months, I have serious doubt whether we can or will stop rising prices. After all, the first requisite for any government to stop rising prices is that it shall desire to stop rising prices.

The Economics of the Emergency



Before the Convention of the Illinois State Savings and Loan League at Peoria, Illinois, on October 14, 1941

Vital Speeches of the Day, Vol. VIII, pp. 91-96

WE are in a period of quickened activity. We are in a period of fuller employment. We are in a period of great expansion, and in seeking to characterize in a few figures what was going on in a talk in Detroit yesterday, Leon Henderson, Price Administrator, was technically correct in saying that the Federal Reserve index of production is now around 165, whereas a year ago June it was at 115. He was right in saying that production today is vastly greater than in the 1929 peak. He was correct in saying that the so-called national income is expected to raise above ninety billion dollars this year, compared with seventy-six billions last year, and he was correct in some of the other external figures that he gave to symbolize this growth and expansion of which I have spoken, but the implications of statistics may be somewhat misleading unless we add a few qualifications and a few foot-notes.

On the basis of the production figures, we should be entering the golden age in the living standards of the American people. Based on the physical activities which we see all

about us, we should be going into an era of more and better goods for the people at a higher material well-being than they have ever enjoyed before, but, obviously, we are not in that happy golden age. Why not? Let's look at the economic picture somewhat naively. Let's not blind our eyes by using the customary labels which prevent us from getting beneath the surface.

Obviously, we are not translating into living standards this great pick up in productivity because much of the activity is not business at all; much of the activity is unrelated to the economic process of making and exchanging goods; a a great deal of it, an increasing percentage of it at the present time, a minimum of 15 per cent of the total, is being diverted to the making of lethal weapons for national defense and for lease-lend purposes, but that is not the whole explanation.

In the second place, part of this quickened and stepped-up production is going not into immediate consumption, but into the building up of inventories on the part of manufacturers, wholesalers, retailers and consumers themselves, a