Inflation and Its Consequences


By WALTER D. FULLER, Chairman of the Board of the National Association of Manufacturers

Radio address delivered over NBC Network, July 9, 1942

Vital Speeches of the Day, Vol. VIII, pp. 619-621.

SUPPOSE you and I talk conversationally across the table for a few minutes this evening about a danger we all face—the danger of inflation. America is fast losing the battle against inflation. Do you know just what inflation is? If you were a farmer after the last war you were trying to pay with eighty-cent wheat for land bought at $200 an acre with the expectation that wheat would always stay at $2 a bushel. Chances are you lost your land and went back to farming on shares.

If inflation comes, and if you are working for wages, you will find that the raises you get are always one or two jumps behind the raises in rent and the raises in everything you have to buy. With inflation no one ever catches up. Not even those people who produce the things you have to buy. For with inflation everybody keeps hiking the prices too— the men who sell the raw materials and the workers in the plant. Everyone is chasing each other around the block. Each person is half a lap behind the other. With inflation you never do catch up with each other.

That's what inflation is. The grocer raises his prices, say 20 per cent, because the things he buys cost more. Then wages go up . . . then in a dizzy succession everybody else's costs go up. Everybody tries to protect his standard of living. Every blanket raise in wages begets a hundred price boosts all along the line.

And note the emphasis on blanket. This danger is almost negligible when higher pay is given for greater production and when as a result unit costs come down.

The result of inflation is that everybody loses. And the tragedy is that those who can least afford it suffer most— small wage earners, chiefly. And the widows and old people who live on fixed incomes—pensions, insurance policies, savings. They are the heaviest losers. That's inflation! It is indeed serious and time for us all to wake up! There is a possibility that with inflation, a $25 bond, when redeemed, might buy only a part of the groceries you now buy with the $18.75 which the bond now costs. Personally, I don't think this will happen. Good American common sense will take steps to prevent it.

This week in Washington, a federal agency—the War Labor Board—set up for the purpose of speeding the war

effort and specifically instructed by Congress to put the brakes on inflation, is considering a blanket raise in wages of all employees in four steel companies—157,000 men in all—a dollar a day.

A committee of the Board has already said that the steel companies can afford it. But that is not the issue. Can the people of America afford it? Can labor afford to accept blanket wage increases which can easily be the spark that sets off the inflation spiral with all the disaster which inflation certainly will bring—to labor itself—to all of us?

These are not ordinary times. We have two wars on our hands . . . one against the Axis; the other here at home against inflation.

Inflation is the issue the Labor Board is debating in Washington. Not the simple question of whether to raise steel wages, but the question of inflation.

Isn't it obvious that the granting of the proposed wage blanket by the War Labor Board will loosen an avalanche of demands for more wages all the way down the line? And if that happens then the evil genie of inflation will prey, not on just rich and opulent manufacturers but upon every day citizens who will pay for the mistakes in inflation control with their life's effort.

The President, when the people rightly cheered him last April for his vigorous, decisive leadership to control inflation, said: "To keep the cost of living from spiralling upward we must stabilize the remuneration received by individuals for their work." In amplifying this point, he said: "I believe that wages in general can and should be kept at the existing scale."

Let me remind you that in the same fireside chat the President warned all of us: "Are you a business man or do you own stock in a business corporation? Your profits are going to be cut down to a reasonably low level by taxation.

"Are you a retailer, or a wholesaler, or a manufacturer or a farmer or a landlord? Ceilings are being placed on prices at which you can sell your goods or rent your property.

"Do you work for wages? You will have to forego higher wages for your particular job for the duration of the war."

There in a few words is a practical, workable plan to curb inflation. What happened to it?

Still later in the same speech, Mr. Roosevelt was moved to say that consideration would be given to the elimination of inequalities and substandards of living.

A blanket hike in steel wages, already among the highest in industry, can't, by any stretch of the imagination or camouflage of politics, be classified as a correction of a substandard condition.

But this after-thought on sub-standards by the President— this qualification—gave the Labor Board an "out" which apparently it wanted, for it has invariably placed the emphasis not on keeping wages at existing scales as the President asked, but on giving consideration to so-called inequalities.

If the Board advances this increase to such a highly paid group as the steel workers, most laborers in America can make a case for inequality as the basis for a pay raise. Thus the Board creates inequality and then proceeds to correct it at the price of inflation to the people of this country.

Don't you think that, perhaps, the Labor Board should think less of so-called inequalities in the wages of steel laborers and give some thought to what labor will be called on to buy for the money it gets and for the war bonds it is buying?

Labor has insurance policies and pensions coming due too. Will they provide the security they have been set up to provide? They won't come anywhere near doing it if we have inflation.

Well, you say to me, if the steel workers can get a raise, let them get it—it comes out of the corporation's pocket, not out of mine.

Does it? Lets see.

The War Labor Board committee found that the steel companies "can afford it"—to use their own words—and then ironically add that the company will have to pay very little of the raise anyway.

It is true that the companies will pay only a small part of the raise. Only from 6 to 11 per cent, according to whichever tax bill is passed, will be paid by the manufacturer; the rest will come from money that otherwise the company would pay to government in taxes. But other taxpayers (and that means all of us) will have to make up this sum because the government has to have the money.

It's an amazing statement for an agency of government itself to thus say "Soak the government; it's rich."

If the committee's reasoning holds water, won't other steel workers ask for the same raise? Won't all employees in manufacturing expect the same increase? That would cost 2 1/2 billion dollars.

The government would then lose this amount in taxes. You would have to make it up by paying more taxes. Do you see now how the War Labor Board is making decisions concerning your money?

But that's not all. This war is going to cost plenty even if we run it economically. You, as a citizen, must, directly or indirectly, pay not only 90 per cent of the increased wages, but more taxes besides, to pay the increased cost of war material, the price of which goes up with wages.

Mr. Henderson has already warned Congress that unless inflation is controlled, this war will cost you and me 62 billion dollars more than it would otherwise.

You see, when wages go up, the cost of guns, planes and tanks goes up, so it takes more tax money to buy the same amount of war material—and that, as usual, comes out of your jeans, Mr. and Mrs. America.

But this is only the war phase of the problem the War Labor Board is making for you. Not only may your taxes be raised 2 1/2 billion dollars eventually, but the money you have left over will buy less. That's the inevitable course of

inflation. Money in your pocket or in the bank loses part of its value and you are helpless to stop it. Let's see how the course of inflation runs: Eighty per cent of the national income goes to pay wages. Note this; Eighty per cent of everything you buy is wages. Every increase is passed on to you, the consumer, in that proportion, for the things you buy. The cost of war goes up, and the value of what you've scrimped and saved a lifetime for goes down.

That, my friends of the radio audience, is Inflation. An ugly word, that holds potential bankruptcy for the individual citizen if allowed to develop.

Let's hear what Leon Henderson, price administrator, who knows how imminent inflation is at best, has to say:

"Prices cannot be kept in line and inflation avoided if wages are left free in a period when increased volume of purchasing power is accompanied by a reduction in the available amount of goods. Accordingly, I have made representations to the War Labor Board that any general increase in basic wage rates (and what is more basic than steel) will compound an already difficult problem in the price field. We already have the situation of 85 billions of purchasing power bidding for 65 billions of goods—an excess of demand over supply of 20 per cent."

And now, here is the War Labor Board considering opening a door that will add a minimum of another nine billion —if it spreads to all 40 million workers—to that 85 billion purchasing power for which there is not enough merchandise —again increasing that spread between supply and demand. Listen again to Mr. Henderson:

"If what equilibrium we now have is destroyed, widespread rationing is the only solution. No program for preventing inflation can be successful if labor costs rise increasingly. If wage increases are permitted according to bargaining powers, the strong bargainers will hold their standard of living at the expense of the others."

But what is the Labor Board's policy? William H. Davis, the chairman, told the Industrial Labor Relations Council of Boston no later than May 15th—I quote—"The wage stabilization part of the cost of living program was left to collective bargaining."

"Left to collective bargaining?" By whom? Not by Congress when it said that the War Labor Board was to work for a stabilization of fair and equitable wages—not all the wages a strong pressure group could extract. Not by the President when he said that wages should be stabilized at their present levels and could be, equitably, for the overwhelming proportion of all workers.

That was too vague for the Labor Board. The President was still vague in his statements to the press on Tuesday of this week. But there is evidence that he realizes the gravity of the situation. The country is hopeful he will now tell the Labor Board exactly what he means and that he means what he says. Perhaps this time he will say "freeze" instead of the prettier, but more indefinite word, "stabilize." There's considerable difference. And at this critical time, with the price ceiling about to crack, an adamant policy is the only solution.

Mr. Henderson has the responsibility of administering the Price Control Act passed by Congress to hold inflation down. As Administrator of this Act he imposes price ceilings. He's supposed to be the Czar of prices, but has no say-so over wages, which makes him only a 20 per cent Czar since wages constitute 80 per cent of the cost of goods.

Congress was not realistic when it passed the Price Control Act without providing, as Canada did, for some kind of control over wages and other costs which enter into prices. If this basic mistake is not corrected, then price control willfail. We will have inflation, and every wage earner, insurance policy holder, and bond holder in the United States will be the loser.

Don't be fooled—if price control breaks down, it won't be because Congress did not give Mr. Henderson the money he wanted for administration but because Congress gave Mr. Henderson an unsound, incomplete act to administer.

The Labor Board, too, must adopt a realistic policy. It has accepted the responsibility for stabilizing wages and has admitted that inflationary movements must not be speeded up by unreasonable wage demands. But IT reserves the right to define "unreasonable" and hedges by saying and I quote—that "Stabilizing wages cannot be done by freezing wage rates." What the Labor Board obviously means is that it WON'T stabilize by freezing. And obviously, they don't mean to unless Congress or the President gets tough with them, for they go on to say that the Board feels obligated to adjust wages whenever necessary to remove so-called inequalities.

It's a matter of fact that every adjustment the Board has ever made has been upward, thus always creating more inequalities which again have to be adjusted upward.

Finally, the Board declares that there is no rule or wage formula that can be mechanically applied in wage cases. It follows, then, that the Board has only a day-to-day policy and that each case is a special case to be determined on a basis of special pleading.

You can't win a war against the enemy or against inflation by a day-to-day policy of this kind.

Here indeed is a place for government planning to do its stuff.

Here is a legitimate field for government planning, for only the government can control all the factors that enter into run-away inflation.

These factors are fully and clearly known. They have been proclaimed by the President, by Henderson, Mr. Marriner Eccles of the Federal Reserve Board and affirmed by sound economic thinkers the nation over.

It is only too clear, therefore, that if the catastrophe of inflation overtakes the American people it will be because the government planned—or did not plan it that way.

The government should translate its promises to stop inflation into drastic immediate action.

Why do the dangers of inflation exist so alarmingly?

(a) Lack of clearness and definition in Congressional policy to control inflation.

(b) Lack of definite directives to specific agencies by the President.

(c) Because of inflationary administration of the War Labor Board.

What would correct the situation?

It's simple!

(a) Put unified government effort behind the war on inflation.

(b) Get all agencies of government going the same way in this campaign.

(c) Carry out the President's seven-point program of last April.

The President, particularly in recent statements, has made clear his determination to avoid inflation. Let's all help in any way we can by all the cooperation and sacrifice that may be needed.