"Must We Have Inflation?


By DR. D. F. FLEMING, Professor of Political Science, Vanderbilt University, Nashville, Tenn.

Broadcast Over Radio Station WSM, Nashville, Tenn., November 23, 1943

Vital Speeches of the Day, Vol. X, pp. 148-149.

IT has been several months since I have discussed the struggle against inflation on this program. For some time the line has been held fairly well, but now it is dear that the danger of real inflation is upon us again.

Many of the best observers in Washington have been telling us lately to hold our hats for we are about to be taken on an inflationary ride. They arrive at this conclusion for two reasons: (1) because labor is demanding higher wagesunless the cost of food is held down, and (2) because the farmers resist the food subsidies that would hold down food prices. The power of both groups is so great that either one can probably break the inflation controls. Certainly both together can do so, in which event the unorganized consumers would be left at the mercy of swiftly rising prices.

The danger has been made acute by the success of John L. Lewis in leading the coal miners through four strikes in war time to the enforcement of his demands upon the government and people of the United States. Lewis did not gain a total victory, but there is, nevertheless, a widespread feeling that he breached the Little Steel formula under which wages had been held for a considerable period.

The result is that several of the most powerful labor unions are demanding further increases. Most of the strong unions have now obtained the 15% wage increases permitted by the Little Steel formula and their real wages will decline if food prices continue to go up. Hence the general labor push for food subsidies or higher wages, or both.

This demand for food subsidies is opposed by the farm bloc on two grounds. The leaders of the bloc believe that highly paid urban labor can afford to pay higher prices for food and farmers generally dislike subsidies and don't understand why they are required now.

The farmers associate subsidies with the government payments they received during the depression. They ask "Why should we be subsidized now?" and object that the current subsidies go to middle-men, not to farmers. It works out that way because the middle-men get squeezed between rising food prices and the O.P.A. price ceilings. A recent example occurred in the flour milling industry. The rise in wheat prices, especially in certain grades, made it impossible for some millers to operate at a profit and the government stepped in with a subsidy to them to prevent a rise in the price of bread.

This was good for all consumers, but it will tend to hold down the price of wheat and prevent the farmers from gaining. Their leaders object accordingly against subsidies in principle and as being themselves inflationary. That they are mildly inflationary is clear. If it costs us a billion dollars a year to pay for subsidies, inflation is promoted to that extent. But if one billion in subsidies will prevent fifteen billions of inflationary price rises, as the executive authorities believe, we are plainly the gainer to spend the billion on subsidies. Subsidies are an evil—as evil as the oldest of all subsidies, the protective tariff—but they are a far smaller evil than real inflation.

It has been demonstrated in Britain, in Canada, and here at home that food subsidies do work. The reason they do is that the price controllers watch the whole inflation front and when a real squeeze develops on some small sector, for example in flour milling, they rush to that sector and give just enough help to keep some key price from rising and pulling up a lot of other prices with it. It is therefore altogether probable that all prices will rise very sharply during the next year if the Congress outlaws food subsidies.

Yet the House of Representatives did exactly that today by a vote of 278 to 118. If this vote stands and subsidies are killed the great labor unions will join in a mighty push for higher wages. That would start food prices and wages chasing each other up the ladder of inflation, both claiming that the other began it, and it wouldn't matter to the consumer's pocketbook whether the farm bloc hen came first or the labor union egg.

Most Americans can't visualize what a disaster runaway inflation is because they have never ridden a real inflationarytornado. But many of us should be able to remember that during the last war prices rose about three times as much as they have up to now in this war, causing a land boom which ruined great numbers of farmers and left many other bad results behind.

If the price ceilings are now to be pushed up and up, organized labor and organized agriculture would for a time seem to hold their own, because each would be able constantly to demand more dollars for what he sells—food on the one hand and labor on the other—but in reality neither labor nor agriculture would gain, since the rising prices would eat up their higher receipts.

In the meantime a good third of our people are in the position of being unable to increase their incomes. All people who are living from the income on investments will be little j better off from rising prices. They will get a little more, but very little. The income of a great multitude of Americans is fixed. People who are living from pensions and the beneficiaries from insurance policies get the same number of dollars, whether prices are inflated or not. Government employees—state, local and federal—also have difficulty in pushing up their pay. The New York Times estimates that there are 15,000,000 heads of families who are unorganized and unable to demand higher incomes. They are obliged to observe the wartime pay limits.

It is this great segment of our people which would be reduced to severe straits by real inflation, though everybody would lose from the constant cheapening of our money. The national debt would also rise many billions more than it should because the war would cost the government more and more. The returning soldiers and sailors would likewise find not only a bigger war debt to shoulder than was necessary but they would discover that their wartime savings had largely evaporated in the inflation. Where are the advocates of sound money in this crisis? The Congress is resolutely refusing to levy higher taxes which would check the pressure for inflation. Many Democrats and nearly all the Republicans in Congress are voting always against inflation control. There has been a great national advertising campaign by industry to persuade everybody that nothing should be changed while the boys are away at war—no reforms, everything just the same when Johnny comes home again, down to his favorite stool in the corner drug store.

Of course a country suffering from all the evils of inflation would be a greatly changed place. It would not be the same place that Johnny left. It would be an unstable place to return to, a land, likely to suffer all the pains of drastic deflation, a nation made quarrelsome and unneighborly by some parts of the population being ruined by inflation more than others.

Now is the time for all those who want a sound nation after this war to resist the pressure for inflation. The O.P.A. cannot save us by itself. The entire Administration cannot do it. Our Representatives in Congress must help, and behind them the people must make it clear that our record in this war is not to be spoiled by an unseemly scramble for more and more money. The victory we expect to win in this war can be badly marred by what we do at home while the fighting men are enduring every sort of inconvenience and danger abroad.

In this war and in the fight against inflation we are all in the same boat. It will not help anybody to have our savings eaten up by inflation. We want them to be ready after the war to use in employing our people, including the returned fighters.