The proposal to restore “selective” or “qualitative” credit controls is revived so often by persons who are regarded as monetary authorities, and is so frequently referred to by them as “one of the necessary weapons to combat inflation,” that some further analysis is desirable.

Among the popular ideas which make the inflation of our era so hard to combat is the belief that the supply of money ought to be constantly increased “in order to keep pace with the increase in the supply of goods.”

I present in this chapter a table compiled by the First National City Bank of New York (published in its monthly economic letter of July, 1964) showing the shrinkage in purchasing power of the currencies of 42 countries over the ten-year period 1953-1963. The shrinkage is calculated inversely from the increases in cost-of-living or consumer price index as reported by governments.

In the early summer of 1957, Secretary of the Treasury Humphrey, testifying before a Congressional committee, gave a lucid lesson on the causes of inflation and an impressive answer to the advocates of cheap money.

The inflationists were contending at the time that the Administration had been reducing the volume of credit, and causing “inflation” and higher prices by raising interest rates.

In January of 1957, the Guaranty Trust Company of New York, in its monthly Survey, discussed a problem that had already engaged the attention of leading European economists and was becoming urgent here. This involved the clash in the economic objectives of governments which assume “responsibility” for the achievement of certain “goals.”

Gardiner C. Means, an economist who invented the term “administered prices” in the ’30s, came up in 1957 with the theory that the current inflation is an “administered” inflation. The solution, he thought, would be for the President to call a conference of business and labor leaders and get an agreement from them to “hold the line” for a year or two on wages and prices.

The maintenance of short-term interest rates at too low a level, by governments or central banks, is one of the main explanations of the continuance of inflation in Europe and in the United States. Excessively low rates always encourage overborrowing, which means an expansion in the supply of money and credit, which in turn causes commodity prices to rise even further.

As nearly everybody professes to be against inflation (even those who fervently advocate the very things that cause it), it was refreshing to read a writer like the late Sumner H. Slichter of Harvard, who frankly accepted inflation as a “necessary evil” and did not think we could prosper without it.

When it was pointed out to the Eisenhower Administration, as it was to its Democratic predecessors, that our huge national debt continues to mount, a favorite defense was that it had not risen as a percentage of the national income.