Anything That’s Peaceful

• CHAPTER 7 •

HOW PRESSURE GROUPS
PROMOTE INFLATION

WHEN SOCIALISM is allowed to spread in an economy like that of the U.S.A., inflation—as pointed out in the second chapter—will be resorted to as a means of financing it. Briefly, whenever the expenditures for socialistic projects rise to that high point where it is no longer politically expedient to collect the costs thereof by direct tax levies, socialization programs must either cease or the government must finance them by an indirect tax: inflation. Not only does this claim seem reasonable, but the historical record confirms it.

This is but half the story. Any influence which promotes inflation—without which any substantial socialism is impossible—ipso facto promotes socialism. Inflation makes the extension of socialism possible by providing the financial chaos in which it flourishes. The fact is that socialism and inflation are simultaneously cause and effect; they feed on each other!

What is this financial chaos of inflation? It is an increase by dilution of the money supply. The process or act of diluting the medium of exchange is inflation. Brutally, but nonetheless accurately, inflation is legalized counterfeiting. Inflating the medium of exchange—other factors being equal—results in higher prices. But the rising price trend is not inflation; it is only one of the possible consequences of a dilution of the medium of exchange which lowers the purchasing value of the monetary unit.

Finding all the causes of any given effect is perhaps impossible. My ears are injured. The injury is an effect. What caused the injury? A deafening sound. What caused the sound? Vibrations. What caused the vibrations? Dynamite. What caused the dynamite to detonate? And so on. We find that cause underlies cause, ad infinitum.

Inflation, like the ear injury, is the effect of a sequence of causes which we have to examine in depth—and the deeper we go, the more obscure the causes. However, the first cause that underlies inflation—an effect—is plainly observable. Inasmuch as government has sole responsibility for our monetary system, we can easily see that government causes inflation.

But, looking to the second level, what causes government to dilute (inflate) the money supply? Again, the answer comes clear: Government meets its costs of operation by taxation. How else? Now, if the costs of government go beyond the point where direct tax levies will no longer produce an equivalent revenue, government will resort to an indirect tax: an inflation of the money supply. It has always been thus; politically, it cannot be otherwise. The new money created and spent by government reduces the value of each unit of money and credit outstanding.

Very well. What is the third underlying cause, that is, what causes the expenses of government to be so high that they cannot be met by direct tax levies? At this level, the cause is more obscure. It is quite clear that expensive socialistic schemes do not have their origin in popular demand but, instead, are initiated by bureaucrats; imagined plights of minorities are dramatically portrayed and a demand for redress “whipped up.”1 But, more to our point, there are small yet powerful groupings of the electorate—pressure groups—who effectively petition government (1) to get them out of their own messes or (2) to obtain benefits at someone else’s expense. At this depth there are causes galore.

Pressure Tactics of Labor Unions

There are two reasons for considering labor unions as an example of the way pressure groups cause inflation and, thus, promote socialism (or, I might add, cause socialism and, thus, promote inflation!) First, by using the labor union example, we can demonstrate how businessmen, clergymen, and others bring on these twin destroyers.

Second, we can show that the “wage-spiral,” coercively induced by unions, is not itself a cause of inflation. Understanding how such accusations are incorrectly leveled at labor unions will afford a better look at the inflation-socialism complex. Looking into labor union behavior is like looking into the mirror for millions of us. What we see is shocking!

It can be truthfully said that people bring on both socialism and inflation, but people do many other things besides. Thus, if we would stop inflation and thereby curb a major part of socialism, we should know which actions of people bring on inflation and which ones do not. In short, we need to know which one of the various labor union practices induces inflation. Otherwise, unions may be criticized on the wrong count while the critics innocently follow practices which bring on the very inflation they so stoutly deplore. We cannot hope to stop inflation until we gain some familiarity with its causes—and the real cause will elude us as long as we chase fictitious ones.

The labor union critics who blame inflation on the incessant, persistent, coercive drives of labor unions for higher and higher wages are on the wrong track. Such coercion is not to be condoned, but it is not a cause of inflation. To explain: Suppose your gardener issues an ultimatum: either you pay him $100 a day from now on, or else he will quit—in which case he would use force if necessary to keep any other gardener from taking the job which he threatens to vacate (the labor union tactic, in principle). You are right if you condemn this action, but you are wrong if you call it a cause of inflation. Why? Because no dilution of the money supply (inflation) is induced by either your acceptance or refusal of this demand. True, you may go broke if you accept, or he may become unemployed if you refuse, but that’s all the economics there is to it—nothing happens to the money supply. Nor is the economics of it altered one whit if a labor union induces a million gardeners to take similar action in unison. Inflation is not one of the results. Such action as this merely creates an economic mess which the labor unions hasten to cover up. They promote “full employment” programs (socialism) which, to the casual observer, seem to absolve the unions from having committed any uneconomic practices. It is these costly covering-up programs that bring on the inflation!

Why Wages Rise

Like so many organizations, labor unions get blamed for sins they never committed, receive absolution for follies of their own making, have aims they cannot attain, and make claims for deeds they never achieved. For example, unions claim credit for raising wages. The truth is that unions have had no more to do with the general level of wages than with the level of the seven seas.2 Admittedly, they have succeeded in obtaining increases for some of their members. And this has been not entirely at the expense of nonmembers; their tactics have disemployed many of their own members as well. In any event, their coercive wage hikes have not caused inflation. It is the covering-up, subsequent action that brings on inflation and makes the growth of socialism a financial plausibility.

The actions of union members are based largely on the thinking of their top officials. Much of their philosophy is summarized in this sentence from an AFL-CIO pamphlet (Publication No. 41) :

Through their legislative activities, unions have continuously championed measures to improve governmental benefits for various groups of citizens, without regard to whether the beneficiaries are union members or not.

There may be less generosity in this doff of the hat to nonmembers than first meets the eye. One finds the unions, for instance, supporting more government aid to foreign countries, federal aid to education, more compulsory social security, government ownership of power and light facilities, federal aid to so-called distressed areas, and so on—all of these being part and parcel of government’s guaranteed full employment program—the cover-up for uneconomic practices by labor unions.

Through Political Intervention

Labor unions are politically influential. In large measure, they obtain increased federal activity for projects they sponsor. Their coerced and uneconomic wage hikes cause unemployment; in short, their policies price workers out of the market. Then the unions throw their enormous political influence behind federal urban renewal and other “full employment” projects which, in turn, cost billions of dollars, making for governmental costs that cannot possibly be financed by direct tax levies. And this is how labor unions cause inflation and socialism!

In principle, if not in degree, the social action program of the National Council of Churches resembles the labor unions’ program—the assumption by government of more and more responsibility for the welfare of the people. The National Council of Churches is influential. The government activities it sponsors carry enormous costs. This is how the N.C.C. causes inflation and socialism!

And, chambers of commerce? Only a few in the whole nation have refrained from seeking federal aid for local roads, hospitals, airports, and so forth. Chambers of commerce have political influence. The “benefits” they advocate and achieve cost money. This is how chambers of commerce cause inflation and socialism!

Millions of citizens from all walks of life cause inflation in the very same manner. And all of them, along with labor unions, the N.C.C., chambers of commerce, and thousands of other organizations loudly decry inflation and demand that the fire be put out as they more or less innocently add fuel to it!

Were we to explore any deeper, we should have to inquire into the cause of the lax dispersal of the unlimited billions of dollars that government so easily grants to any and all pressure-group beggars. Why this Aladdin’s Lamp, the slightest rubbing of which yields handouts without limit? Why, in Congress, is the question seldom asked any more, “Where’s the money coming from?” The cause of this fiscal irresponsibility is complex indeed, but it has to do with that dearth of economic understanding which allows people to believe they can pay bills by “watering” the medium of exchange, with a crack-up in our educational system, an inability to see and think long-range, a breakdown in integrity, and a striking perversion of the ideal of statesmanship.

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1 See “The Public Demands … ?” by Dr. Emerson P. Schmidt. The Freeman, August, 1964.

2 For a confirmation of this fact see Why Wages Rise by F. A. Harper (Irvington-on-Hudson, N. Y.: Foundation for Economic Education, Inc., 1957).