What You Should Know About Inflation

Under a gold standard the primary objective of a nation’s monetary policy was clear: It was to protect the integrity of the currency by maintaining gold convertibility at all times. Under a paper standard and a Keynesian ideology the objectives become confused. The U.S. Employment Act of 1946 declares that “it is the continuing policy and responsibility of the Federal government to use all practicable means . . . to promote maximum employment, production, and purchasing power.” Many interpret this as a standing order for inflation. Chairman Martin of the Federal Reserve Board has suggested that Congress should declare “resolutely—so that all the world will know—that stabilization of the cost of living is a primary aim of Federal economic policy.”

An infinitely better solution would be simply repeal of the Employment Act of 1946. But if that mischievous law is kept, it should at least be amended to add the requirement of price stability as an offset to the heavy inflationary bias in the law as it now stands.

It is not inherently desirable to make price stability an official goal of government policy. It implies a further extension of statism. But this is the kind of awkward problem we create when we abandon a gold standard.