What You Should Know About Inflation

It must be said, in sorrow, that the American public, generally speaking, not only does not understand the real cause and cure for inflation, but presents no united front against it. Feelings about inflation are confused and ambivalent. This is because inflation, like Janus, has two opposite faces. Whether we welcome or fear it depends upon the face we happen to look at. Or, putting the matter another way, we are each of us sometimes Dr. Jekyll and sometimes Mr. Hyde in our attitude toward inflation, depending upon how it seems to affect our personal interest at the moment.

All this was once vividly illustrated in a message to a special session of Congress, in 1947, by President Truman. “We already have an alarming degree of inflation,” he declared; “and, even more alarming, it is getting worse.” Yet he pointed with pride to the results of inflation at one moment and denounced them the next moment. He claimed credit for its popular consequences and blamed his political opponents for its unpopular consequences. Like the rest of us, the President wanted to have his shoes small on the outside and large on the inside.

It should be obvious that high prices, which everybody affects to deplore, and high money incomes, which everyone wants to achieve, are two sides of the same thing. Given the same amount of production, if you double the price level you double the national income. When President Truman boasted in July of 1947 that we had “surpassed previous high records” with a gross national product of $225 billion, he was boasting in large part of the higher dollar totals you get when you multiply volume of output by higher dollar prices.

At one point in his “anti-inflation” message Mr. Truman declared: “In terms of actual purchasing power, the average income of individuals after taxes has risen (since 1929) 39 per cent.” But a little later he was asking, inconsistently, how “the cost of living can be brought and held in reasonable relationship to the incomes of the people.” Yet if the incomes of the people had in fact already risen so much faster than living costs that the individual could buy nearly 40 per cent more goods than he could before, in what did the alleged inflation “emergency” of 1947 consist?

“Rents are rising,” complained Mr. Truman at another point, “at the rate of about 1 per cent a month,” and such a rise imposed an “intolerable strain” upon the family budget. But as the average weekly earnings of factory workers had then gone up 112 per cent since 1939, while rents had gone up only 9 per cent, the average worker paid, in fact, a far smaller percentage of his income for rent than he did before the war.

“The harsh effects of price inflation,” said Mr. Truman at still another point, “are felt by wage earners, farmers, and businessmen.” Clearly this did not refer to the inflation of their own prices, but of somebody else’s. It is not the prices they got for their own goods and services, but the prices they had to pay for the goods and services of others, that they regarded as “harsh.”

The real evil of inflation is that it redistributes wealth and income in a wanton fashion often unrelated to the contribution of different groups and individuals to production. All those who gain through inflation on net balance necessarily do so at the expense of others who lose through it on net balance. And it is often the biggest gainers by inflation who cry the loudest that they are its chief victims. Inflation is a twisted magnifying lens through which everything is confused, distorted, and out of focus, so that few men are any longer able to see realities in their true proportions.