An Anti-Inflation Program
[Newsweek column from June 25, 1951, and reprinted in Business Tides: The Newsweek Era of Henry Hazlitt.]
Regardless of what Congress actually does before June 30, it is instructive to consider what a sensible anti-inflationary legislative program would be like if we could get it.
1—What is primarily needed is not more controls by the government but more controls on the government. It is government policy, and government policy alone, that creates hyperinflation. Inflation means an increase in the volume of money compared with the volume of goods. It is government policy that either permits, encourages, or directly produces such an increase.
2—The enormous increase in the volume of money and credit since 1939 has been directly caused by the policy of cheap money and government bond support followed by the Federal Reserve System. That policy should be definitively stopped by Congressional direction. And whether or not powers are given to the Federal Reserve to increase still further the required reserves of member banks, Congress should restore, at least to their pre-1945 level, the required reserves of the Federal Reserve Banks themselves. It is absurd to control the low-powered credit of installment buying and the medium-powered credit of member bank loans, while failing to put even normal restraints on the high-powered credit created by the Federal Reserve Banks.
3—Congress should insist that the Administration keep the Federal budget balanced. Budget deficits cause inflation by forcing an increase in the volume of money and credit. The budget should be kept balanced mainly, of course, by drastic slashes in unjustified expenditures rather than by still more burdensome taxation.
4—Price control should be dropped. It is a fake remedy for inflation. It creates and intensifies shortages. It prolongs inflation by diverting public attention from the real cure, which is simply for the government to stop printing more money. It leads to ever-widening government controls, which tend to stay long after the “emergency” which was the original excuse for them has passed. The controlled economies of Europe, and the permanence of rent control almost everywhere, are typical examples. The price controllers neither understand nor trust the workings of a free market.
5—The Administration’s priority and allocation powers, though they have so far been handled rather ineptly, should be continued. The controllers usually try to tie in price control with allocation powers. But while price control creates a need for rationing and allocation, the causation does not work the other way. Allocations work best without price control.
6—No good case has been made out for any of the additional powers asked for by the Administration. The proposed food subsidies, for example, would be merely a way of concealing real inflationary increases in costs by adding them to your tax bill instead of to your butcher or grocer bill. The only way the British Labour Government could keep the cost of meat subsidies from going up was to forbid British consumers to eat more than two mouthfuls meat per week. Where there is no price control, there is no excuse for a food subsidy.
7—There is no convincing case, either, for giving the government the blanket discretionary powers it has asked for to build its own “defense” plants. It has not proved that it cannot get private industry to build and operate such plants, and at a far lower cost than the government could. If there should turn out to be a real need for a few plants that private industry would not in fact build, the Administration could go to Congress for specific authorization to build each of those plants. If any project were alleged to be top secret, it could appear in a Congressional bill as project X4Y, but at least a few key members of the Military Affairs Committees should know what it is.
8—In the light of sad experience, any extension of controls should carry a double termination trigger. In no case should extension run for more than a year. In addition, the new law should be terminable at any time by a majority vote of either House of Congress. Congress should never make itself impotent to repeal emergency powers that are being abused or that have ceased to be needed.