What About Inflation?

ON AMERICA S FUTURE

SPEAKER: JAMES B. CAREY

Secretary, Congress of Industrial Organizations

The CIO has proposed from the very beginning of this war a sound basic program to combat rising prices and avert inflation. There are four main tenets in labor’s anti-inflation program. First, the adoption by Congress of an adequate tax program — a tax program based upon the ability to pay, the elimination of loopholes in our income, estate, and gift tax structure, the imposition of excess profits and corporate taxes sufficient to see that no company or corporation unduly profits from the war program, and the fixing of a $25,000 limitation on executives’ salaries. Second, the CIO has insisted that there be established an overall hard-and-fast price-control system to include all items which go into the cost of living. Third, as a corollary anti-inflation action, it is necessary to ration all the basic products purchased by workers when shortages appear or are imminent. It is not sufficient to freeze the price of scarce items. It is absolutely necessary that these items be rationed democratically and equitably to prevent the price ceilings from being broken. Fourth, and equally important, is the expansion of the supply of foodstuffs, clothing, housing, recreational, educational, medical, and dental facilities that are not in conflict with our war effort.

The purchasing power of the average worker is now inadequate to maintain a standard of living that promotes health, decency, and moral well-being. Any increased income to the two-thirds of our families earning below $2000 a year would be used to purchase increased foodstuffs and the types of clothing in which there are no shortages. Those more fortunate consumers with slightly higher incomes could take advantage of recreational and educational facilities and enable their families to have better medical and dental care if such things were adequately provided. Expenditures for these items permit the worker to provide himself and his family with a standard of living that will improve morale and that will enable him to increase his working efficiency on war production.

The adoption by our government of an effective program — of taxation, of price control, of rationing, and of expanded facilities for workers — would permit wage adjustments, and at the same time would enable a greater number of workers to participate in the fight against inflation through the purchase of war bonds and stamps.

Some prominent government economists are opposed to wage adjustments because such adjustments will cause inflation. The CIO thinks the point of view of these economists is fallacious. They state that increased wages result in increased consumer income that will enable workers to purchase far more consumer goods and services than can be produced. They call this excess purchasing power the “inflationary gap” and insist that it will result in demand outstripping supply, with the consequent result of a breakdown of the price ceilings.

The basic facts do not justify this position. Although income payments in May were up 29 per cent and retail stocks and inventories were up 25 per cent, the physical volume of retail sales fell 21 per cent and savings, according to the United States Department of Commerce, are 54 per cent higher in the first quarter of this year than in the similar period of 1941. These facts support the CIO position.

The government’s anti-inflationary program must be bolstered by the adoption of an adequate tax program, an all-inclusive rationing system, and a price-control structure — strictly enforced — that will bring under control the 40 per cent of the foods and 25 per cent of all the other items in the cost of living — which are mostly services — that are now excluded from price control.

The adoption of this type of economic program would permit upward adjustments of wages through the raising of substandard wages, the elimination of inequalities in our present wage structure, and the restoration of real earnings to the levels before rising costs depleted them, without disturbing the price structure and causing runaway inflation.

A far more serious threat of inflation than wage increases looms ahead of us. When the war is over, industry will have to convert from war production to peacetime production. During this period of conversion, which will take time, the threat to our price structure will be quite serious as purchasers begin to clamor for all the items that were off the market during the war. It must be remembered that, in the period after World War I, prices rose very rapidly and did not reach their peak until June, 1920, almost two years after the war. Unless serious thinking and planning about post-war adjustment take place now, the threat of inflation will be more imminent and serious after the war than during the war.

SPEAKER: LEROY A. LINCOLN

President, Metropolitan Life Insurance Company

The government is very properly concerned to keep down to a minimum any tendency of war conditions to bring about undue inflation of commodity prices. The problem is one which vitally affects every citizen in the country — its wage and salary earners most of all. Economic history proves that this is true.

Modern, mechanized war necessitates devoting so large a percentage of our productive capacity to war production as inevitably to cause a shrinkage in the supply of consumers’ goods. Competition for that smaller supply is further sharpened by the substantial increase in the volume of money income resulting from greater employment due to war production. Hence normal economic forces would tend to make prices rise unless the excess income were diverted from competition for commodities. Patriotic citizens who enjoy these augmented incomes must exercise a high degree of self-discipline. In addition to a sound tax policy, it is of utmost importance that more and more income go into savings.

Investment in United States Government Bonds and War Savings Stamps has first call upon our surplus income. Thanks to their own patriotism and prudence, the people have responded to the calls of the government. The life insurance companies have actively cooperated in this effort by encouraging not only their employees and agents, but also policyholders, to invest regularly. Throughout the defense program the life insurance companies largely increased their holdings of government bonds. Since Pearl Harbor, 85 per cent of the net new investments of every kind made by life insurance companies have been in United States and Canadian bonds.

While secondary to our duty to invest in government obligations, purchases of such new life insurance as may be needed for protection of the family, as well as the continuance of premium payments on existing insurance, are effective aids in heading off inflation. Such funds are also directed into channels that positively support the war effort.

The following recent statement by the Chairman of the Board of Governors of the Federal Reserve System, Marriner S. Eccles, supports these views: —

All proper steps must be taken to prevent a runaway price situation and to this end a complete and comprehensive attack must be made on all fronts against inflationary forces.

This is the time to save, not to spend, money. This is the time to get out of, not into, debt. No form of saving is as timely and effective as the purchase by our citizens of Government Savings and War Bonds. Savings out of current income when thus invested help finance the war, are diverted from the market place where they tend to bid up prices of the shrinking supply of civilian goods, and are a store of future purchasing power which will be needed and can be spent without inflationary consequences after the war.

Insurance companies are large investors in government securities so that the bulk of savings put into the insurance companies in the form of premiums thus help in financing the war. Likewise, investment in life insurance serves to divert funds from consumer markets and thus to reduce inflationary pressures. And, of course, insurance is a store of future protection for the beneficiaries of insurance policies. Accordingly, I feel that next to the purchase of Government Savings and War Bonds and Stamps by the public, investment in life insurance is particularly to be encouraged at this time.

Frequently the layman pictures inflation not as a fluctuation in price levels and purchasing power but as of the character suffered by Germany after the last world war, when prices went to astronomical figures. In recent years there have been many false alarms relating to such inflation in the United States. This country is luckily possessed of productive capacity, national wealth, and other economic resources sufficiently strong to make it far more resistant to such inflation than were some of the European countries. Furthermore, the government has available much stronger positive controls against that dangerous type of inflation than were ever before available to it. If there should be some kind or degree of inflation ultimately, there is no reason to assume that the holders of life insurance policies would suffer more than the holders of most other investments.

It is important that every American accept as a mandate the duty to make his own personal contributions to the avoidance of price inflation. We must wholeheartedly accept any personal sacrifices necessitated by measures properly designed to prevent inflation. We must actively encourage and insist upon every possible official effort to prevent it.