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From 1963 Annual Report, United States Steel Corporation.

From predepression 1929 to pre­war 1939 the expenditures on a national income account basis of federal, state, and local govern­ment increased from approximate­ly $10.2 billion to $17.5 billion or by 72 per cent. In 1944—the war year of peak expenditures—the expenditures totaled $103 billion of which $15 billion were for non­defense purposes. In 1963 the ex­penditures amounted to about $171 billion, the nondefense por­tion being $112 billion. From 1944 to 1963, there was thus a drop of $29 billion in defense expenditures and a rise of $97 billion for non­defense purposes. Of this latter in­crease about $50 billion is attrib­utable to the federal government, the $47 billion balance being the increase in the expenditures of state and local governments.

The rise in government expendi­tures from 1929 to 1963 has been equivalent to approximately 8.6 per cent per annum compounded. If defense expenditures be omitted from the calculations, the percent­age is still about 7.3 for the long period; and it is 8.2 per cent for the period since 1952. All of these percentages are more than double the 3.6 per cent long-term rate of increase in industrial production. It is therefore clear that the far greater increase in government cost must represent either the re­sult of general inflation, or a rela­tively increasing burden of gov­ernment, or both. It, in fact, does represent both. The imbedding of chronic inflation as a trend in the economy is an alarming omen. But the growth in the relative burden of government is of at least equal significance and merits some mea­surement.

To put government expendi­tures in perspective they may be compared with what the Depart­ment of Commerce periodically develops as "distributed earn­ings." These include wages and salary disbursements, other labor income, proprietors’ income, rental income of persons, dividends, and personal nongovernmental inter­est income. For the given purpose this figure seems more appropri­ate than Gross National Product because the burden of government ultimately falls upon people and the earnings they receive through the productive processes of the nation.

In 1929 such distributed earn­ings amounted to about $83.1 bil­lion and total government expen­ditures of $10.2 billion were equiv­alent to 12.3 per cent thereof. By prewar 1939 the percentage had risen to about 25. In 1944—the year of peak war expenditure—the percentage was 65. In postwar 1947 the percentage fell back to 25. But it has since been rapidly rising, reaching 41 per cent in 1963 when distributed earnings reached about $418 billion com­pared with government expendi­tures of $171 billion.

The financing of the rising and enormous expenditures of govern­ment has called for a relative level of taxation seldom, if ever, equaled in other times or places. Yet even this level of taxation has not served fully to cover the expendi­tures, with the result that unbal­anced federal budgets seem to be accepted as a normal basis of operation. The budget has been balanced in only six of the past thirty years. Yet, unbalanced bud­gets threaten inflation because under a nonredeemable paper money standard, the issuance and monetization of government debt is made easy. As a matter of fact in only four of the past thirty years have prices (consumer price index) failed to go up, the money supply per capita has been multi­plied by more than five, and the buying power of the dollar has been more than cut in half.



Stabilization Crisis

Inflation, in its final stages, always ends in prostration, in what modern economists call a "stabilization crisis." The explanation of this stabilization crisis is not mysterious. During the inflation, prices do not respond in simple proportionality to the increase in the money supply. Some prices race beyond this, anticipating a further inflation. Even if the inflation is halted at some point and no deflation sets in—that is, even if the increased supply of money is merely locked where it is and not reduced—the stabilization crisis sets in because these anticipatory prices collapse. This stabilization crisis, like the drunkard’s hangover, is part of the price that must be paid for every inflationary orgy.

HENRY HAZLITT, from the March 1959 Introduction to Fiat Money Inflation in France by Andrew Dickson White