The high and rising cost of living is of such grave concern to so many people that further government action is being considered to alleviate the situation. Scarcely a day passes without some mayor or governor denouncing the latest advance in the price of bread or milk or a city council or state legislature launching an investigation of marketing practices, rental rates, commuter fares, or other complaints of consumers. But the problem obviously is national in scope, and increasingly the call is for Federal intervention and relief. Nor has
There is a long history of Federal regulation and control of business practices through such offices as the Federal Trade Commission, Interstate Commerce Commission, Federal Communications Commission, Federal Power Commission, Civil Aeronautics Board, Pure Food and Drug Administration, Department of Agriculture, Department of Health, Education, and Welfare, Department of Housing and Urban Renewal, and many others. Congressmen and their committees are continuously probing for unethical business practices that might prove detrimental to consumers. The President has a Committee on Consumer Interests, and there is a National Commission on Food Marketing, among others.
With so much governmental activity for their protection, American consumers might be expected to be grateful and let it go at that. But, not so. Housewives continue to complain about the soaring cost of living and their inability to make ends meet when meat is priced at more than a dollar a pound. Meanwhile, Department of Agriculture statistics show that “the farmer’s share of the consumer’s dollar” persists in its long downward trend, despite the billions of Federal aid pumped annually into various compartments of the farm price support program. Since food processors, packagers, and distributors stand between producers and consumers, they are bound to be prime suspects in this situation. And the government is determined to discover and discourage all business practices that may be accountable for the high cost of living.
Under such intensive search and scrutiny, some sharp operators and some unethical practices doubtless will be found. Even the most ardent advocates of competitive private enterprise would expect some participants to foolishly try to pursue their supposed self-interest to the detriment of others. But the Federal government never will find the real culprit behind rising living costs. Indeed, no power structure should be expected to recognize and correct its own abuse of power. The Federal government probably cannot see, and certainly could never admit, that its own actions are causing the high prices consumers deplore. If such a situation is to be corrected, it must be done by individual citizens, one by one, as each comes to realize that govern-mental compulsion is not an effective substitute for the market price system of bringing supply and demand into balance in the real world of scarce resources and insatiable human wants.
The Government as Consumer
In the market economy, the consumer is the ultimate decision-maker. His purchases determine what may be profitably produced and sold. The market, as such, is neutral; market prices may serve to guide but never to compel a consumer to choose one commodity or service above any other. Nor does the market distinguish among consumers or discriminate against one as compared to another. As far as the market is concerned, the government is just another consumer bidding for the available supplies of scarce goods and services.
The government, of course, would be expected to police the market to see that honesty prevails among buyers and sellers and that fraud and violence are curbed. A supplier’s package ought to contain what his label says it does. And a buyer’s money, or whatever he brings in exchange, ought not to be counterfeit. The apprehension and punishment of counterfeiters presumably is a governmental duty.
In the customary market transaction, each party offers something the other party wants. A buyer also is a seller, and vice versa. That a buyer offers money customarily signifies that he has earned it and saved it from a prior market transaction. Sellers accept money in faith that it may be used to purchase some other useful item in turn. But a counterfeiter creates money fraudulently without bringing any useful goods or services to the market. If he can pass the counterfeit money undetected, he withdraws from the market useful goods and services but leaves in the market an extra supply of money. This means that more money is chasing fewer goods and services. The level of prices may be expected to rise in such a situation.
Fluctuations and Trends
Now, a crop failure or disaster of one kind or another may result in the temporary scarcity and higher prices of certain marketable items. Or, more or less sudden changes in consumer preferences may cause some prices to fall, or perhaps to rise, for a time. Prices of individual items may be expected to fluctuate to reflect changing supply and demand in an open market. But if the cost of living soars across the board for nearly all items, and continues to rise month after month and year after year, the great probability is that a master money maker (inflater) has entered the market on a major scale. And this is precisely what has happened to the cost of living in the
So, it is important that counterfeiters be apprehended and kept out of the market; and this task ordinarily is delegated to government. But the rub is that the Federal government itself can be and has been the great inflater, withdrawing scarce goods and services from the marketplace in exchange for irresponsible promises to pay.
This is not to say that all government purchases are inflationary. To the extent that the government withdraws money from taxpayers or bond buyers who have earned it in the market, the government has more money to spend, other buyers have less, and the total quantity of money in the market remains substantially the same as before the taxes were collected or the money borrowed from bondholders.
But the Federal government also obtains purchase orders on the market by issuing bonds and selling them through the Federal Reserve banking system, the banks in turn using those bonds as legal reserves and thereby adding enormously to the total supply of money in the market. And this deficit financing through a fractional reserve central banking system is the process by which the Federal government acts as the national inflater of the currency.
The prices of pork and beef and red meat generally are high in the United States today, not because farmers are deliberately withholding supplies or packers taking extra margins or distributors and retailers gouging consumers, but because the government as the leading consumer has been buying not only meat but all kinds of other goods and services, withdrawing them from the market and pumping into the economy billions upon billions of fiat money which the market has no way of distinguishing from the dollars of its honest customers.
Fiat Money Inflation
Everything the Federal government spends in the so-called “public sector” — public housing and urban renewal, Federal aid to education, farm support programs, special privilege handouts to striking unioneers, foreign aid, military expenditures, moon shots, and on ad infinitum — every dollar government spends in excess of what it currently collects from taxpayers and bondholders other than banks comprises fiat money the presence of which is reflected in the so-called “private sector,” showing in the family budget as high priced bread and meat and a rising cost of living.
When the government buys guns with fiat money, that money flows through the market and eventually into the hands of housewives who use it to bid up the prices of butter and of other consumer goods that go to make up the cost of living.
If the housewives of Podunk want the price of food in local grocery stores to decline, then they’ll have to vote down Podunk’s proposed new Post Office, Podunk’s Federal Urban Renewal and Public Housing projects, Podunk’s share of Federal aid for education, and every other Washington promise of something for nothing. The Federal government has nothing stored away from which these handouts may be painlessly plucked. They can only be handed out insofar as they are currently withdrawn from the market. And every such withdrawal by inflation — by consumers who put back nothing useful in return—is bound to show up in the rising price of bread and other necessities, in the higher cost of living.