The Only Way To Sound Growth

Mr. Fertig is a columnist on economic affairs, New York World Telegram and Sun and other Scripps-Howard newspapers, in which this col­umn first appeared August 24, 1959.

Warning! Inflationists (and those who fall under their influ­ence) are now operating under an effective disguise. Since they know that the word inflation is unpopu­lar, they do not dare to openly en­dorse it. Instead, they try to achieve their objective by hiding behind a more popular word.

The inflationists’ new device is to wave the banner of “growth.” Of course, they say, we are against inflation. Of course, they assert, we are not in favor of zooming prices. But after all, they quickly ask, isn’t growth the really im­portant thing—shouldn’t we achieve growth (with government in the driver’s seat as planner and spender) even at the expense of some inflation?

By phrasing the issue this way they imply that inflation promotes growth. They imply that anti-in­flationary measures and a stable or declining price level actually prevent growth. These assertions are made despite a long history which proves that the opposite is true. Inflation actually endangers sound growth. Much factual evi­dence on this growth-inflation subject is available, but within this brief column we have room for only a few instances.

German and British Experience

Take the course of the Federal Republic of Germany and of Great Britain from 1948 to 1955. Ger­many turned her face against in­flation while Britain inflated at the rate of about 4 per cent per annum. German industrial pro­duction increased 134 per cent as opposed to the British 24 per cent. German real wages increased 90 per cent, whereas in the United Kingdom they went up only 7 per cent. All of this is related to the fact that German prices actually fell 5 per cent while British prices increased about 45 per cent. Currently, says Economics Minister Dr. Ludwig Erhard, Germany has “reached a new stage in its steady growth over the past ten years.” This he attributes greatly to stable prices and a German currency freely convertible into gold.

Another historic instance of growth is the period in the United States from 1873 down to the turn of this century. During this time an anti-inflation policy caused prices to decline about 40 per cent while production more than dou­bled.

These are just two instances of growth and anti-inflation going hand in hand. Other recent cases are the Philippines, Burma, and Ecuador. The opposite—where in­flation throttles growth—can be seen in Brazil, Chile, Argentina, and many other countries.

A False Conflict

Recently, statements by several important figures reveal how wide­spread is this growth-inflation policy. Dag Hammarskjold, Sec­retary-General of the United Na­tions, recently stated that modern industrial nations have been in­clined to favor policies aimed at price stability instead of encourag­ing growth. (Note how he poses a false conflict.) Price stability has not been well won, he said, if its cost is economic stagnation—even though the stagnation is on a high level. Mr. Hammarskjold’s statement turns out to be a slightly disguised brief in favor of inflation, which has nearly ruined so many European nations. In this country, on the TV pro­gram “Meet the Press,” Governor Nelson Rockefeller was asked whether he agreed with President Eisenhower that inflation is “the great issue of our national life.” Governor Rockefeller hesitated and said, “I’m not sure. I think this is certainly an integral part of the total issue. I think the eco­nomic growth of our country and the adequacy of job opportunities… are the root, really.”

As the Twig Is Bent

Now it certainly would be un­fair to call the Governor an in­flationist, although his liking for expanded, costly government ac­tivities is well known. But it is evident, from his statement that he has come to the same fallacious assumptions that the inflationists make. His thinking is no different from that of Professor Sumner Slichter of Harvard, who must be given due credit for openly and honestly advocating “creeping” in­flation.

Similar logic is employed by the Democratic Advisory Committee and by Mr. Leon Keyserling. They persistently urge cheap money, giant-sized government expenditures, and budgets unbalanced temporarily (they hope) to create growth.

Increased Saving and Increased Investment

There is only one way to achieve growth—that is, by increased savings and by increased invest­ment in the tools of production. In this way there is a greater flow of goods resulting from every hour of human labor. Anti-infla­tionary policies encourage growth because people are inclined to save more when they have a conviction that the dollar they put aside to­day for future use will not be eaten up by the price increases of to­morrow. People save less when they are convinced that the dollar saved today may be worth only 50¢ or only a dime after many years.

Those who think that it is up to the government to create growth overlook the fact that increased productivity depends upon the in­telligence, work, and thrift of in­dividuals and corporations. Peo­ple—not government—create growth. All the government can do is to encourage people to save and invest. This is accomplished by curtailing government spending and encouraging sound fiscal and monetary policies. The evidence is plain that sound growth is achieved by fighting inflation, not by encouraging it.