One fact stands out like a sore thumb: More and more Americans are becoming nervous about inflation. Even those most responsible for it are frightened about its evil effects and in their befuddled desperation look for a cure in measures such as wage and price controls. These nervous people, in turn, make others nervous by calling attention to the declining buying power of the dollar whether in pay envelopes or in savings or in insurance or in pensions.
This increasing nervousness is all to the good as a necessary preface to corrective steps. Lethargy will get us nowhere! Nonetheless, much of the current fretting is of the naive variety—something like a corpulent man worrying about his obesity as he indulges in fats, starches, and double bourbons, unable to think of any remedy except a bellyband.
Naivete, however, is not confined to those with price control or bellyband solutions. A constructive approach to the inflationary situation often is lacking even among those few who understand the truth that inflation is an increase in the supply of money, that this increase stems from costs of government so high that it is politically impossible to defray them by direct tax levies, and that these excessive costs result when government oversteps its proper bounds. These persons know full well that inflation springs from our descent into socialism, when government assumes responsibility for the control of creative and productive activities and for the welfare and prosperity of the people. They know that there is no remedy for inflation except as the costs and thus the activities of government are drastically reduced. And they most logically conclude: All nonessential costs of government must be eliminated.’ So far so good. But, unless these excellent economic thinkers go beyond this point in their dislike of inflation, they will shed no light on how to cope with it, nor will they generate any disagreement. If they go no further than this, they will remain mere shadow boxers—going through all the motions of fighting but never hitting the inflationary ogre a damaging lick and thus taking no chances of retaliatory blows, a risk implicit in fighting.2 For, is not everyone in favor of doing away with "nonessential" expenditures, even the socialists?
Enlightened thinking calls for more than the mere demand to eliminate the nonessential; it requires spelling out what is meant by "essential." For, until "essential" is specifically defined, the label will mean whatever any person conceives it to be. Everything in the current socialistic portfolio is regarded "essential" by someone. Unless "essential" is objectively defined, all efforts to halt the inflationary trend will prove futile. To stop with a demand for the elimination of nonessential activities will prove as useless as getting all voters to raise their right hands and swear their opposition to sin, without first securing some agreement as to what constitutes sin.
A Loaded Question
Many articulate opponents of overextended government (socialism) have come a cropper when asked, "Well, just what activities of government would you eliminate?" Here they find themselves hopelessly lost as effective fighters against inflation. To answer the question in specific terms as asked is to invite failure, censure, even invective.
The question is loaded. No one can make a convincing answer, and the reason is obvious: If one were to consider the pruning of federal expense at the rate of $1,000,000 per hour (most of us do not deal with this much money in a lifetime), the task could not be completed until after 2000 A.D. With this out of the way, there would still remain the activities of 120,000 lesser units of government to consider. To attempt an answer to the question as usually asked is to trap oneself in hopeless detail. No one could or would await the answer.
"What activities would you eliminate?" is a trick question, though not always asked with tricky intentions. Sincere individuals pick it up and use it as earnestly as most clichés are picked up and used. To the earnest inquirers we can simply suggest that the question be ref ramed:
What are the proper functions of government? or What would you have government do? or What is essential?
This would be my answer:
Government should defend the life and property of all citizens equally; protect all willing exchange and restrain all unwilling exchange; suppress and penalize all fraud, all misrepresentation, all violence, all predatory practices;invoke a common justice under written law; and keep the records incidental to these functions. Government’s function is first to codify and then to inhibit all destructive actions while leaving all creative and productive actions—including welfare, charity, and prosperity—to citizens acting voluntarily, privately, cooperatively, or competitively as they freely choose.
Why not face the stubborn fact? There is no halting inflation and the eventual destruction of the American economy except as government be returned to its limited, essential, and proper functions, permitting individuals to practice the principles of private property and free exchange.
Let us now consider some of the rejoinders this position will evoke.
1. THERE ARE NOT ENOUGH STUDENTS OF LIBERTY TO MAKE SUCH A COURSE OF ACTION PRACTICABLE.
Agreed. But this is precisely the inflation problem. Expecting to halt inflation in a society of state interventionists is as naive as hoping to restore individual freedom of choice in a society of communists. Inflation is the fiscal concomitant of the Welfare State for which there is no antidote except the altering of the beliefs which underlie such a State. In blunt terms, the only remedy for inflation is an emergence of libertarianism. Efforts which make no contribution to this end are not anti-inflationary.
2. BUT, THERE WOULD BE NO INFLATION IF BUDGETS WERE BALANCED. SOCIALISTS, CONCEIVABLY, COULD BALANCE BUDGETS.
True, there need be no inflation with balanced budgets. However, there are only two ways to balance a budget. The first is to reduce expenditures to the level of tax revenue. Socialists or interventionists cannot do this without reducing the activities of government, in which case they must head in the libertarian direction and, thus, become less socialistic. The second is to increase tax revenue to the level of present expenditures. This is not even good theory for it is politically impossible to impose direct levies beyond a certain point. History reveals that governments, in most instances, begin increasing the volume of money (inflation) when the "take" of earned income reaches the 20-25 per cent level. Socialistic politicians who get into office by promising something for nothing can hardly be expected to recommend increased direct levies to meet excessively high expenditures. Part of their game is to create the illusion that their "benefits" are without cost.
The interest of libertarian students goes beyond a mere balanced budget. They are interested in balancing the budget at a point of expenditure that provides nothing at all for government ownership and/or control of creative and productive activities or for assuming the responsibility for the welfare and prosperity of the people. They would leave these expenditures to the free choice of the persons whose incomes are involved.
3. GOVERNMENT CANNOT BE LIMITED ACCORDING TO AMERICA’S ORIGINAL DESIGN. THE MORE COMPLEX THE SOCIETY, THE BIGGER GOVERNMENT MUST BE. This is a common notion, at once clever, plausible, and misleading. Government is organized police force, that and nothing else. It is an inhibitive, not a creative, force. It has no logical application except against clearly defined destructive action: fraud, violence, misrepresentation, predation, and the like. The absurdity of the police force attempting to induce creative action in even one person is apparent. Am I to compel or govern you in what you create, discover, produce, what and with whom you shall exchange, the wage you shall receive, the hours you work, the thoughts you are to entertain?
You will agree to my incompetency in these realms even if I be as "all-wise" as the smartest political leader. Now, how would you appraise my ability to compel 177,000,000 people in these respects, where the society is as complex as ours? The answer is self-evident. Government has no justification for growth except as violence and plunder are on the increase.
4. WAGE AND PRICE CONTROLS ARE ANTI-INFLATIONARY.
This erroneous belief assumes that inflation is a rise in prices, whereas inflation is really an increase in money volume. Price rises are one of the several consequences of inflation. Wage and price controls are designed to hide the effect; they do not and cannot repair the cause and in no sense are they anti-inflationary. A free market price truthfully reflects supply-demand relationships; legalized floors under or ceilings over prices only falsify the picture. The heat in a room is not altered by restricting the movement of the mercury in the thermometer nor is the ostrich in less danger because he has his head in the sand. Wage and price controls are political jobbery, nothing more.3
5. YOU CONCEDE THAT AN ESSENTIAL FUNCTION OF GOVERNMENT IS DEFENSE AGAINST VIOLENCE. WITH THE INTERNATIONAL SCENE AS IT IS, WE CANNOT REDUCE THE COSTS OF DEFENSE. THEREFORE, WITH THESE COSTS AT THEIR PRESENT MAGNITUDE, HOW CAN INFLATION BE AVOIDED?
Yes, an essential function of government is military defense. Presently, these costs are above $40,000,000,000 annually, more than half of the total federal budget.
The federal budget today is higher than during World War II, and today’s defense item alone is 55 times as large as the total federal budget in 1913!
In terms of political reality, it is probably correct to assume a continuing inflation with defense expenditures at their present level. Yet, to criticize these expenditures is to invite severe censure. They have acquired sanctity. Any item that can be crowded into the defense budget, regardless of how farfetched, is automatically above question.
Many conservatives, economizers, and budget balancers face a distressing dilemma. They are certain that the present level of expenditures, if long maintained, will lead inevitably to the wrecking of the economy. And, they feel equally certain that the world, including the U.S.A., will be overrun by the Moscow Apparatus unless the American government goes all out in expenditures for defense and foreign aid. In their view, we are doomed if we do and doomed if we don’t.
There must be, indeed there is, something wrong with this view. Yet, there is grave doubt that anything can be accomplished by my calling attention to specific items in the defense budget that are wasteful. Suggesting a halt to orbiting the heavens would meet with the same scornful reception as arguing that soldiers should not have food. For, the critics would ask, "What qualifications have you to pose as an authority?" The question, of course, is a good one in spite of the fact that I have as much confidence in my own judgment on matters defensive as I have in the judgments of the bureaucratic hordes who are deciding how our money shall be spent to defend us.
Somehow, this situation calls to mind a few lines of Tennyson:
"Some one had blunder’d:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do and die…"
We must not, however, let it be recorded of us, "Into the mouth of hell rode the six hundred."
It is becoming increasingly apparent that we cannot fight our way out of this "defense" dilemma, either with the Russians or with that majority of Americans who have been thrown into consternation by the Russians. Our only escape, in either instance, is to think our way out.
The fact that the Russians are our current hate has little to do with the problem. As a people, they are just as praiseworthy as our best friends, the British, the Japanese, the Germans, the Spaniards, the Italians, and others who on earlier occasions have been the objects of our hatred.
Why the Worst Get on Top
To understand the Russian situation, we must know why men with criminal mentalities rise to positions of political leadership. We must know that this is the inevitable consequence of socialism. State socialism is based upon force. Dissenters cannot be brooked. Gunplay eventually becomes necessary. Socialistic theoreticians are not up to this. Only those with no scruples can fill the bill. F. A. Hayek in The Road to Serfdom explains the whole process with admirable clarity in Chapter X entitled "Why the Worst Get on Top."4
Once we understand why the Russian situation is as it is, we can begin to see why our own situation is as it is. For, we are not without socialism. Measuring socialism by government’s "take" of earned income, we find that figure now at about 35 per cent. Only thirty years ago the Russian figure was at 29 per cent.
While it is true that the criminal element has not significantly risen to the political top in the U.S.A., the situation is ripe for just such a coup d’etat. It is always a danger where the power to control creative and productive action exists. Need we seek more evidence than that which is daily presented by many of our own labor unions?
True, the criminal element has not as yet risen to the top in our government. Yet, government power is highly excessive and for this very reason a political mentality emerges to match it. Well-intentioned men unintentionally acquire it. Those who accept such power cannot help acting in a manner consonant with that power.
We have here, it seems, the explanation for the currently popular belief that there is no defense against the striking power of the Russian hierarchy except a similar but stronger striking power of our own. Popular reasoning, in essence, concludes that there is no defense against Russian H-bombs except more and more American H-bombs. Under the circumstances, the Russians need do no more than put a missile into orbit to engage us in a program of out-doing them in orbital extravaganzas. "Psychological advantage" is the official excuse, but it is not a valid explanation.
Dancing to the Russian Tune
Quite obviously, the Russians can, by their "egging-on" tactics, cause us to destroy our own economy. For we consistently fiddle to the tune they call. And the tune they call causes us to remove freedom of choice from the individual and repose it in the State, as in Russia. It causes us to inflate and thus to weaken our medium of exchange which, if not sound, makes a highly specialized exchange economy as impossible here as in Russia. The tune they call is leading us to reduce ourselves to their economic, social, moral, and political level. If we continue, they will not need to take over; we will deliver ourselves to them.
The real reason for this state of affairs is an interventionist mentality on the part of too many "free enterprise" Americans, following the kind of leadership these circumstances produce. It is useless to point out to these individuals—indeed to anyone who believes in state power as a means to creative and productive ends—particular items in defense expenditures which might be eliminated. Persons committed to armed power as the way to peace will regard any diminution in armed power as a "sell-out" of American security.
No person can visualize peaceful ways to unseat Russian armed force until he comes to understand and deeply believe in the miracles wrought by free men—men acting in willing exchange; men free to create, produce, travel; men who are allowed the fruits of their own labor; men who clearly grasp the limited and wholly negative usefulness of formal government; men whose faith rests on the moral and spiritual principles on which such institutions are based.
Second Blow Starts Fight
Only the person who has mastered the freedom philosophy will understand that the bad men who are topside in Russia today are held there by the very tensions we ourselves provide; that were we to relax these tensions freedom-loving Russians would then have a chance to conduct their own unseating revolution; that they would do from within that which we cannot do from without except at grave risk of our own destruction. Only a person who has an innate faith in freedom will ever appreciate the truth of an old Arab maxim: "He who strikes the second blow starts the fight."
Those of us who would halt inflation and put an end to a cold war that is now costing more than any hot war ever fought in all history are wasting our time by arguing the details with interventionists or by campaigning among them for economy. It is as futile as trying to convince cats not to kill birds. The futility of selling an interventionist that he should stand against interventionism while he remains an interventionist is obvious.
The only hope we have of successfully combating inflation or war is a growing understanding of, belief in, and open and honest espousal of the libertarian philosophy. The way to do this is crystal clear: Self-mastery of the freedom philosophy and an exemplary living of it. Not only is this the right method; it is the fastest method there is.
‘Profligate spending on the part of state and local governments originally was of state and local concern only. State and local bankruptcy, harassment of state and local taxpayers and losses to state and local bondholders were the consequences of state and local profligacy. No inflation was induced by their waste, for the federal government, not the states and localities, had charge of the money supply. Furthermore, state and local taxpayers and bondholders acted as stern disciplinarians against waste. Now, unfortunately, the state and local-federal relationship is radically altered. State and local governments have become, by and large, the fiscal wards of the federal apparatus. Let any one of them go fiscally berserk and their Great White Father stands ever ready and willing, even eager, to "bail them out." Thus, today any profligacy on the part of state and local governments contributes as directly to inflation as do federal excesses. Be it added that the point where inflation is resorted to as a means of meeting the expenses of government is the point at which government can be adjudged bankrupt in the real, if not the legal, sense of that term!
‘It is shadowboxing merely to talk against inflation in general terms. But the ideological fight is on if one elects to be specific, like openly acknowledging an opposition to government "urban renewal" or federal aid to the hospital in one’s home town or whatever.
³For an incisive discussion of this problem, refer to F. A. Harper’s "Can Wage and Price Controls Cure Inflation?" page 46, The Freeman, July 1959.
‘Hayek, Friedrich A. The Road to Serf – dom. Chicago, Illinois: The University of Chicago Press, 1944. pp. 134-152.