Ours is an age of interdependence. We all know this. We all know that no man and no nation can live alone.
So it is that all the problems we face—economic or political, domestic or international are intimately related. Last night In Cincinnati, I spoke to a great audience on the issues of war and peace; and in the course of that speech, I spoke of the grave menace of inflation.
Tonight, speaking to you mainly of inflation itself, I shall also be talking to you about war and peace. For, as you know, the inflation that afflicts our economy also affects the living standards and the political fate of nations all around the globe.
What I mean when I talk to you about inflation tonight is simply this: The continuing shrinkage of the buying power of our dollar.
The first fact about inflation is that it pervades every single aspect of our individual and national life. It aggravates the ceaseless struggle of the individual worker who feeds and clothes his family, no less than the global struggle to hold back the pressure of communism and the danger of war.
Secondly: I am going to state how the present Administration has let this peril grow to its dread size today.
Thirdly: I am going to state how the new Republican Administration will deal with the forces that are destroying the value of our dollar.
To begin with, it is not easy for any one of us to realize how close to him this peril is. To the casual eye, our economy looks as healthy and serene—and rewarding—as a stretch of rich Ohio farmland. But the eye that looks sharp and deep will find in this agreeable prospect a concealed minefield.
It is true that there is more money in existence, more being made today, than ever before in our history. But you know, just, as I know, that today's money simply doesn't go as far as the money we were paid in five years ago. Of course, everybody likes the comforting feeling of more money in his pocket, because it should mean that he is getting ahead. But today, we know that the comforting feeling is only an illusion. This illusion the Administration in Washington has systematically nourished and exploited for political gain for many years.
Here are some facts that will dispel the illusion:
The average American family had an income of $3550 in 1945. This average income had come up to $4800 by 1951. What did these higher earnings mean in the typical American home? Rising prices ate up nine tenths of the gain; rising taxes took the rest and a little more. The result: the family could actually buy less with its 1951 income than with its 1945 income.
This is a measure of the achievement of an Administration which loudly claims: Millions will vote for us—because "they never had it so good."
The peril, however, is not just of the present. Already it has begun to plunder our future. Individual plans for security in later years have shrivelled with the value of the money set aside. A $5000 policy written in 1945 has a purchasing power of only $3350 today. Pension plans have suffered the same fate, and so have savings accounts. If yours was an average family in 1945, you had savings of cash and securities of $430. Today that saying is worth only $300.
The Administration has so mismanaged our economy that in order to lose $130 in five years, a man needed only to deposit $430 in a savings account—and leave it there to waste away.
What a topsy-turvy triumph of an Administration whose press agents brag of its concern—of all things—for the American people's security.
Now all this strikes me with particular force for a particular reason. I have spent a number of years in western Europe, as you know, trying to help our friends there set their houses in order and in strength. I have seen these war-shaken countries grapple with terrible problems of shortages and prices. And, along with many other Americans, I have warned: You must strengthen your currencies, beat back inflation, set your economic affairs straight—or you will lose the battle with communism without a gun being fired.
How little we in our own United States have followed this sound course of action.
Clemenceau once said that war is too serious a matter to be left to the generals. Today someone might well say inflation is too critical a matter to be left to the politicians of expediency.
Now in what specific ways has the present Administration acted, or failed to act, so as to whittle away the purchasing power of the dollar? For here as in all great issues we face, the failures of the present Administration are the lessons of the next.
The inflation we suffer is not an accident; it is a policy. It is not, as the Administration would have us believe some queer and deadly kind of economic bacteria breathed into the atmosphere by Soviet communism.
This is the way a recent editorial in a great metropolitan newspaper put it: "Inflation is the calculated policy of the White House on the labor front, the fiscal front, the agricultural front." The point and purpose of this policy I have already indicated: to fool the people with a deceptive prosperity. The method is very simple: to give more people more money that is worth less.
The resort to "cheap money," like the resort to cheap politics, is not new. It is one of the oldest, most standard devices of a regime dedicated to perpetuating itself in power.
It is the mark of an Administration that cares more for the next election than for the next generation.
Back through the centuries, to the days of the Romans and beyond, governments have cheated their people by this simple process. It used to be called "coin-clipping." When feudal lords and local officials in the Middle Ages tried to make fortunes at clipping coins, they often ended by getting the severest punishment an outraged people could give, cutting off their hands.
We have a more humane and more effective remedy for today's coin-clipper—cutting them off from public office.
Now the weakness of the Democratic Party for "cheap" or "soft" money is well known. For the last 20 years, it has practiced this policy faithfully. Of late, it has given it a new twist: it is now called "controlled inflation." But this name does not mean what it says.
It really means inflation plus controls.
The way this policy has worked out is easy to describe. With one hand the Administration has been turning up the water pressure at the hydrant, while with the other hand it has been trying to check the water's flow. The Administration's controls over prices are nothing but weak stop-gaps. The really effective controls — those over money and credit—were ignored by the Administration. Resort to those controls would have paralysed their scheme to use "cheap money" for their own ends.
Now the Administration's liking for this idea of "useful inflation" confused even many of its own economists. A number of these men, angry or baffled—among them, Edwin Nourse and Marriner Eccles—resigned. Another result has been the spectacle of a struggle between the Federal Reserve Board and the Treasury Department over our country's credit and money policies. What would happen to an airplane in flight if the pilot and the copilot fought over the controls?
With the end of Wor1d War II and the scarcity of goods for people to buy, the Nation faced the threat of rapidly rising prices. You did not have to be an economic expert to know that these prices would soar unless sound credit and money restraints were used. The Federal Reserve Board has power to impose such restraints. But under a Fair Deal Administration, the power of this independent agency was hamstrung.
The conflict between the economists of the Federal Reserve Board and the politicians in the Treasury has been costly for the American people. Here is a brief lesson in Fair Deal economics:
The Federal Reserve Board in the last seven years repeatedly wanted to tighten money control~—to strengthen money by credit restrictions. The Treasury until very recently, refused to go along. To restrict credit and raise interest rates, would have meant an increase in the interest paid on Government bonds. Otherwise Government bonds could not compete in the open market and their sale would fall off. Such an increase in interest rates might have cost the Treasury a maximum of two billion dollars annually in the post-war years. So—to save this two billion—the Treasury vetoed the controls, thereby promoting a postwar inflation that has raised the cost of our defense program by some 70 billion dollars.
Public arguments about economics often leave many of us hopelessly confused. There is a great temptation to conclude that it is all too complex and that no one can do anything about it.
But this is not the case. For the matter of the Administration's failure to fight inflation wisely is almost beyond partisan debate. A distinguished Democrat from the State of Illinois, Sen. Paul H. Douglas, described the Administration's policies in three words: "Lax, confused and imprudent."
Of the way the Administration faced the price and credit problems right, after World War II, Sen. Douglas has said bluntly:
"The failure to take, restraining measures promptly and the actual supplying of more than a billion dollars of additional bank reserves . . . was, in my judgment, a gross blunder which far outweighed any offsetting gains to the American economic system."
This is the record of how the Administration got us where we are. In the process, it has collected and spent in seven years more taxes than all 35 previous administrations put together through 156 years of national existence. That is quite a price to pay for the kind of economic leadership we have been getting!
How, then, do we go about repairing this damaged and reclaiming our future? How do we get out of this mess?
Here—as in foreign policy and most other areas—the blunders of the past are our soundest lessons for the future.
First of all: We must erase the pernicious Administration maxim that says, "Inflation is the best policy." Here—as in every field of our Government—. It is not too late to go back to the simple truth that honesty is he best policy. It means an end to cheapening money. It means remembering an injunction of that forgotten man of the Democrat Party, Thomas Jefferson: "If we can prevent government from wasting the labors of the people under the pretense of taking care of them, they must become happy."
The next step—after we have a sane and honest economic program again—will be to carry it out efficiently. We shall not allow our Government agencies to fight at the expense of the American people. We shall create an atmosphere in which the Federal Reserve Board, as an independent agency, and the Treasury Department act not as political enemies, but as economic allies in the war upon inflation.
Next: The effective beginning of this war upon inflation must be an intelligent, planned attack on the spending program of our Federal Government.
Let us stop for a moment and see just what this means.
It means at the outset that businesslike methods must be applied to every program of the Federal Government to bring about efficiency and real savings.
We must, of course, meet the carrying charges on the national debt, fulfill our responsibilities to our veterans. Some other inescapable charges against the Federal tax dollar include the costs of Social Security and farm price supports. These are planks of the floor under our national well-being and money must be spent to maintain them. The danger is that the dry rot of inflation will eat still deeper into its planks.
These national programs urgently need the strength of a sound economy and a sound currency.
But today most of our dollars—2 out of every 3 in fact— are spent not on these programs, but on defense. Herein the area of greatest cost to the American taxpayer—I know that savings can be made. This does not mean slowing the speed or cutting the size of the rearmament program we need. No responsible citizen could foster such folly in today's world. it means subjecting all the Pentagon's costly operations to the scrutiny of business and professional examiners who can speak for the executive with expert knowledge.
I tell you this from my own experience: Informed, intelligent scrutiny of military spending can effect substantial savings in our huge defense program.
We must save those other sums, taken out of American pockets and bank accounts, that have for years bought nothing but governmental waste and corruption. How much this amounts to, we cannot know. We cannot expect the Administration to be eager to tell us.
But we can and will find ourselves, starting next January.
Now these simple steps:
Knocking down the Administration idol of cheap money, getting unified action from our economic agencies. And slicing the fat out of the Federal budget—these are serious, important beginnings in toughening our economy. It is clear that the major attack we make has to be on a front wider than just money and credit policies.
As I said at the outset: all our problems today are tied to one another, and none can be solved by itself. With tens of billions spent on armaments, another six to seven billion yearly on foreign aid, we see again that the soundness of our financial health at home depends on the soundness of our foreign policy.
The blunt truth is this: we cannot bear this huge burden indefinitely. We cannot—year after year, decade after decade— both maintain our standard of living, finance huge armaments, and help to rebuild economies of nations all around the globe. We cannot, in short, win the peace with foreign policy of drift, makeshift, and make-believe.
We must 'honestly face the fact that such a policy not only fails to secure the peace: it also places the hopes of the free world in jeopardy by the strain it puts on our economy., and by the confusion it creates in other lands.
There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might biring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.
THERE is, of course, one answer to such an argument that the Administration on its record cannot give. That is a soundly conceived program of tax reduction, Such an approach would seek to fill the economic gap left when rearmament can be reduced. Tax reduction is a way to boost consumer buying power and to let the people spend their own money instead of the Government spending it for them. ft is a way to breathe new life into industries throttled by Federal sales or excise taxes. It Is a. way to open new opportunities to the genius of American businessmen and the skill of American labor. Here, too, is the way to give State and local governments—in need of help for long-delayed school projects and highway programs — a fairer share of the tax dollar.
Such an approach—tax reduction is an essential part of our program to achieve prosperity without war. To this theme I shall return more fully at a later time In this campaign.
I have confidence in the good sense and skill of leaders of American business and labor. Because of this confidence I cannot share in any forecast of economic doom. But my concern for America’s future is tOo keen for me to leave unchallenged those who boast our prosperity is sound and deeply rooted. Much as we wish that it were, there stirs in Americans today a haunting sense of insecurity.
Prosperity—like peace—is not just a skirmish, but a continuing campaign to be vigilantly waged.
Prosperity—like peace—cannot be won by policies that never rise above the level of playing by ear or of seeking votes.
Prosperity—like peace—cannot be won by a Government divided against Itself.
I remain hopeful of our future. The party, too long In I power—worn and weary in office—threatens Americans with bogeys from the past.
They offer to us Americans only one choice: the choice between today and yesterday. But that is not the choice we have. The true choice is between an uneasy today and a confident tomorrow that can be abundant and secure. [?] Americans will make that choice.
Sunday, November 29, 2009
Ike: September 23, 1952, the speech he didn't give
UPDATE, January 16, 2011: reposted at Ecological Headstand.