“How to Halt Inflation” is the title of Henry Hazlitt’s Newsweek column from December 29, 1958. This was Hazlitt’s last column for 1958, yet it could have been written yesterday with only a few minor changes. Despite great efforts from men like Hazlitt, the fight against the inexorable expansion of government spending and inflation in the US has been lost.
‘Senator Johnson, the Majority Leader, wants Congress
to investigate inflation. “We have no clear-cut idea,” he
says, “of what is causing inflation and what should be
done to prevent it.”
This is a disheartening comment. Inflation has been
progressing in this country for a quarter of a century.
Though there may be difference of opinion about details,
there is no longer any excuse for ignorance of its main
direct cause and cure. The direct cause of inflation is the
continuous increase in the supply of money and credit.
Most of this is in turn caused by a chronic budget deficit.
The cause of the present inflationary fears is precisely
the “liberal” spending policies that Senator Johnson and
his Democratic majority will be pushing for in the new
Congress. The cure would be to abandon these policies.
Though the action of security prices since last summer
has been flashing a warning signal for all to see,
this warning is being smugly ignored in Washington.
Officials offer assurances for the immediate future.
But it is the long-range considerations that are causing
uneasiness. These have been admirably summarized by
the Guaranty Trust Co. of New York in its December
The Long-Term View
“In connection with the Federal budget, for example,
misgivings do not arise merely from this year’s prospective
deficit of $12 billion . . . serious as that is. They arise
from the fact that this deficit is symptomatic of a rising
tide of expenditure over which no one seems to have
any real control. The situation has been developing for
a generation and, far from showing signs of correcting
itself, appears to be going from bad to worse. Economy
drives by the Administration and Congress tend more
and more to end in futility. There are too many continuing
‘programs’ that involve commitments for years in
advance—the defense program, the highway program,
the housing program, the social-security program, the
farm program, the foreign-aid program, veterans’ programs,
and all the rest.
“Each of these programs, of course, has its own
pressure group or groups and its own army of bureaucrats
whose jobs depend upon it—and most of whom,
no doubt, sincerely believe that, however desirable governmental
economy may be as a general principle, their
own program is so worthy that it should not only be
continued but expanded. The combined result of these
programs is a swelling volume of expenditure which,
despite tax rates rising to almost confiscatory levels, has
produced deficits in 23 of the last 28 fiscal years.
“Yet nowhere in government is there serious talk
of abandoning any major spending program. The most
that anyone hopes for, apparently, is to retard the rate of
growth and oppose the addition of still other programs.
This is becoming increasingly difficult as state and local
governments call upon Washington for aid. . . .
“It is not the fear of the 1959 deficit, unfortunate as
this is, that basically causes distrust of the dollar. It is
the growing fear of deficit financing as a ‘way of life’.”
What can be done about inflation and the growing fear
of inflation? We might put detailed remedies under four
1—Futile as it sometimes seems, those who (like
Budget Director Stans, Secretary Benson, Senator
Byrd, editors, writers, private organizations like the
Tax Foundation, and chambers of commerce) have
been pointing out in detail where budget economies
should be made, must keep up their insistence on specific
2—We are unlikely to get reform until we have a
really responsible executive budget. This means that the
President must be given at least as much control over
(and responsibility for) the Federal budget as, say, the
governor of New York has over his state’s budget. (For
details, see this column, Nov. 23, 1953.)
3—We must recognize the fallacies in the Keynesian
ideology, dominant for 25 years, which regards inflation
as necessary for full employment and economic growth.
4—We must take the kind of measures spelled out
here last week to curb excessive union-leader power and
restore confidence in the dollar.‘