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No. 77 "Inflation Is Bad Business" Radio Address by Neil Carothers, Director, College of Business Administration in Lehigh University, November, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_77 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 77 "Inflation Is Bad Business" Radio Address by Neil Carothers, Director, College of Business Administration in Lehigh University, November, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. PAMPHLETS AVAILABLE â˜… Copies of the following pamphlets and other League literature may be obtained upon application to the League's national headquarters: Statement of Principles and Purposes American Liberty League Its Platform An Analysis of the President's Budget Message Economic Security Inflation The Thirty Hour Week Bill The Holding Company Bill Price Control The Labor Relations Bill The Farmers' Home Bill The TV A Amendments The Supreme Court and the New Deal The Revised AAA Amendments The President's Tax Program Expanding Bureaucracy Lawmaking by Executive Order New Deal Laws in Federal Courts Potato Control Consumers and the AAA Budget Prospects Dangerous Experimentation Economic Planning Mistaken But Not New The National Labor Relations Act Summary of Conclusions from report of the National Lawyers Committee Straws Which Tell How to Meet the Issue Speech by W. E. Borah The American Bar The Trustee of American Institutions Speech by Albert C. Ritchie Fabian Socialism in the New Deal Speech by Demarest Lloyd The People's Money Speech by Dr. W. E. Spahr Legislation By Coercion or Constitution Speech by Jouett Shouse Recovery by Statute Speech by Dr. Neil Carothers The Imperilment of Democracy Speech by Fitzgerald Hall The Test of Citizenship Speech by Dean Carl W. Ackerman Today's Lessons for Tomorrow Speech by Captain William H. Stayton "Breathing Spells" Speech by Jouett Shouse The Duty of the Lawyer in the Present Crisis Speech by James M. Beck The Constitution and the Supreme Court Speech by Borden Burr The Economic Necessity in the Southern States for a Return to the Constitution Speech by Forney Johnston Our Growing National Debt and Inflation Speech by Dr. E. W. Kemmerer â˜… AMERICAN LIBERTY LEAGUE National Press Building Washington, D. C. INFLATION IS BAD BUSINESS â˜… Radio Address by NEIL CAROTHERS Director, College of Business Administration in Lehigh University, Member of the Executive Committee Economists' National Committee on Monetary Policy, and Member National Advisory Council of the American Liberty League AMERICAN LIBERTY LEAGUE National Headquarters National Press Building Washington, D. C. Document No. 77 November, 1935 INFLATION IS BAD BUSINESS FOR a very few minutes I am going to talk to you in very serious fashion about some very serious matters. But first let me tell you whom I represent. I represent a small organization of about ninety men, scattered widely over the whole country but belonging to just one profession. This organization is the Economists' National Committee on Monetary Policy. When you hear that your speaker is an economist you will certainly feel a definite reaction of some sort. Some of you will immediately lose interest and turn the dial to find something more exciting or entertaining. Some of you will prepare yourselves to hear a lot of long words devoted to vague and impractical theorizing. Some of you will be ready to resent anything I say because you disapprove our present government's policies and believe that the economists are responsible for these policies. Others of you, on the other hand, will be hostile because you approve our governmental policies and believe that the economists bitterly oppose all these policies. And all of you are mistaken on these points, even those who turn the dial to another station. For there is nothing of more practical importance to you right now than certain economic questions. There is nothing vague or theoretical or impractical in our economic discussion here. Nor are the economists responsible for the legislative experiments enacted in the past three years by our Federal government, although there has been propaganda to make the people think they are. On the other hand, the economists are not as a group opposed to all the policies of the present administration. Some of the New Deal legislation they warmly approve. Some of it they know to be unsound and injurious. The organization I represent, the Economists National Committee on Monetary Policy, is a group of economists interested especially in money and credit policies who organized into a group in 1933 to tell the people the truth about currency questions. They are not paid for this. They give of their time and effort without return. They are not personally interested in the measures they discuss. Remember that fact when you hear criticism of the economists by some office-holder trying to defend his policies. These economists are non-partisan. They are pretty well divided between Republicans and Democrats, but they put the welfare of the country above party allegiance. And they are not afraid of any interest, organization, or party in the United States. And finally, they do not believe they know everything about economics. The more men know about economic forces the less they are inclined to think they know everything. If you want to find a man who has the exact answer to every economic question don't go to the trained and informed economists. Go to some man who has never studied economics, some man who does not know anything about economic history, some politician who has spent his life running for office, some visionary reformer with a patent economic cure-all, some special interest representative with an axe to grind. But the economists do know a lot about money and credit and finance, which are among the most delicate, complex and tangled things in the whole field of economics. And here is what they will tell you about our money and credit situation. First, they will tell you that the money and 2 3 credit policies of the United States since 1932 have been in large measure unnecessary and unsound. Secondly, they will tell you that these money and credit measures have been in part class legislation, taking from one class in our country and giving to I another, unfairly. Thirdly, they will tell i you that these measures have in large degree I weakened the foundations of our whole currency and credit system. They will tell you that the repudiation of the gold clause in our bonds was unnecessary, that the commandeering of all gold in private hands was plain confiscation, that the gold-purchase program was a ridiculous juggling act, and that the devaluation of the gold dollar to 59 cents was a grievous mistake that has retarded recovery. But all this is past history. We are concerned here with the present and the future. Where are we now? At the present time we face two very unhappy conditions. One is the money situation. We have reached a stage where we do not have any recognizable money system whatever. We do not know what our money system is or where it is going. We are on an irredeemable paper money basis. The paper money is a miscellaneous lot of bank and government promises to pay. But the man who has one of these notes cannot redeem it. There is a huge pile of gold and silver lying dead in the government vaults. The gold dollar is cut down to 59 cents, but you cannot get j one of these dollars and you do not know when the 59 cent dollar may be cut down | again. The silver in the vaults is a great I mass of useless metal, of shifting value and uncertain legal standing. We have no standard money. And the volume of paper money is constantly increased by the issue of new notes. The other condition is equally serious. We have a swollen and abnormal credit situation. In a recent broadcast Professor E. W. Kemmerer has explained better than I can just how government spending is creating this unwholesome credit situation. It boils down to very simple facts. Our Federal Government is spending money at the rate of more than 7000 millions of dollars a year, but it is getting in revenues not much more than half that. The rest it is borrowing, just as a man living beyond his income may borrow for a while to keep up with the Joneses. Our government is, roughly, spending $230 for every second of every minute of every hour of every day and every night. It has been doing this for two years. But it is taking in less than $130 per second. It is borrowing at the rate of $100 a second. The government will spend about $207,000 while I am talking to you these few minutes. The government is borrowing these incredible sums chiefly from the banks. This automatically results in a swollen and morbid condition of bank reserves and bank credit. The combination of an uncertain currency system and a bloated credit condition is as explosive as dynamite. It may explode in a national inflation. Some very able men believe that a vast inflation is now unavoidable, that we are caught in the current and bound to go over the dam. Speaking here for myself alone, I do not believe it. I do not yet believe that we are doomed to any disastrous inflation. But we are moving in that direction. Let's consider here in plain talk just what inflation means. The first consequence of inflation is a rapid and feverish rise of prices, in stocks, in raw materials, in retail goods. This rise of prices is always far ahead of the wages and salaries of the great mass of the people. The immediate result is a rising cost of living. This 4 5 is a practical thing. There is no theory about it. It falls most heavily on the wage-earner, the small salaried man, the man or woman on a small income. It means that the children of the poor have a little less to eat, that houses are a little colder in the winter, that father does not get a new overcoat. As inflation progresses it eats into savings accounts. Even a small inflation will take away all the interest on savings and then cut pieces off the account itself, faster than the owner can add to it. As it moves on, inflation reduces the value of all fixed incomes, from bonds, building and loan shares, preferred stock, and life insurance policies. Slowly but surely it eats away the living of the widow and orphan, takes boys out of school and college, sends old people out to hunt work or charity, and destroys the life-long accumulations of thrifty and hard-working people. It destroys universities and hospitals, charities and pension systems, wills and inheritances. In the final stages of a ruinous inflation a nation's trade is destroyed, its industries paralyzed, its capital eaten out. A merchant will sell all his goods at a handsome profit week after week, only to find himself bankrupt at the end. A workman will labor all week and find on Saturday that his wages have been going down every day. There is a popular notion that inflation hurts the rich but not the poor. Inflation hurts everybody, rich and poor. But it falls most heavily on the wage-earner, on the little fellow. In Germany inflation drove the plain people to black bread and paper clothes, but it also destroyed the prosperous classes. No class can escape, unless it be a very small class of manipulators and gamblers. There is another idea that inflation promotes prosperity in business. What it promotes is speculation, waste, and reckless investment in business, which always end in later collapse. This is not economic theory, but grim fact, demonstrated by history hundreds of times. There is no important nation on the globe that has not suffered bitter hardship from inflation. It prostrated practically all the important countries of Europe after the World War. But it was an old story in history long before that. George Washington, who was a rich man, and his soldiers, who were poor men, suffered alike from inflation even before there was a United States. Time after time the countries of Latin America have been scourged by inflation. Throughout history inflation has been practically always a misery growing out of the emergency of war, as in the United States in Civil War times. Very rarely has a nation deliberately adopted an inflation policy in time of peace. There were two notable exceptions to this rule in France a long time ago, once when a blackguard adventurer named John Law drove the French people to ruin with an inflation scheme, and again in the French revolution when the nation deliberately adopted inflation with the notion that it would stimulate business. The French people curse the memory of the men responsible for these disasters. It is almost unbelievable that in this enlightened age the United States should start on this primrose path to destruction. But, deliberately or not, we have started on this very road. We show no signs of returning sanity at present, and in the next session of Congress there will be a renewed pressure from misguided planners and scheming politicians to force still greater inflationary spending and still more currency debasement. In my judgment there is still time to stop this financial dance of death. But it must be stopped very soon. 6 7