Porter, Paul A.

English

Indiana University Bloomington Maurer School of Law

Indiana Law JournalVolume 27 | Issue 2 Article 11Winter 1952Defense Without Inflation, by Robert G. HartPaul A. PorterKentucky Bar AssociationFollow this and additional works at: http://www.repository.law.indiana.edu/iljPart of the Law and Economics CommonsThis Book Review is brought to you for free and open access by the LawSchool Journals at Digital Repository @ Maurer Law. It has been acceptedfor inclusion in Indiana Law Journal by an authorized administrator ofDigital Repository @ Maurer Law. For more information, please contactwattn@indiana.edu.Recommended CitationPorter, Paul A. (1952) "Defense Without Inflation, by Robert G. Hart," Indiana Law Journal: Vol. 27: Iss. 2, Article 11.Available at: http://www.repository.law.indiana.edu/ilj/vol27/iss2/11BOOK REVIEWSsuch objections as that it would be impossible to devise appropriatestandards of decision, that setting such standards (i.e. fixing wages)would tend to lead to a managed economy (i.e. fixing prices), that itwould discourage, if not destroy, free collective bargaining.PAUL R. HAYStDEFENSE WITHOUT INFLATION. By Albert G. Hart.* New York:The Twentieth Century Fund. 1951. Pp. xiv, 186. $2.00.Under the respected imprimatur of the Twentieth Century Fund,Professor Hart has prepared this conspectus of the battle against infla-tion. On the basis of his survey, the Fund's Committee on EconomicStabilization, -consisting of Professors Clark, Schultz, Smithies andWallace, have briefly summarized their views on the problem. Generally,they agree with the prescriptions of Professor Hart.It is good to know that, amidst the weltering confusion of specialpleas, self-serving briefs and nutty nostrums, men of learning, experi-ence, wisdom and common sense are brooding upon vital issues andaffording us the benefit of their cerebrations. One might wish that tothem had been added an economic journalist with, shall we say, thegifts of Stuart Chase. This volume, far too sketchy for the purposesof the professional scholar, is designed, presumably, for the eye and mindof the citizen seeking enlightenment. But such a citizen, for all his goodpurposes, finds it hard going when five professionals gang up on him.However, even one who is patently no intellectual may derive benefitfrom this little chart through the perilous paths of partial mobilization.Such a one will find here a healthful antidote to the monolithic creedsbeing preached in so many economic quarters by the right-wing counter-parts of the radical money bugs who abounded on the fringes of the leftduring the depression days.Professor Hart and his colleagues do not, of course, minimize therole of fiscal and monetary measures in stabilizing the economy. On thecontrary, they argue that control over the money supply is even moreessential during a long-pull partial mobilization of "readiness" whichmay last for a decade, than during a more temporary season of all-outwar.The choice, as Professor Hart describes it in terms of "equilibrium,""mild disequilibrium," or "severe disequilibrium," is whether to try fort Professor of Law, Columbia University School of Law. -* Professor of Economics, Columbia University.INDIANA LAW JOURNALupstream on, downstream control of the inflationary flood. Upstreamcontiol aims at choking off the supply of money and credit. Thus theflood is caught nearer the source. Downstream control aims at dammingthe flood, after it has gained momentum, by means of direct controlswhich leave the money supply relatively unaffected: price ceilings, ration-ing and allocation of scarce supplies, and wage stabilization.Although Professor Hart is somewhat squeamish about dealing withthe politics of inflation, it is likely that in a democracy such as ours theplans emerging from the'process of pull and haul will, like the measureshitherto adopted for controlling floods in the Missouri Valley, borrowsomething from both systems, and not necessarily the best. Certainlythe advocates of a single, simon pure, theological approach will derive nocomfort from this volume.During World War II, as Professor Hart points out, we alloweda severe disequilibrium to develop. That is to say, we allowed the moneysupply to increase by leaps and bounds, relying primarily upon directcontrols to hold the line against inflation. The results were more success-ful than one might expect: from the passage of the Stabilization Act inOctober, 1942, until the fighting stopped, the line held. This was despitethe fact that Congress refused to impose the taxes requested by PresidentRoosevelt, and only 40% of the cost of the war was paid out of currenttaxation. Furthermore, the Treasury, and under Treasury prodding, theFederal Reserve Board, adhered to the same cheap money policies whichhad been adopted during the depression as weapons against deflation.As Professor Hart makes clear, the direct control, or disequilibriumpolicy is not only capable under certain conditions of repressing inflation,but also contributes a certain positive force to the mobilization effort.These advantages were, even during World War II, obtained only atthe price of a severe post-war inflation. It was a policy of postponementrather than containment. In a period of "readiness" mobilization, thedisadvantages are more likely to be present, and the advantages lessobvious.Therefore, both Professor Hart and the Twentieth Century Fund'sCommittee advocate severe restraints on the expansion of money supply.Such restraint, they believe, would be the greatest possible contributionto stabilizing the national economy. Such a prescription calls for re-straint upon consumer credit in the housing and other durable fields;not only as a means of combatting monetary inflation, but as a substitutefor crude and ineffective rationing schemes in fields of specific scarcity.It calls also for a reversal of monetary policy by the Federal ReserveBoard-a reversal at least partially achieved between the writing andBOOK REVIEWSprinting of this volume. Certainly, as the Committe puts it, we cannotstabilize the economy by pegging the price of government bonds if itmeans letting all other prices go- through the roof.Most important of all, Professor Hart and his colleagues prescribea drastic increase in taxes-about three times as great as the increaserecently voted by the Congress. Budget "economies," while given the.usual pat on the back, obviously do not excite these authors as a sourceof great anti-inflationary strength. The desired revenues can be obtained,says Professor Hart, by increasing the rates of existing taxes, income,corporate and excise, and without resorting to new imposts such as afederal sales tax. Though the author advocates strongly the maintenanceof traditional incentives as a source of efficiency and flexibility duringthe "readiness" period, he apparently has no fears for the economy'svirility under such a fiscal regimen. However, he does have reservationsas to the advisability of drastic taxes on excess profits, preferring per-sonal and excise taxes as the chief source of new revenues.While emphasizing fiscal and monetary measures as the principalitems on our anti-inflationary agenda, Professor Hart and his reviewingCommittee do not join forces with the monetary extremists of the Hayek-Hazlitt school: to whom all direct controls are anathema and the main-tenance of the free market a fetish. Rather, the authors recognize whatis too often overlooked: that many direct controls have their origin inthe requirements of mobilization rather than stabilization. The govern-ment must make sure that those who supply it with munitions and othersinews have what they need when they need it. The orderly withdrawalof resources from the civilian market necessitates a considerable measureof direct control. The maintenance of a healthy and productive civilianeconomy necessitates additional measures lest a mad scramble for what isleft disrupt the entire scheme of mobilization.This may not be obvious to those whose acquaintance with mobiliza-tion economics has been largely by way of seminar and retreat, but it isobvious to the authors of this little book, as it is to anyone who hasdealt with these vexing matters first-hand.From direct controls as an aid to mobilization, it is only a step toselective controls as a weapon in the anti-inflationary armory. In timeof all-out mobilization for war, when achievement of monetary equi-librium is virtually impossible, general controls on a wide front areinevitable. Even then their efficacy can be sustained only by patrioticsentiment, and a fervent hope that the hardships of war are drawing toan undated but certain conclusion. In time of "readiness" mobilization,general controls of a direct nature must of necessity partake of a stop-gapINDIANA LAW JOURNALcharacter; there are simply too many political and psychological obstaclesin the way.On the other hand, Professor Hart and his colleagues believe thata substantial number of direct controls are required to supplement theinevitable deficiencies of fiscal and monetary measures in combating in-flation during a long period of partial mobilization. This is particularlynecessary during the "hump" period of rapid capital formation.One other familiar fallacy gets a deserved coup de grace in thesepages. That is the musty old adage that "the only way to lick inflationis to increase production." Professor Hart has found more answers tothis one than a Congressman has amendments to a price control bill.Increased production generates increased income, and therefore ap-proaches economic neutrality. Ordinarily production cannot be increasedwithout taking manpower and materials out of the already restrictedcivilian market, thereby at least temporarily aggravating the inflationarypressures.Professor Hart does, however, recognize what appears to thisreviewer the wisest single decision made during the mobilization period:Mr. Charles E. Wilson's determination to anticipate the long pull ofpartial mobilization by deliberately increasing the productive capacity ofthe national economy approximately 25%. By this imaginative fore-sight, we are assured an over-all economic capacity sufficient to meet theneeds of mobilization and at the same time maintain and expand thecivilian standard of living. The temporary hardships incident to thispolicy will pay ample dividends.From this brief survey, the reader may gather that it is thereviewer's intention to commend this volume of Professor Hart's. Sucha deduction would be correct. It would be hard to find, among academicpronouncements, a more balanced, a more thoughtful a more disinterestedor a less tendentious treatment of such a mooted set of issues.At the same time, this reviewer must pick a few flaws lest he con-tribute to the demise of a noble profession.For a book of less than 200 pages, too much space is devoted tothe collateral problems of mobilization and not enough to the specificproblems of stabilization itself. While the views of the author on suchmatters as the likelihood of Russian attack in Europe and the desirablelevel for our armed forces to reach during the next two years may beinteresting, it is questionable whether they possess enough intrinsicauthority to merit inclusion here at the expense of other matters, such asthe techniques of price control and wage stabilization during a period of"readiness."BOOK REVIEWSIndeed, in this field, one whose experience and approach are per-haps all too practical may feel that the author and the Committee alikehave let him down a bit. One reads the volume and discerns clearly.that Professor Hart and his academic senate believe that some wageand price controls are desirable, but not too many; that a general freezeof prices and wages may be temporarily required, but cannot last long.Apart from these truly 'Valuable and well-supported conclusions, the citi-zen and the public official alike will search in vain for principles to guidehim on his rocky road.This contrasts strikingly with the detailed treatment afforded tofiscal and monetary matters, even to charts of projected revenue yields.Yet, it is in the application and functioning of control mechanisms thatguidance is most needed. Previous experience in this field is likely toafford the least reliable indications as to the proper courses of actiontoday.Even so, some judgments are pronounced, albeit hesitatingly, byProfessor Hart rather than by the collective mind at the end of the book.(This method of treatment, incidentally, may be regarded as a variationof the old elementary school textbook with its "answers in the back ofthe book.") After carefully weighing the pros -and cons, the authorconcludes that escalator clauses, parity formulas, guaranteed profit mar-gins, cost-plus contracts and the Schlicter variable bond, all must standcondemned. The author is not unmindful of the purposes which suchdevices sometimes serve, especially in the case of wage contracts, inreconciling divergent or rebellious groups to the rigidities of a stabiliza-tion line. On balance, Professor Hart feels that such a "hold-the-line"policy puts too many eggs in one basket, and in the all too likely eventthat early efforts to find a defensible line do not avail, subsequent effortsare less likely to succeed.This was not the case with the "Little Steel" formula of World WarII, which followed upon earlier failures to hold the line with selectivecontrols, but which managed to survive, albeit in battered form, untilthe fighting had ended. In one respect, however, the "Little Steel"formula differed from the escalator clauses now sanctioned. It escalatedfor past increases in the cost of living, but contained no guarantees forthe future; it was an escalator with terminal facilities. Doubtless itssurvival was 'a tribute to the stiffening of price and rationing controlswhich followed, and which succeeded in holding subsequent rises in livingcosts to a few points in the index. Doubtless a steeper rise would haveknocked the caboose off the tr.in, but at any rate the formula worked.INDIANA LAW JOURNALIn some respects it is difficult to reconcile Professor Hart's adversejudgment on escalator clauses with his frequently expressed belief thatdirect controls in a period of partial mobilization must be more flexiblethan in a total mobilization. Possibly the adverse judgment is confinedto the temporary period of a "freeze" during which presumably-butnot, in fact-tighter monetary and fiscal policies are to catch hold.No policy which pretends to call itself stabilization can succeed ifevery politically significant group is able to immunize itself completelyfrom the hardships and injustices which inevitably attend every effortto establish a defensible price line. Professor Hart realizes this, andthat is his basic reason for condemning the "built-in" devices. On theother hand, considerations of economic justice cannot be wholly ignoredeven during mobilization crises, and escalator clauses do afford someprotection to the lower-income groups who suffer most from inflation.In an effort to avoid the worst consequences of escalation and achievesome of its social benefits, Professor Hart squints approvingly at theso-called Canadian compromise, which permits escalation on a graduatedscale, with primary benefits for wage earners in the lowest brackets.For escalation outside the wage contract, whether by way of parity,or guaranteed profit markups, Professor Hart essays no defense.One wishes, however, that either the author or his colleagues hadsomewhere in their opus attempted to grasp the nettle of some specificsector of the control program. My own candidate for such intensivetreatment would be meat. After years of dealing with difficult casesinvolving the interstate transportation of liquor, the late Justice Brandeisonce sighed that the curse of the Supreme Court was whiskey. To any-one who bears the scars of price control in action, meat is, always wasand always will be the curse of price control. It is almost safe to saythat any control program which can control meat can control anything.Yet, save for an offhand Committee reference to rationing, there is littlehere about meat. To some at least, this seems like "Hamlet" withoutHamlet and my personal acquaintance with most of these estimablegentlemen is the basis for the conclusion that they are not all vegetarians.Yet it seems churlist to complain because economists are not po-litical magicians. Meat, like so many of the white-hot issues of stabiliza-tion policy, is more a political than an economic problem. It is, of course,not easy to formulate a program which will command the assent of menqualified to judge. Nevertheless, this volume is enough to demonstratethat it might be done.But to persuade, cajole, threaten and scare the contending andsuspicious economic groups, and the solons who think they can divineBOOK REVIEWSthe whims and caprices of them all, into effectuating the agreed-uponpolicy is another matter. The efforts to maintain some degree of stabilityduring the reconversion period after World War II, for example, simplyfell apart under the fierce and almost hysterical pressure of internecineeconomic warfare. The result was not only to belie every predictionmade by those responsible for premature dismantling of the control mA-chinery, particularly as to the stability of the price level and the volumeof production; but, as Professor Hart is so acutely aware, to make thetask of our present administrators infinitely more difficult. ,Here is a field of study almost unexplored, and one which shouldcommend itself to the splendid public spirit of the Twentieth CenturyFund. Not merely in fighting inflation but in the effectuation of alleconomic policies, the rock upon which democratic government seemsmost likely to flounder is the rock of divisive pressure politics. How canwe keep government responsive to the demands of popular opinion 'andat the same time make it possible for public servants to legislate andadminister in an unbadgered and rational atmosphere? Such a challengeoffers the Fund opportunity for an effort worthy to rank with the studywhich Professor Hart and his associates have completed with suchdistinction.PAUL A. PORTER.AJURISPRUDENCE: ITS AMERICAN PROPHETS. By Harold GillReuschlein.* Indianapolis: The Bobbs-Merrill Co., Inc. 1951. Pp.xvii, 527. $7.50.With the appearance of this book, a much needed tool of juris-prudential instruction has at long last been supplied. Here, all thedivergent views so well known among legal scholars are brought togetherin such a way as to emphasize the most favorable points of each. Thismethod of presentation, it will be noted, differs radically from the prac-tices of most of those about whom Professor Reuschlein is writing.Many jurists, in emphasizing their own contributions, all too often de-emphasize thie virtues and stress the defects of competing philosophies.Despite the favorable treatment here accorded by the author, the clashesare obvious for one to find; but the juristic fights are not held out on thestage with the author finding personal zest in the conflicts.The subtitle of the book fairly describes its actual content. Socomprehensive is the coverage that the views of both the third and fourth-t Former Administrator of the Office of Price Administration; member of theKentucky Bar.* Professor of Law, University of Pittsburgh School of Law.

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