What really is the basic cause of inflation? Even this far into the frustrating fight against crippling inflation, many Americans – extending to such high places as Congress – continue to
ponder the question. And, as Rep. William E. Dannemeyer, R-Calif., noted in a recent house speech, “Until we agree on
what that cause is we cannot begin to deal with the solution.”
‘ The Californian offered
his remarks during house
discussion of the congres-
sional budget for the next
three years. To shed light
on inflation causes, he
quoted this revealing pas-
sage from a speech by
Arthur Bums, banker and
former Federal Reserve
Board chairman, given last
September at Belgrade:
“Viewed in the abstract,
the Federal Reserve
System had the power to
abort the inflation at its in-
cipient stage 15 years ago
or at any later point, and it
has the power to end it to-
day. –
“At any time within the
period, it could have
restricted the money supp-
ly and created sufficient
strains in financial and in-
dustrial markets to ter-
minate inflation with little
delay.
“It did not do so because
the Federal Reserve was
itself caught up in the
philosophic and political
currents that were tran-
sforming American life
and culture.”
Dannemeyer quoted
Burns further: “The
Employment Act
prescribes that ‘-‘it is the
continuing policy and
responsibility of the
federal government to
utilize all its plans, func-
tions, and resources to
promote maximum
employment.”
“The Federal Reserve is
subject to this provision of
law and that has limited its
practical scope for restric-
tive actions -f quite apart
from the fact that some
members of the Federal
Reserve family had
themselves been touched
by the allurements of the
new economics.
“Every time the govern-
ment moved to enlarge the
flow of benefits to the pop-
ulation at large or to this or
to that group, the assump-
tion was implicit that
monetary policy would
somehow accommodate
the action.”
In other words, Dan-
nemeyer concluded, when
Congress voted the ap-
propriation to advance
some interest or cause,
there was an implicit un-
derstanding that the
. Federal Reserve would ac-
commodate the money sup-
ply to finance it. “And that
is precisely what hap-
pened. We have met the
enemy, and it is us – this
institution …”
Applying his remarks to
modern-day economics,
Dannemeyer asserted that
during the past three and a
half years, “spending by
this Congress has in-
creased by 55 percent.
Taxes during the span from
1977-81 have risen by 7H
percent, and the inflation
rate during that same
period has been 42
percent.”
The California lawmaker
gave Congress and the
country something to think
about in his research and
comments, Undoubtedly
there are other sides to the
issue. But the combination
of the Burns statement and
the Dannemeyer statistics
should not be brushed off
without thorough con-
sideration.