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The Outlook for Inflation
And What to Do About It
Y
OUR interest at a time such as this
is in how you can maintain and
build your business profitably and
honorably. The prospects are complex.
Business is not merely dependent upon
the ingenuity, skill and drive of its man-
agement, but also upon the conditions
under which it is carried on. There is
not merely the problem of effective
business management within prevailing
conditions, but also the need for assur-
ance that the prevailing conditions may
not grow worse, but, rather, that they
should improve.
Every one who has ever read history
must have been struck by the fact that
the nations of the world have, from time
to time, experienced serious challenges.
The way these challenges were met deter-
mined their futures, whether of progress
or of faailure. Over the years the course
of history has been marked by the ruins
of many civilizations, once prosperous
and powerful, whose leaders and people
when challenged by great emergencies,
either failed to make decisions, or made
the wrong ones.
The people of this country now seem
to be facing one of these fateful occa-
sions. We must now make decisions that
may make or break the future, not only
of your business, but also of your coun-
try. These decisions, are likely to have
far reaching effect; either for good or
bad, for generations to come.
Calls for Prompt Discussions
The present emergencies call for
prompt decisions. These decisions must
be right. If they are not right, then this
way of life, that we now enjoy, that has
been built up so laboriously and at such
a great cost by ourselves and our fore-
bears, may be lost. The lessons from the
nations of the past that made the wrong
decisions have clear meanings for us.
We must not default. We must not blun-
der.
This country at the present time is
threatened both from without and from
within. There is the prospect of more
war and there is the growing menace of
inflation.
This country could probably hold its
own against either one of these two
problems if it came by itself, but there
is a more serious question as to whether
it can successfully meet both of these
challenges simultaneously. I shall not
attempt to add anything to the volumi-
nous discussion now going on about the
THE MUSIC TRADE REVIEW, SEPTEMBER, 1951
by DR. PAUL NYSTROM, Pres.
Limited Price Variety Stores
tricity, are now lower in price than they
were in 1939. It is clear that if these
items were excluded from the index, the
average of the remaining items would
be, not 184.6, but more nearly 200 or
more, and the value of the dollar in
terms of prices of consumers' goods in
the open market is, therefore, down to
50^, or less. The tide of inflation is still
rising. No effective remedies have yet
been applied to check it. The outlook is
uncertain, even fearsome.
Value of the Dollar
DR. PAUL NYSTROM
war. This address will deal solely with
the problem of inflation.
There can be no doubt that inflation
is just as dangerous as, perhaps more
dangerous than, war. Indeed inflation is
a form of war. Whatever causes or pro-
motes inflation works on the side of our
enemies. Unchecked, inflation could be
the first and most important step towards
the defeat of this country.
Before launching into this subject, let
us get clear on a few fundamental facts.
The present inflation is not due entirely
to the impact of war. It began back in
the middle 1930's. It had already gained
considerable headway, even before the
entry of this country into World War II.
The war gave it extra stimulus. It is
being spurred by the present prepara-
tions for national defense, but its begin-
nings stem from other causes. Even if
there had been no World War II, there
would still have been an inflation. The
war gave it impetus, but did not cause it.
A great deal of ground has been lost
to inflation since it began. Let us see
what has happened since 1939. The Con-
sumers' Price Index, compiled by the
Bureau of Labor Statistics, based on the
average for 1935-1939—100, as of April
15, 1951, registered 184.6. This means
that the average of all consumers' prices
was 84.6% higher in April than it was
back in the base period, ending in 1939.
This, in turn, means that the April 1951
dollar had a purchasing power, as com-
pared with 1935-1939, of less than 54
cents.
The BLS Index includes a number of
items whose prices have been and are
now controlled, such as rent, transpor-
tation, electricity, gas and water, whose
official and recorded price increases have
been small. Some, such as gas and elec-
My next statement is not a forecast.
However, if this inflation is not stopped,
if the current trends of inflation continue
unabated, the value of the dollar and of
everything measured by or redeemable
in dollars will, by 1955, be down to 25^,
and with the prospect of still further
declines to follow. It certainly is not
necessary to emphasize that the continu-
ation of this inflation and the decline
in the value of the dollar will, if not
stopped, end in the collapse of the Amer-
ican economy.
Our only hope of economic salvation
is to stop the inflation. To cure an in-
flation it is necessary to stop its causes.
Much of what is being done by the gov-
ernment at the present time is almost
purely an attempt to deal with its effects.
Price, wage, rent and other controls are
attempts much like trying to control the
summer heat by prohibiting the mer-
cury from rising in the thermometer.
If there is agreement, as I assume
there is, that the only way to treat an
inflation is by correcting its causes, then
the most important immediate question
is what are its causes.
Like most other inflations in the past,
this inflation has several causes. It is
important to stress this point, for any
attempt to stop the inflation by remedy-
ing only some of the causes and letting
others run riot will not do much good.
The causes of this inflation include the
following:
1. Excessive government spending for
goods, in competitions with the civilian
economy, has sharply increased the sup-
ply of money. The amount of money has
run far beyond the productive output of
the economy. This in itself, if there were
no other causes, would have produced
a serious inflation, but the cure would
naturally follow if and when production
were permitted to catch up with the sup-
ply of money.
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