By: Howard Buffett

Date: March 28, 1959

Source: Buffett, Howard. "The Challenge of Inflation." National Review 6, no. 22, March 28,
1959, 613, 616.

About the Author: Howard Buffett (1903–1964), a staunchly conservative Republican Party
political activist, served in the U.S. House of Representatives from 1943 to 1949 and again from
1951 to 1953. He wrote and spoke frequently about fiscal matters, including the dangers of
inflation.

Introduction

The consistent reliability of a nation's currency is a cornerstone of social, political, and economic
stability. When a nation's currency is undermined by inflation it could potentially lead to the
unraveling of the institutions that hold society together. Inflation refers to an increase in the cost
of goods and services in a society, causing a decrease in the purchasing power of a given
currency. In contemporary American society the threat of inflation generally goes unnoticed
apart from recognizing that you may be paying slightly more for a pair of blue jeans now than
you did a few years ago. This, however, was not always the case.

Inflation has historically been a constant threat to economic stability in developing as well as
advanced capitalist countries. Entire economic systems have collapsed as a result of a
government's inability to control inflation. The collapse of Germany's first experiment with
democracy prior to World War II (1939–1945) (the Weimar Republic) can partially be blamed
on rampant inflation. At the time, there were stories of people taking bushel baskets full of
currency to the store to buy a loaf of bread.

Although the threat of inflation in the United States has been contained in recent years it is
always closely monitored and taken very seriously as a measure of the economy's health. There
are two general methods that the U.S. government uses to manage the economy and offset
inflation: monetary policy and fiscal policy. Monetary policy refers to managing interest rates by
the Federal Reserve Board. If the Federal Reserve Board believes the economy is overheating
and inflation is on the rise, it will raise interest rates in an effort to decrease the flow of money in
the economy. On the other hand if the Federal Reserve Board determines that the economy is too
sluggish and the costs of goods and services are declining (called deflation) they will lower
interest rates in an effort to increase cash flow in the economy. This has proven to be an effective
measure to keep inflationary forces in check in recent years.

Fiscal policy refers to the implementation of programs by the federal government to rectify
imbalances in the economy. Generally speaking, fiscal policy refers to the way the government
spends tax dollars to influence the economy. Prior to WWII Democrats and Republicans debated
the extent to which the federal government should become involved in economic affairs.
Democrats tended to favor a more active role while Republicans generally adopted a more
hands-off approach to economic affairs.
The Great Depression marked a turning point in the way the role of the federal government in
economic affairs was viewed. In an effort to combat the effects of the Great Depression,
President Roosevelt enacted a series of social programs (called the "New Deal") designed to
revitalize a desperate economy. New Deal initiatives such as restoring confidence in the banking
industry by creating the Federal Deposit Insurance Corporation (FDIC), subsidizing the
agriculture industry, establishing a minimum wage, and creating the Social Security system
channeled funds into the economy. The perceived success of Roosevelt's programs led to a
consensus among policy makers that the federal government had a responsibility to play a more
active role in economic affairs.

Significance

There is an important difference in the way Democrats and Republicans approach fiscal policy.
Democrats tend to focus on the demand side of the economy—favoring firm regulation of
business practices and establishing a strong safety net for the less fortunate. Republicans place
more emphasis on the supply side in their approach to fiscal policy by designing programs that
favor business growth.

In contemporary American politics the debates over fiscal policy revolve around which programs
should receive federal tax dollars (rather than whether the money should be spent at all). After
WWII a heated debate emerged regarding how much federal tax dollars, if any, should be spent
on stimulating the economy. There was a fear among some conservatives that if the federal
government continued flooding the marketplace with tax dollars inflation would eventually cause
the economy to collapse.

Primary Source: "The Challenge of Inflation" [excerpt]

SYNOPSIS: Former congressman Howard Buffet takes pains to remind readers that the specter
of inflation, although seemingly under control under the tight-money regimen imposed by the
prudent Eisenhower administration, could come roaring back at any moment.

Why are we menaced by ruinous inflation? Because, says a former member of Congress, the
American people have lost control of a spendthrift government

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch
the currency. By a continuing process of inflation, governments can confiscate, secretly and
unobserved, an important part of the wealth of their citizens.

John Maynard Keynes

The top protagonists of Communism, Lenin and Stalin, recognized America as the key
stronghold of capitalism and individual liberty. If they were alive today, how would they regard
the situation in the U.S.? It requires little imagination to conclude that they would be well
satisfied. For our government is herding us down the road to inflation, debauching the currency,
devaluing the savings of the people, and thus undermining the economic, political and moral
foundations on which the nation was built. Unpleasant as this appraisal may sound, it is
buttressed by sobering evidence.
One event of 1957 illustrates the gravity of the situation. The President sent a budget to Congress
calling for the expenditure of $72 billion in the fiscal year beginning July 1 of that year—a
budget 80 per cent larger than that of his Democratic predecessor, President Truman, just ten
years earlier.

A grass-roots protest quickly spread across America against the spending plans of the
Administration, totaling $200 million dollars a day for every day of the year. Thousands of
letters and telegrams poured into the offices of congressmen and senators, demanding a
substantial reduction in federal spending. Veteran Capital reporters, who had seen previous
economy drives blossom and fade, were amazed at the size and duration of the taxpayers' protest
of 1957. The immediate result was that leaders in both parties solemnly pledged that federal
spending would be reduced.

That was the promise. What was the performance?

Instead of going down, federal spending went up! During the fiscal year ended June 20, 1958, it
came to almost $72 billion—$2,463 million in excess of spending during the previous fiscal
year. A $2,800 million deficit was recorded. These figures show the futility of letter-writing
campaigns as a defense against inflationary spending.

Pressure Groups

What explains this failure? The simple truth seems to be that the American people have lost
control over their government. Both political parties are no longer responsible to the people.
Instead they are subservient to pressure groups which profit from socialist spending policies that
depress the value of the dollar.

What is more important, in the process the lights of human liberty in America are going out one
by one. That is the history of the inflation sequence: liberty disappears simply because the vast
majority become in one way or another dependent on government favors or subsidies. That is the
danger, and that is the prospect unless conservative leadership develops an effective cure for
inflation and makes national acceptance of that cure the paramount goal of all its political efforts.

The words "paramount goal" mean just that. Those who defend continuing inflation plead the
hostility between the United States and Russia. We are brainwashed into believing that
unrestrained spending at home and overseas is the necessary answer to the Russian threat. Yet
the actual truth seems to be that inflation, unless it is soon brought under control, will lead to a
complete victory for Communism in America—whether from within or without is of little
importance.…

That tragedy need not happen. It will not happen if American conservatives have the wisdom to
concentrate their patriotic efforts on the decisive issue—sound money. Victory on this battlefront
is the key to America's future as a free land.