Inflation fears rise

I believe there are people still alive and kicking – just – who remember the proud phrase, 'the almighty dollar', though I imagine we'd have to go back to our grandfathers to recall anyone who ever actually said, 'It's as safe, my boy, as the Bank of England!' Yet, I suspect, millions, maybe most, Americans and Britons still go along, though a little nervously, on the assumption that the dollar and the pound are THE great currencies of the world.

Nobody that I know has yet to coin an idiom vivid enough to make the mark or the Swiss franc or the yen pass into the language, not into our language anyway, as the great yardstick or true measure of prosperity. It will be quite a day when some European or Oriental orders us, as Prime Minister Ramsay MacDonald ordered the countries of Europe 45 years ago to stop thinking of ourselves as proud, free, floating planets and attach ourselves as satellites to some other planet. He didn't say it quite so colourfully as that for, as anyone who remembers that doughty and complicated Scot, can recall, he had a gift – it was Winston Churchill's description – the gift of compressing the largest amount of words into the smallest amount of thought. 

I remember the day very well because the report of Mr MacDonald's speech next morning in the New York Times had my Harvard room-mate and me – he was another Englishman and an economist to boot – falling about for the best part of the day and rushing from room to room and friend to friend to exhibit possibly the most gorgeously unfortunate misprint that the good, grey New York Times has ever committed. 

It was the opening of the London economic conference in, I believe, January 1934. Prime Minister MacDonald opened the conference with a speech in which he told the Europeans – the countries of Central Europe in particular – that the Austro-Hungarian Empire was finished. Sounds comical now but I suppose millions of Austrians and Hungarians couldn't believe it after only 15 years of being a non-empire. Anyway, MacDonald said that they couldn't go on maintaining their own currencies in steady competition with us. 'You must,' he said, 'in effect, from now on, tie your currencies to London or Washington. The obligation,' he said, 'to do this is on each of you.' 

Next morning, the New York Times had, of course, a big, front page story and the banner headline, as I recall, was, 'London Economic Conference Opens.' The sub heading was the startler. It printed, 'MacDonald puts onus on individual nations' but there was just one initial letter of those six words which was misprinted. Talking, as I am, to a family audience, I must leave you to work out which one for yourselves. I put the onus on you. 

Well, I'd better begin by saying that while you run into businessmen and economists every day who deliver themselves of passing sighs like, 'My God, the poor dollar!' the fact is that we trust our habits more than our eyesight. Most people, I'm convinced, can not yet take in, and don't want to, the possibility that Japan, say, might shortly be the world's leading economic power. 'The almighty yen' sounds like a rock group or the leader of some Southern California pet religion. Most Americans, I'd guess, even businessmen, may worry about the mark and the yen but they tend to say, riffling their newspaper first thing in the morning, 'How are we doing in London?' 

I didn't pick Japan idly. Do you remember the name Herman Kahn? He was the deep thinker who, a decade or more ago, impressed the Pentagon and alarmed the rest of us by urging the government to think the unthinkable, namely the prospect of a nuclear war. What was not so well noticed at the time was a book he published in 1970 called, 'The Emerging Japanese Superstate'. In that book, he predicted quite firmly that by 2000 AD Japan would be the dominant economic power of the world. 

To all but his most fervent disciple, Mr Kahn seemed to be taking off on a flight of Wellesian fantasy but now he's put out another book in Japanese – we won't see it in English until the spring – which chides the Japanese for muffing their great opportunity. They're making too much, he says, of exports, with the result that the cost of living in Japan is out of control. He wants them to invest billions in themselves, in their domestic industry and market and dramatically increase their imports which would cure their chronic problem, which is their huge trade surplus with the United States. 

The most reliable report says that the Japanese, while they once welcomed Mr Kahn's thoughts as those of a great prophet, are not taking kindly to his new prescriptions. Here in America there are a score of doctors with conflicting prescriptions for the one disease that, according to all the public opinion polls, is the overwhelming worry of Americans today – inflation. 

A year ago, inflation ran at just over seven per cent a year. Today it is at seven. Why, then, the sudden alarm in the White House? Well, food prices have almost doubled in two years and though the solution to these problems boggles every mind in the Western world, the answer in this country is quite simple. A week from next Tuesday, on 7 November, there is a national election – not presidential, of course, but the first congressional election since Mr Carter came to office. All of the House of Representatives and a third of the Senate are up for election. Now once Mr Carter had achieved or appeared to achieve a peace treaty between Israel and Egypt, he had to do something bold about inflation. The Middle East may touch people's hearts and minds but it doesn't touch their pay check, their mortgage payments, their school bill, their grocery bill. 

Until a couple of weeks ago, before the Congress expired in an orgy of law, making over a hundred new bills, Mr Carter was being advised by some of his people in the White House to wait for the election to be over and then, like a great field marshal announcing a new and bolder campaign, proclaim his battle plan against the monster, inflation. 'Don't bring it up!' one or two cagey advisors recommended, 'Let the sleeping dog lie.' But, in one scary week, it brought itself up. The sleeping, if snoring, dog woke up and roared. 

First the dollar dropped to a record low against the yen, while gold was rising to a record high. What most people understand better, or what's more important think they do, was a disastrous tumble on the Stock Market. I think I ought to mention here an American oddity. Every night on the half-hour news which the three networks broadcast across the nation, there is, without fail, a graph or other indicator, of the day's Dow Jones stock average. 

Now I've heard economists and financial experts and other Wall Street men say that the Stock Market no longer reflects, if it ever did, the state of the economy, that it reflects nothing more than a seesaw of Wall Street's transitory confidence in itself. Whether this is so or not, to the layman, the Dow Jones average is a barometer of the health of business. And if the layman thinks it is, maybe it is, or becomes so. 

Anyway, last week the Dow Jones average fell 59 points which is a one-week record worse than any single week, even the week before the deluge of October 29. The Department of Commerce, which is obliged to report the inflation rate, among other matters, at the end of each quarter, reported that in the summer inflation had gone up to an annual rate of seven per cent. At which point the bank interest rates went up to ten per cent. And on all sides we hear that it will go higher. And that alone, more than edging inflation or the whimsy of the Stock Market, convinces businessmen that the economy is going to dip and decline. One responsible corporation chairman, asked about the chance of a recession, replied, 'A recession? In 1980? It's already baked in the cake.' 

Well, in the wake of all this related bad news, President Carter and his advisers were tossing and turning and staring at the polls, which registered inflation as the first public anxiety and the rest nowhere. So, with the election ten days away, Mr Carter announced he was going to give a talk, a fireside talk in the Roosevelt manner, which would be one of the most important speeches he'd ever be likely to make during his presidency. So last Tuesday he gave it. 

He wants – he hopes – labour will not ask for more than a seven per cent wage increase each year. He wants – he hopes – firms will not increase prices by more than six and a half per cent. It's a voluntary programme and already neither business nor labour thinks the other will abide by it. And this mutual suspicion, itself, I'm afraid, is enough to guarantee that it won't work. 

The very awkward fact which Mr Carter couldn't have been expected to applaud was that Mr Nixon was the only president in history who's imposed wage and price controls in peace time and inflation took a jolt and a tumble. But, at that time, the economy was gagging at the bit and raring to go and he had to release the controls. Nobody today believes that forcible controls would force anything but a bitter tug-of-war between labour and business. 

One thing Mr Carter did mention and it is the spring of the inflation, which has jumped from two per cent to seven in six years. To put it roughly and bluntly, nobody in America paid in money at the time for the Vietnam War. It was the first American war which saw no increase in taxes. The government simply printed – what was it, 27 billions? – in paper money and we are now paying over every counter for that debauching of the almighty dollar. 'And the only way to restore it to any might at all', Mr Carter wistfully suggested, 'is for the people to accept and practise a long bout of austerity. Voluntarily.' 

'Be good, sweet children,' he's saying, 'and let who will, be clever!' He's asking us, I fear, to be like Scrooge and change our characters overnight.

This transcript was typed from a recording of the original BBC broadcast (© BBC) and not copied from an original script. Because of the risk of mishearing, the BBC cannot vouch for its complete accuracy.

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