Peace, love, creativity: Hope of mankind; Economic implications of war and peace, part two

Well the politicians love Keynes when he provided a rationalization for unlimited spending. One of the first to embrace it was the late president rose when I was visiting him at the White House on one of my trips down there nineteen thirty six or thereabouts when Keynes wrote his great book theory of money interest and employment and the former credit the late president said you know who was sitting in that chair you were just then. I didn't want to say it was of the Lord. And he said it was John Maynard Keynes. And he said I asked him why are deficits in the United States we're not ending the unemployment which we were experiencing in the 30s during the Great Depression. And he said Keynes had an answer. He said your deficits are not large enough. When we corrected that blunder during World War 2 when our deficits were super colossal. Now beginning in

1961 when this 82 month. High level period of activity began the economic advisors of the Kennedy and then the Johnson administration introduced a doctrine which goes way beyond Keynes. They said we will not only plan. On balanced budgets during this period we're trying to end the current recession but will project them ahead for a number of years even when business recovers because by so doing will stimulate the economy and will accelerate the growth rate. Well they were riding high and handsome until about a year and a half ago when for political reasons the administration found it expedient to escalate the war in Vietnam.

That added enormously to the pressures the inflationary pressures not only by the fact that this year the war's estimated to be running at an annual cost of about 30 billion dollars it isn't just a 30 billion dollars it's also all the inflationary impact our very large sums spent for goods which is not available to the public but which is available only to a single bio namely the government. So by 1967 the administration was fearful that it had over stimulated the economy. In 1064 you'll recall the Congress cut taxes to the tune of 15 billion dollars. And gave stimulus to the boom at a time when the boom was already underway. It was just the reverse of Keynes as doctrine of began to calm down the boom. When it gets a bit violent.

So this year the president said first we need a 6 percent increase in taxes on and then he said 10 percent. And as I indicated chairman Mail's was in a key position blocked it and said no dice. So that we have now the spectacle of the inflators wanting us against inflation. Now in order to deal with the situation we've got to take a new look at the disciplines and the prudent methods which make for good fiscal management and good mandatory monetary management. And we must re-examine critically their cynical doctrine that you can get away with anything by manipulating money. Now you might wonder why some of these advanced

thinkers want to manipulate money. They do it because I think the public consists of boobs who don't understand technicalities. I give you no situation when I mean at the very conference of the 44 nations of the Bretton Woods International Money Monterrey conference in July 1944 which mad Keynes was the outstanding participant. He said at a meeting. Suppose that when the war ends this was when the war was still on. A nation he presumably was thinking of Great Britain finds itself at a disadvantage in the export trade because it's cos I have and those of other nations with which it competes. Then there are two things you can do. One would be to cut money

wages he said with this dramatic flair of an Englishman to do that. Would bring industry into conflict with the trade unions and magnificent understatement he said but there's a not a right. Instead of reducing money wages they could cheapen money. Devaluation raising the price of gold through various other monetary tricks. But think of what that really means in terms of human relations. It adds to deception and manipulation. Are you certain cynicism. I estimate that the officials of labor unions and their rank and file members are boobs and they won't know what's happening to them if you do it by technical means.

And of course the irony of it is that Britain's latest devaluation was put through by a Labor government. We could spend another evening discussing that point but as an aside I will say that in business the employer. Who pays good wages and has good fringe benefits and good working conditions is not necessarily a philanthropist because he's merely the middleman. He expects to recoup all of his costs including wage payments fringe benefits and everything else from his customers in the selling price of goods and services. And the function of the businessman as a middleman is to express advance judgement of whether or not his customers will react favorably to higher costs and higher prices.

And this particular specifications. Now there's a good deal of misunderstanding of that point and on the part of some sophisticated people in 1937 when my friend John L. Lewis then head of the CIO was trying to organize the steel industry he was working on Myron Taylor then chairman of the board of the United States Steel Corporation teller and made a lot of money especially in the textile industry that he'd been elevated to the highest point in the Steel Corporation the world's largest steel company. But he had made enough money and his ambition was beginning to go along political lines. He wanted to become a public hero and get into public life and in time he did get into the public life and was appointed as ambassador to the Vatican for the United States. Well John Lewis according to the story that I believe is correct said to Taylor you're very foolish to block unionization of the Steel Corporation.

You're very foolish to resist wage increases because as your costs go up you can continue to make the same margin of profit and out of a bigger gross reflecting the higher costs. Your profits profit which is based on a percentage of costs will be larger and you'll make more money for your stockholders and yourself. Well Taylor went along with that. Recommendation of John L. Lewis and in 937 the Steel Corporation posted higher prices for its products. But it overlooked one fact it overlooked the fact that in a free economy it is not possible for labor unions and employers in collusion to regiment the customer. What actually happened. If you look at the record was that the amount of steel bought

after the price increase showed a large shrinkage in volume. The customers did not accept the deal. And that's extremely important in connection with this new fad land jism that's been operative in the United States or been tested in the United States since June. Since June 19 62 when the late President Kennedy intervened in the fixing of steel prices disagreeing with the executives of the company as to the wisdom of a price increase. I use the term challenges him which is the name given in Franco's Spain to the current system whereby all the outer symbols and forms of the private enterprise system persist with offices directors and all of the symbols. The only change is that the central government at Madrid reserves to itself decision making on crucial matters. Well the issue in

1962 was not whether the White House was smarter than the councils in the Steel Corporation in determining prices. The real issue was whether we would have fixed prices by political you Gav or don't let them be determined by competition in the open market. We're going through that phase again today. Last Friday Steel Corp. announced a $5 tonne increase the day the bottom Steel Corporation followed. I'm called Rose steel and its other items. They've been scared off for the last five years from letting economic forces work and as a result they were taking a terrific licking in profit margin. So. As we get into the current situation we have this new fear of inflation.

This new series of runaway cost of living was reflected in the Ford Motor and labor negotiations of the unions. The union took the position that in the next three years in which the contract will be in effect that the cost of living will go up at a much more rapid pace than in the past three years of the existing contract. And apparently the Ford Motor management had the same view of the future because they insisted on a ceiling in the cost of living escalation permitted. So we have created a situation whereby we're paying a price for some of the manipulation that we've gone through and a price for the inevitable effects of wartime spending. Now the superficial notice that the notion is. That. Let the country go away. Hang on.

If you and I are smart enough we can find inflation hedges. Buying common stocks or real estate or whatnot. And will do fine even during inflation. That's a half truth. There may be inflation hedges but you have to look for them with great care because the standard corporations the blue chips. Are victims of inflation as well as beneficiaries are beneficiaries in higher selling prices for their goods. If they got it. But their victims and higher costs higher labor costs higher material costs higher costs for electric services and the other things that go into the cost feed so that the only company companies that are real inflation hedges are those either which have a exclusive patent. And are not as competitive as others which have a low labor content or

they have a new scientific formula that promises wonders. So that and the same with real estate. Real estate's a hedge but it has to be selected with great care and the last. Some eight years artworks have been a better inflation hedge than real estate our stocks are great off works. People apparently didn't buy him as a hedge but nevertheless they've gone up prodigious Lee in price and our own Metropolitan Museum of Art was the cause. This past weekend of building up a painting at the third highest price ever paid for painting in history. And there are other hedges diamonds and gold and what not and sometimes only get theoretical in the college classrooms and in the university discussion halls. We say gold is a fetish. You don't need gold you can manage money

better by modern means. But through the decades through the centuries man has been very infrequently by the noble professions of politicians. Just before devaluation it's par for the course for the politicians in charge to say we will never devalue. They did it in Britain the British chancellor of the Exchequer not only made that statement in the House of Parliament as recently as July but he said he was opposed to the devaluation because it takes it out of the hide of the working man. There's a lot of truth in what he said. But in November 967 They devalued so that throughout history aware of the perfidy of politicians of some politicians we've had a few statesman aware of the pressure to have some politicians. There's been a longing for an object of standard such as gold which can be manipulated which can't be readily

destroyed and. It's a country on a gold standard. It's a check on the freedom of the politician to do things because and when it when you're on the go stand and we've been offered since 1034 lower on a partial gold standard but Americans can't claim gold now when we're going to full gold and we didn't have to wait a year or four years for an election to turn thumbs down when we disapprove the action of people temporarily in charge of our government. Those with funds should show immediate disapproval by exchanging dollars for pounds and running out of the country now in order to be polite and not use anything that might have domestic implications. I'll take one of two foreign examples in Italy in the early 1960s. There was a widespread movement led by the labor unions and is supported by the government in power to induce

a manufacturers Italian manufacturers enormously to raise labor rates wages so forth. And when they and the manufacturers would say how we do it they said absorb the higher costs. Absorbent presumably out of the profit or out of capital or whatnot. Well people who have freedom of movement of funds don't stay stand by and wait to be assassinated. There was an immediate flight from the lira. People had liquid funds or funds which could be turned in the money ran out and other countries. There was no immediate capital shortage and they had to backtrack so that it's not always possible to fool people except for short periods in the long run you pay for what you do and the reason that inflation is denounced. Universally like

Sen.. And the reason it's practiced almost as universally is that in practice inflation is a device which enables politicians. To promise great benefits to the public to the voters in order to win favor and to suppress or defer the cost and the cost is deferred are suppressed or Adun and inflation which Rob true savers with savings bank accounts those with life insurance contracts those with annuities. Those are the government bonds and others with fixed money investments. And there has been and recognition of this tendency ever in the last 40 years. Ever since Edgar Laurence Smith wrote his monumental book called Common Stocks as a long term investment a belief that under the slow inflation

which popular politics makes more or less inevitable you fare better with good common stocks than you do with bonds and there's been a revolution in the investment habits of the public and of the banks and of the pension funds and the other great institutional investors in these last years now. In looking at the implications of war and peace in conclusion. Our decision as to how and when to terminate this present military activity will not in my opinion be decided on economic grounds. I must remind you that Adam Smith the great economist said that a nation can stand a lot of ruin. We won't raise the white flag because of economic necessity or shortage of

funds. When we terminate the war it will be for other reasons good or bad. But be that as it may the war. On this present situation the Vietnamese War has lengthened the high level activity period by offsetting. Corrective reactions in the civilian economy. But it has. We pay a price for those offsets in the inflationary forces set forth. So that war is never in the long run beneficial as an economic matter but it would be a propagandist generalization and emotional concept to leave you with the impression. That war is 100 percent evil and no good comes out of it there are byproduct goods or invent

goods of good that comes out of there are inventions there are discoveries there are offsetting events. You and I like to think that creative man could make these inventions and these discoveries without mass slaughter. But to read the record correctly there have been offsets coming out of one the where what two out of it came radar. The jet airplane atomic energy with all of its peacetime legitimate uses and many other things. But this present this schism in the United States in public opinion about this Vietnamese war has partly been brought on by the excessive cleverness of the incumbent political leaders.

They never declared war on and in me we just inched into this bit by bit. And the when people raise the question if you are considering a large scale operation why not go to Congress for a war declaration. The argument given was this might be a formal declaration of war might bring in communist China and the Soviet Union. Well that's a cynical view also because they see what's going on and maybe they don't need a formal declaration to alert them to what's going on. So that the implications of war and peace are such that in a way. Unified nation where there is popular support for a war such as lacking in this case when there's a unified support for a war

there is a crusading spirit a dedication a united approach to a mission that is different from the chaotic decentralization of motivation in peace time. But a great philosopher William James of Harvard more than a century ago thinking about this dilemma. I read an essay you recall called a moral equivalent for war. In which he's said that we ought to have a inventory of projects civilize projects educational structures housing whatnot. Whereby we could devote our energies to some national purpose other than killing and at this time in our history when we're suffering from the cancer of slums

and certain unsolved social and economic problems it would be an imaginative indeed and un creative to assume that we couldn't keep busy we couldn't keep our manpower and equipment employed unless we were engaged in slaughter. Thank you. You've heard author and columnist Marilyn Stanley Rue Kaiser as he spoke on the topic the economic implications of war and peace. This was another program in the series. Peace love and creativity the hope of mankind. On our next program August Heckscher commissioner of the New York City Department of Parks will discuss the pursuit of happiness.

These programs are recorded at the Cooper Union in New York City by station WNYC. The series is made available to the station by the national educational radio network.