INFLATION AND FIRE CHIEFS
Recent years have brought out no more outstanding a figure in finance and economics than Roger W. Babson. While he is probably best known to the public as the man who predicted the stock market crash, which occurred in 1929, in the field of finance he is recognized as a man of remarkable vision, a highly capable analyst of business condition and trends, and probably the foremost authority in this country today on political economy.
In this article, which was prepared specially for FIRE ENGINEERING, he sets forth a most convincing argument for immediate purchase of needed fire apparatus and equipment and indicates the necessity for raises in fire department salaries.
FIRST, let me give a definition of inflation: Inflation is the result of increasing the currency of the country more rapidly than the assets of the country. This is a very uninteresting subject, but it is tremendously important. Therefore, please try to be patient with me.
How Inflation Occurs
Inflation is a form of disease which starts from many different sources. The five most simple forms of inflation develop in the following ways:
- The rudest form of inflation comes from “clipping coins.” This means making them smaller in diameter or thinner. It is the form that is used in certain countries, and at times has been resorted to in the United States.
- In the case of paper money, the same result is obtained by printing additional paper money without increasing the gold reserve, or else by reducing the gold reserve back of the amount that is already outstanding. This is the method which is now being used in the United States.
- A similar result can be obtained by issuing an excess of Government bonds. which are really a form of currency and which tend to debase the currency already issued. The only difference between a thousand dollar bill and a thousand dollar bond is that the bill is printed with green ink on a small piece of paper, while the bond is printed with yellow ink on a big piece of paper—the latter bearing a low rate of interest.
- Inflation also comes about through the increased use of checks, notes, and other forms of municipal, corporation, and personal indebtedness. So long as another man will accept your handwritten note for $10, it has the same effect toward bringing on inflation as if the Government should print an unsecured ten dollar greenback.
- Finally, a great increase in the circulation of money brings about inflation. When money changes hands three times as fast in a week, it has the same effect as increasing the amount of currency outstanding by threefold.
Why Inflation is Dangerous
Let us refer again to our definition. So long as there is an increase in the country’s food, clothing and shelter equal to the increase in the circulating money, there is nothing to fear; but in practice this is not now the situation. Our outstanding currency is becoming inflated more rapidly than is our increase in food, clothing and shelter. In fact, while increasing the currency, we have been burning corn, plowing up cotton, and killing livestock!
How does inflation work, you ask? Why, it has the same effect on prices as changing the size of a bushel would affect the price of wheat, or changing the length of a yardstick would affect the price of cotton cloth, or changing the gallon measure would affect the price of gasoline. In other words, the price of any of these products could easily be increased by changing the size of the measure irrespective of demand or supply. This is a very important fact for Fire Chiefs to keep in mind especially when the nation is facing a period of greater demand and general prosperity.
Not a Matter of Politics
This, moreover, is not a matter of politics. Inflation in some form always follows a severe business depression. We would be facing inflation today, whether a Republican or Democratic President had been elected last November. For five years we have had deflation, with declining wages and material costs. Now we are headed for inflation, with increasing wages and material costs. The basic Law of Action and Reaction applies to prices the same as it applies to the swinging of the pendulum on Grandfather’s clock.
I might go further and say that inflation is already with us. Prices of many raw materials have doubled during the past year and a half. Wages are still lagging, which is the basic cause of the numerous strikes of today. The next step will be for inflation to show itself in increased prices of finished products such as fire trucks, fire hose, and fire alarm equipment. Furthermore these increases— caused by inflation—will be added to the natural increases due to greater demand and general prosperity.
Reasons For Expecting More Inflation
In case some one argues with you that further inflation is not inevitable, give them the following three reasons:
- Government expenses are still greatly in excess of Government receipts. In order for the Government to pay its bills, it must either print bonds or print currency. As explained above, this makes little difference. Either results in inflation and increased prices.
- Debtors will continue to howl for more inflation until they themselves begin to feel the evil effects thereof. This applies to farmers with mortgages, real estate promoters, and some merchants who owe money. They know that as prices of the land, houses, and goods which they own go up in price, it will be easier for them to sell out and get out of debt.
- Those engaged in foreign trade are usually anxious to have the United States further devaluate its dollar. When other countries devaluate, the country which does not, loses trade. For instance, if English pounds or French francs can be secured more easily than American dollars, then the English and the French will get the business. Under such conditions, American exporters want our country to devaluate further so as to cheapen our dollars. This cheapening of our dollars, however, although helping the foreigner, temporarily, ultimately results in higher prices. It is simply a means of “beating the devil around the bush.”
Inflation is a temporary stimulant to business : but, like whiskey or any other stimulant, its effects last for only a short time. Sooner or later increased prices offset all advantages temporarily secured by a “cheap dollar.”
What This Means to Fire Chiefs
Inflation is bound to have two distinct effects on the fire departments of our cities. These are as follows:
- There will be a general rise in the prices of all materials which fire departments purchase. This means that the sooner fire departments purchase new equipment and extend their fire alarm systems the better off the cities will be. The same principle applies to fire protection in general—such as the installation of sprinkler systems, electrical fire detectors and other protective apparatus. Fire chiefs should expect to increase the wages of their crews. Today the salaries of Fire Chiefs, Assistant Chiefs, Deputy Chiefs, Battalion Chiefs, Captains and Privates are abnormally low. The cost of living has already commenced to advance and is bound to go higher. Therefore, only common justice demands a readjustment of wages.
- As the effects of inflation become generally recognized, there should be a demand on the part of real estate owners, merchants and others, for greater fire protection. As it costs more to replace property, the owners of buildings and merchandise are more fearful of fires and more anxious for greater protection. Therefore, Fire Chiefs who properly present the subject of inflation to their city governments, should have the support of all property owners in the city for increased appropriations. As this is the only “good news” which I have been able to include in this uninteresting article, perhaps this is a good place to quit!