THE PRESENT INFLATION is the result of a long succession of historic successes in social politics. Americans have learned how to protect themselves from the disastrous panics, crashes and falling prices that recurred regularly until the 1940s. But when no prices can fall, all the movement has to be upward -- and that's where the inflation comes from.
If the current inflation had sprung from great failures of national policy, it would be relatively easy to correct now. But because it's generated by the successes, restraint is going to be much harder. Ending inflation is going to mean loosening a lot of the rules and practices that mean economic security to Americans.
It's an accepted truth, in the Age of Reagan, that all Americans, hating and fearing inflation, will support almost any remedy. But is that accepted truth really true?
The country is going to spend the next several years, under President Reagan's leadership, in finding out just what it thinks about inflation, and just what it's prepared to sacrifice.
The great virtue of John Case's short book is its insistence -- absolutely correct -- that the central issues here have nothing to do with numbers and technical economics. He calls Understanding Inflation a book "for people who want to know why prices keep going up." It is simple in style, and elementary. If you've already read a good deal on the subject, it is not for you. But if you belong to the large number of readers wary of academic economics, and are yet eager to get a grasp of the choices ahead, you might find Understanding Inflation a useful starting point.
The process began at the end of the last century when manufacturing corporations gradually learned to protect their pricing power by differentiating their products from their competitors'. People who sold commodities had to ride with the market when the market went down. People who sold proprietary products didn't. The market set the price of oats, but the American Cereal Co. set the price of Quaker Oats.
Labor learned to form unions and write contracts that put a ratchet behind wages. The farmers came to Washington for price supports. Doctors and lawyers worked out fee schedules to rescue the professions from the more threatening aspects of competition. Then, between the late 1930s and the late 1940s, the federal government discovered that its economic policy could strongly influence employment levels. That's the point at which voters began to hold the president responsible for their ability to find and hold jobs.
Perhaps, when I used the word security, you thought that we were talking about welfare and the poor. Conventional welfare is the least of it. If all Americans are united in fighting inflation, you might reasonably wonder why the automobile companies are desperately trying to raise prices by imposing import quotas on cars from Japan.
"The cause of inflation, in a word, has been the long, tortuous, and largely successful escape from the terrible insecurity of the marketplace -- from the chilling fingers of the invisible hand," Case concludes.
But now most of the country has decided that inflation is too high. The question is not whether the Reagan administration can bring the rate down, but whether it can bring the rate down without damaging the structure of security intolerably and reawakening the old, half-remembered fears. Hardly anyone younger than 60 has anything approaching an adult memory of the Depression. But everyone has heard stories, from parents and grandparents, and there's going to be a sharp reaction if people begin to believe that genuinely tough times are ahead. It's not Reagan's economic expertise that's going to be tested, but his political sensitivity.
The weakest part of Case's book is his own solution. No one seems to be able to write about inflation without offering a solution in the last chapter, and Case's is wage and price controls -- a known offender, as the police reports say, last seen departing, hastily, into the sunset in the company of the Unindicted Co-conspirator. Some of Richard Nixon's critics feel that controls would work better under another president. Don't believe it. Controls leak horribly, and they turn all the economic hiccups into insoluble issues of law and politics. Case had it right the first time: Reducing inflation requires genuinely unpleasant sacrifices, not only of prosperity but of security as well.
If you want to explore these choices rigorously, you will have to find other books that are, alas, heavier than this one. Understand Inflation limits itself to an introductory view. But Case's is the view of this inflation that historians are likely to take, years from now, when they write about its effects on the American politics of the late 20th century.
If you yourself are beginning to get a little uneasy about the effects of inflation on American politics, and vice versa, and if you want to get into the debate, John Case has given you a balanced and sound briefing paper. i