Life on the Escalator

"Can we control inflation?" asked Britain's Prime Minister Harold Macmillan last week. "It is the problem of our time."

At the street-corner markets of Paris, the price of tomatoes, lettuce and strawberries was up 40% over last month. In West Germany, bread cost 1-c- more. In Spain, where many people have to hold two jobs to live, bus fares were up 33%. In Britain, householders were told that they must pay 8% more for their coal, 10% more for their cooking gas. In an announcement that Britons took as symbolic of the whole trend, the government itself last week announced an increase in postal and telephone rates.

"UP UP UP GOES THE COST OF LIVING," complained London's tabloid Daily Mirror. "Creeping inflation," said a West German Socialist leader, whose supporters in the steelworkers' union had just won a 5-5% Pay boost. The reaction of French workers, including even prison guards (see above) was to strike.

Something Nice? So far, the inflationary spiral is labeled a crisis only in Finland, where ministers call it "a crisis of prosperity." But all Western Europe is caught up in an exuberant wave of producing and buying, with fewer men out of work than ever in living memory. Their earnings are rising along with the prices, and what they cannot pay for they get by installment buying, which has lately become almost as fixed a feature of European as of U.S. economic life. Says a

Dutch housewife: "My husband earns 20% more than two fears ago but we don't save any. Formerly I needed 60 guilders ($16) for housekeeping money weekly. Now 80 is not enough. It's no use saving, because the guilder is worth less and less. Whenever my husband makes some extra money we invest it in something nice, like a scooter or TV set."

As an inflation brake, practically every central bank on the Continent has increased its discount rate, which now stands at 4 1/2% in Germany, 5% in Britain, as compared to 3% in the U.S. Possibly because they remember the days of the '20s, when it took a wheelbarrow full of marks to buy a house, the German public has submitted to more financial restraints than most European nations. The French have the severest problem, not only because they are fighting a billion-francs-a-day war in Algeria, but also because they have enthusiastically accepted the U.S. doctrine of ever-greater productivity. Since 1953 France's growth in productivity has topped even West Germany's, but at the expense of huge foreign-exchange deficits in buying raw materials. Urging a curb on imports, France's No. 1 fiscal authority, Wilfrid Baumgartner, president of the Bank of France, recently lectured the government: "The maximum level of activity is not always the optimum level of activity."

The New Inflation. One of the sources of confusion about Europe's current crisis of prosperity is that it is not the old-fashioned kind of inflation. There are two kinds of inflation, says Oxford Economist Roy Harrod. "One kind is that due to excess of overall demand for goods and services over the power of the economy to supply them. This may be popularly worded by the expression 'too much money chasing too few goods.' We had that kind of inflation rather severely in 1954, 1955 and the first quarter of 1956. It is now over." Harrod calls this kind "demand-induced inflation." "The other kind is cost-induced inflation. This happens when money wages rise more on the average than output per person." It is this kind of inflation that currently grips Britain, which has enjoyed no such rise in productivity as Germany and France have had. The British government accepts this analysis. Last week Chancellor of the Exchequer Peter Thorneycroft said: "If a nation pays itself 7% more for doing no more work, as happened last year, price increases will follow as the night follows day." But Thorneycroft is loth to do more than exhort his countrymen to work harder and resist gains that cancel themselves out. Committed both to freedom from controls and to an expanding economy ("Wages are going up and ought to go up"), Thorneycroft has no answer to inflation except the conviction that growth in time will restore balance in Britain. The failure to have any better answer is perhaps the chief explanation of the Tory Macmillan government's present unpopularity in the country.

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