December 14, 1956 Mr. J. Victor Loewi President Loewi & Company 225 East Mason Street Milwaukee 2, Wisconsin Dear Vic: I am returning herewith the Murray Shields letter. Thank you. I see that Shields is an inflationist. I suppose that does not mean much unless inflationism is defined. I consider the management of General Motors to be inflationist. I consider everything to be inflationary which is designed to manipulate prices. If prices are manipulated so tuck that the price level remains only steady, then, according to General Motors, there is no inflationism. As a matter of fact, there may have been considerable inflationism to hold prices steady; if there had been no inflationism, prices would have dropped. The famous economist. Friedrich von Hayek, has commented on the irrational fear that people have for declining prices. It is a phobia. Obviously, from the foregoing, I define anything as inflationism which is designed to influence prices (always upward, of course) beyond what prices would be 11 they were based upon an objective standard such as gold. In the history of mankind mortal men have never been proof against the pressures put on them to increase the quantity of money. The only time that the monetary structure of the world has been trustworthy and conducive to property was when the world was on a gold standard. Political pressure does not gold. The quantity of gold will only be increased (if there is a gold standard) if the value of the gold is such as to justify the cost of mining. I consider all of Murray Shields' ideas, therefore, to be mischievous. M I am much more sympathetic to the position of Wm! Chesney Martin who has far sounder ideas, because he was reported (in the Wall Street Journal) last summer to have said that he was convinced that prosperity would not be increased by increasing the quantity of money. This, of course, is completely contrary to all Keynesian doctrine, which was to keep the working man happy by raising his wages in money units and then taking it away from him (inevitably) by higher prices. This Keynesian system has never really worked at any time in the history of mankind. I am dead sure it will not work at this late date.