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Way to Expunge Inflation

October 06, 1985

In "Low Inflation Makes Business Earn Growth" (July 28), John F. Lawrence dealt with the interplay between inflation, corporate profits and growth. The points are well taken. Here are some others:

The corporate bonanza from inflation is no offering for managerial expertise, no effect of some instruction for "aggressive pricing." It is the fallout of a pervasive inflation affecting the entire economy. Far from being a prime mover, the corporation is a mere pawn of powerful external forces.

What it does--very happily--is provide the medium, the culture, in which the general inflation is particularized and dosed into each of its products to bring its prices into line with the surge of prices outside the gate. With inflation rife, profits are buttressed by all price increases. This fattening of profits, identified and tagged by the Commerce Department as Inventory Valuation Adjustment and Capital Consumption Allowance flows without ceremony into corporate coffers.

These are not trivial categories. Between 1971 and 1984, the inflation years, IVA totaled $285 billion and CCA amounted to $168 billion, the total reaching $453 billion over the 14-year stretch. No wonder business turned profligate.

I can't help dreaming that a 100% tax rate on these unearned profits would have provided more than enough to erase the national debt.

It would have aborted the process by which the general inflation is injected into the particular products we consumers buy. It would, in short, have expunged inflation right from the start.


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