ECONOMIC

of the inflation rate of 1973, and still less can we risk its acceleration. Wemust dedicate ourselves to carrying on the fight against inflation in 1974and thereafter.There are at least four lessons we can learn from our past experiencein combating inflation:1. The importance of patience. To correct a powerful trend of theeconomy which has been going on for some time requires time. Sharplysqueezing down the economy in an effort to halt inflation would producea severe drop in employment and economic activity and create demandsfor a major reversal of policy. Pumping up the economy to get quicklyto full employment would risk setting off even swifter inflation. We needa greater steadiness of policy.2. The importance of the rest of the world. The events of 1973brought our external economic relations sharply to our attention. Mostsimply put, it will be exceedingly hard for us to have a stable economyin an unstable world. We must contribute a stabilizing influence to theworld economy of which we are a large part. We must promote concertedefforts to maintain the health of the world economy.3. The importance of production. Despite other vicissitudes, whatdetermines the economic well-being of the American people more thananything else is the rate of production. The rapid increase of productionhas provided the rising real incomes of the American people. More specifically,increasing food production is the best way to deal with the foodprice problem, and increasing our energy supplies is the best way to dealwith the energy shortage. We think of ourselves as a Nation with highand strongly rising output. We are. But we can do better and it is importantthat we do better.4. The importance of free markets. In the past several years, underthe pressure of emergency conditions, we have made great, but temporary,departures from reliance on free prices and free markets. In specialcircumstances and for short periods these departures have been helpful.But taken together, these experiences have confirmed the view that thefree market is, in general, our most efficient system of economic organization,and that sustained and comprehensive suppression of it will not solvethe inflation problem.At the beginning of 1974 the three problems which have dominatedeconomic policy for many years—inflation, unemployment, and the balanceof payments—have been joined by a fourth—the energy problem.Or rather, the other three problems have been pervaded by the energyproblem. The present oil situation means that we are paying much higherprices for imported oil than formerly and that the volume of imports at thepresent time is less than we would freely buy even at those prices. But the