Robert L. Schuettinger - Forty Centuries of Wage and Price Controls

FORTY CENTURIES
OF
WAGE AND PRICE
CONTROLS:

How Not To Fight Inflation

Robert L. Schuettinger
Eamonn F. Butler

With a Foreword by
David I. Meiselman

The Heritage Foundation

Washington, D.C.

Distributed by

Caroline House, Publishers, Inc.

Thornwood, NewYork

S hort excerpts from Forty Centuries of Wage and Price Controls: How Not to Fight Inflation have been previously published in the following formats:

Robert L. Schuettinger, A Brief Survey of Wage and Price Controls From 2800 B.C. to A.D. 1952 (Washington, D.C.: The Heritage Foundation, 1974).

Robert L. Schuettinger, Have Controls Ever Worked? The Historical Record: A Survey of Wage and Price Controls Over Fifty Centuries in The Illusion of Wage and Price Control (Michael Walker, editor) (Vancouver, Canada: The Fraser Institute, 626 Bute Street, Vancouver, British Columbia, V6E 3M1, Canada, 1976).

Robert L. Schuettinger, Wage-Price Control, The First 5,000 Years, in Wage-Price Control: Myth and Reality (Sudha Shenoy, editor) (Turramurra, Australia: The Centre for Independent Studies, P.O. Box 32, Turramurra, 2074, Australia, 1978).

Robert L. Schuettinger, Four Thousand Years of Wage and Price Controls, Policy Review, Summer 1978.

Eamonn Butler, How Government Profits From Inflation, Policy Review, Fall 1978.

T he co-authors wish to thank Mr. Jeff MacNelly (holder of two Pulitzer Prizes) of The Richmond News-Leader and his syndicate, the Chicago Tribune-New York News Syndicate, for permission to reprint ten of his cartoons. These cartoons are copyrighted (1978) by the Chicago Tribune-New York News Syndicate.

Library of Congress Cataloging in Publication Data

7874609

ISBN 089195-0230 (paper back)
ISBN 089195-0257 (hard cover)

Copyright 1979 by Robert L. Schuettinger

Published by The Heritage Foundation
513 C. St., N.E.
Washington, D.C. 20002

Distributed to the Book Trade
by Caroline House, Publishers, Inc.
P.O. Box 161
Thornwood, N.Y. 10594

For
Milton and Rose Friedman

ROBERT L. SCHUETTINGER is Director of Studies of The Heritage Foundation and editor of its quarterly journal, Policy Review. He was recently elected to the presidency of a national association of university professors (UPAO).

Educated in a one-room schoolhouse in Charlotte, Vermont, he later studied under Nobel Laureate F. A. Hayek at the Committee on Social Thought of the University of Chicago, under Sir Isaiah Berlin, O.M. at Oxford University and at Columbia University; he has taught at The Catholic University of America, St. Andrews University and Yale University, where he was also a visiting fellow of Davenport College.

Schuettinger also served four years as a Senior Research Associate with the Republican Study Committee in the U.S. Congress. He is the editor of The Conservative Tradition in European Thought, the author of Lord Acton: Historian of Liberty, Saving Social Security and A Research Guide in Public Policy. He is also the co-author of U.S. National Security Policy in the Decade Ahead and of four other books on foreign policy.

EAMONN F. BUTLER recently was awarded the Ph.D. degree from St. Andrews University in Scotland. He has served as a senior aide in economic policy in the U.S. House of Representatives and has taught economics at Hillsdale College, Michigan. He is the co-author (with his brother, Stuart) of The British National Health Service.

DAVID I. MEISELMAN, the author of the Foreword, is Professor of Economics and Director of the Northern Virginia Graduate Program at Virginia Polytechnic Institute and State University. He has served as a senior economist with the U.S. Congress and is the author of several books, including Varieties of Monetary Experience.

A ttempts to control and fix prices and wages span most of recorded history. As Robert Schuettinger and Eamonn Butler record in such illuminating and interesting detail in this book, price and wage controls cover the times from Hammurabi and ancient Egypt 4,000 years ago to this mornings newspaper accounts of rent controls in New York, Boston and other U.S. cities, the Carter Administrations program of voluntary price controls, the mandatory price and wage controls in Norway, Denmark and Iran, and so forth.

The experience under price controls is as vast as essentially all of recorded history, which gives us an unparalleled opportunity to explore what price controls do and do not accomplish. I know of no other economic and public policy measure whose effects have been tested over such diverse historical experience in different times, places, peoples, modes of government and systems of economic organizationexcept perhaps for studies of the relationship between inflation and increases in the quantity of money.

The results of this investigation would merit attention for the light it sheds on economic and political phenomena even if wage and price controls were no longer seriously considered as tools of economic policy. The fact that wage and price controls exist in many countries and markets and are being seriously considered by others, including the United States, compels attention to the historical record of wage and price controls this book presents.

What, then, have price controls achieved in the recurrent struggle to restrain inflation and overcome shortages? The historical record is a grimly uniform sequence of repeated failure. Indeed, there is not a single episode where price controls have worked to stop inflation or cure shortages. Instead of curbing inflation, price controls add other complications to the inflation disease, such as black markets and shortages that reflect the waste and misallocation of resources caused by the price controls themselves. Instead of eliminating shortages, price controls cause or worsen shortages. By giving producers and consumers the wrong signals because low prices to producers limit supply and low prices to consumers stimulate demand, price controls widen the gap between supply and demand.

Despite the clear lessons of history, many governments and public officials still hold the erroneous belief that price controls can and do control inflation. They thereby pursue monetary and fiscal policies that cause inflation, convinced that the inevitable cannot happen. When the inevitable does happen, public policy fails and hopes are dashed. Blunders mount, and faith in governments and government officials whose policies caused the mess declines. Political and economic freedoms are impaired and general civility suffers.

Many of the results of price controls, such as black and gray markets, are predictable and have the inevitability of mathematics and of many of the laws of the physical sciences. Nations that ignore them are no less periled than those that decree that two plus two must equal three, that the Pythagorean Theorem is false or promulgate laws that limit the temperature of steam to 40 (F or C).

First-hand experience of most of us with wage and price controls in our own lifetimes in addition to the lessons of history and of validated propositions in economics so skillfully catalogued in this book would seem to be more than sufficient to convince the public and government officials that price and wage controls simply do not work. However, the unpleasant reality is that, despite all the evidence and analyses, many of us still look to price controls to solve or to temper the problem of inflation. Repeated public opinion polls show that a majority of U.S. citizens would prefer to have mandatory controls. If the polls are correct, and I have no reason to doubt them, it must mean that many of us have not yet found out what forty centuries of history tell us about wage and price controls. Alternatively, it raises the unpleasant question, not why price controls do not work, but why, in spite of repeated failures, governments, with the apparent support of many of their citizens, keep trying.