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Quadrant, 1979, 23 (7), p. 69.

PRICE CONTROL AND HISTORY



By John J. Ray

Book Review of: Wage-Price Control - Myth and reality
Edited by Sudha Shenoy
Centre for Independent Studies, 11.0. Box 35, Turramurra 2074.

How one responds to this collection of readings (edited by Sudha Shenoy) will depend on how one feels about one's fellow man in general. What the book relates is a laugh or cry situation. It relates a tale of human folly of towering proportions: A tale that will make one either despair for man or laugh at his pomposities.

It is basically a book of economic history rather than of economic theory -- probably because the history so clearly makes theorizing unnecessary. Starting from Egypt of the pyramid era and ending with the very recent experience of wage and price controls in Britain, Australia and the United States, it relates an unending tale of attempts at control followed by disaster, disruption and eventual abandonment of those controls.

The most amazing impression one obtains from the book is man's utter inability to learn from experience. Rulers have been destroying the welfare of their people with these controls ever since Hammurabi of ancient Babylon and yet we still turn to them again and again. The odd thing is that those who advocate such policies so often regard themselves as radicals. If radicalism has anything to do with advocating the new and the untried, then these so-called radicals are no radicals at all. They are reactionaries of the blackest and most unthinking sort. They want to place again on our necks a grim yoke that man has shouldered almost continuously for thousands of years.

The detail and extent of ancient and mediaeval attempts at bureaucratic price-control form a tale that most of us would never have expected from the history we learnt at school. Amid the omnipresent bureaucracy of modern times most of us probably have a view of the ancient and mediaeval world as a place where man in his innocence had not yet invented the necessity of red tape and paperwork. The truth is depressingly different. Even ancient Athens had an army of inspectors and officials to police food prices. The only difference was that in the ancient world violators of the regulations were generally beheaded rather than fined. If they got too lax in policing the regulations, ancient Athens even beheaded its price inspectors! One can almost regret that some of our present-day bureaucrats don't live under a similar incentive to work.

What economic theory tells us, of course, is that, insofar as they work at all, price controls do so only by constricting the supply. The price you pay for goods may remain stable but your likelihood of being able to buy them at all steadily decreases. Hence evasions of control or "black markets". When in turn rationing is brought in to prevent this situation it in fact worsens as people denied supplies turn even more to black markets with their now devalued money. Black market prices shoot up and a bigger and bigger proportion of supplies is diverted from official channels. When economists seem so often wrong on many things, it is refreshing to find that this theoretical account is so exactly borne out by history. Far from increasing the welfare of people, all controls do is force them to become criminals in order even to maintain their previous standards. The overall effect is always a reduction in welfare.

In fact the reduction in welfare is so severe that popular clamour against the controls is the usual cause of their abandonment. Who knew that his price controls were one of the causes for the one-time French revolutionary, Robespierre, being sent himself to the guillotine? On his last ride through Paris, people called: "There goes the dirty maximum" (i.e. there goes price control).

In such circumstances the surprise is that controls are often resorted to again after relatively short intervals - within the lifetime of many who must have clamoured for the removal of the old ones. This was true of ancient Rome, Mediaeval Europe and even early America. Optimism is clearly a chronic human condition. There is always some bright-eyed idealist to inspire people with hope that "it will be different this time."

The book shows history as delivering an equally scathing condemnation of wage control. Where price control just leads to black markets, wage control may lead to economic collapse. Not only is its effect on incentives and worker motivation disastrous but, as workers must buy an increasing share of the goods on the black market, their wage may become so inadequate that the choice must lie between fleeing the job or starving. Modern controls would probably never reach this point but the principle is the same: impoverishment.

Generally, then, we can be glad that the Australian people had the good sense at referendum to refuse the Federal government price and wage control powers. Let us hope that State efforts in this direction will remain nominal.




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