Forty Centuries of Wage and Price Controls: How Not to Fight Inflation

by Robert Lindsay Schuettinger

Controls, it will be noted, are always imposed during a period of inflation, when prices are rising and workers are claiming higher wages to keep abreast of the increased cost of living and are struggling to retain their wage differentials with other groups of workers.

Phillip Cagan notes,[7] “There is never any right moment when an inflationary process can be frozen by decree without imposing hardships on many sellers who need to raise prices to cover recent cost increases.”

“Controls are unlikely even to make the ultimate total rise in prices less than it would have been had they not been imposed, given the same path of aggregate demand,” writes Cagan.[8] “Prices gravitate toward an equilibrium determined by the interaction of demand and supply conditions. Constraints such as controls can delay the adjustment, but eventually prices will find their equilibrium. . . after the controls are lifted.”

The government of the United States was scarcely a year old when a writer in The Connecticut Courant asserted that “the scheme of supporting the money and regulating the price of things by penal statutes . . . always has and ever will be impracticable in a free country, because no law can be framed to limit a man in the purchase or disposal of property, but what must infringe those principles of liberty for which we are gloriously fighting.”[7]

If an historian were to sum up what we have learned from the long history of wage and price controls in this country and in many others around the world, he would have to conclude that the only thing we learn from history is that we do not learn from history.