Essay Introduction

In "The Price of Price Controls," Irving S. Olds surveys forty centuries of human history to demonstrate the consistent failure of government attempts to fix prices. Citing examples from ancient Babylonia, Athens, and Rome, as well as medieval England and Antwerp, Olds argues that price controls have invariably discouraged production, created shortages, and aggravated the very inflation they were intended to cure. He contrasts these failures with the success of free market mechanisms, such as the publication of grain prices in colonial India which averted famine. Olds concludes that price controls are a path to disaster, often leading to famine, bloodshed, and national defeat.

The Price of Price Controls

by Irving S. Olds

THE whole recorded history of man is strewn with the wreckage of the great civilizations which have crumbled under price controls; and in forty centuries of human experience, there has never been—so far as I can discover—a single case where such controls have stopped, or even curbed for long, the forces of inflation. On the contrary, in every instance I can find, they have discouraged production, created shortages, and aggravated the very evils they were intended to cure.

Yet the controls under which we are laboring in America today do not differ materially and fundamentally from those which have been tried and have failed in virtually every great nation of the world.

4,000 Years Ago

About 4,000 years ago, the Hammurabi Code imposed a rigid system of controls over wages, prices, production, and consumption. Those controls blanketed the entire economy of Babylonia; in fact, smothered it completely.

In Athens, during the fourth century B.C., the government subjected the grain trade to an ironclad system of price controls, and it sent a small army of grain inspectors into the port to regulate every transaction. If, under the watchful eyes of these government agents, a dealer succeeded in violating the ceiling price and was later caught, both he and the negligent inspector were put to death. But nothing did any good, and ultimately the system collapsed.

1,650 Years Ago

Among the most elaborate and disastrous attempts at price control, of course, was the famous Edict of Diocletian which was promulgated in the Year of Our Lord 301 and which impoverished the whole Roman Empire.

That Edict was full of such trenchant words and phrases as “avarice,” “extortion,” and “lust of plunder.” It spoke of “keeping profits within bounds,” and it denounced merchants who, possessing “immense fortunes,” sought “private gain” and “ruinous percentages.”

A Familiar Ring

Does that language have a familiar ring to the modern ear? Well, so would the regulations themselves.

The Emperor put an absolute maximum price on almost every individual item that was sold in Rome in those days, and he fixed the exact wage of every individual worker in every trade and profession—including even the lawyers. Then, in accordance with the custom of his day, he prescribed the death penalty for all offenders.

The Result

What happened after that is known to you all. Dealers, refusing to sell at a lower price than they had paid, simply hid their commodities under the counter. Producers no longer brought their wares to market. People in the cities suffered dire want, and brawls and riots filled the streets. And so another noble experiment collapsed. Diocletian abandoned his throne and spent the rest of his days in a cabbage patch, there to brood upon the consequence of folly and the waywardness of man.

But experience, it seems, can teach us nothing.

At the end of the twelfth century, England put a ceiling on the prices of bread and fish and wine; and for the next five centuries, that law was revised, amended—and ignored. Finally, Parliament repealed it on the grounds that such action was necessary “in the interest of the public welfare.”

A Fatal Blunder

During the Dutch Revolution when Antwerp was besieged by the Duke of Parma, the authorities of the beleaguered city promptly clamped price controls on almost everything within its walls—which may have been a stroke of genius from a political point of view, but which proved to be a fatal blunder from the standpoint of military logistics. Because prices were so low, the people inside the city consumed its stores both speedily and wastefully, and the people outside the city could not be induced to smuggle in new supplies for such a small reward. So, Antwerp, by its own stupidity, blockaded itself far more effectively than the Duke of Parma ever could have.

Common Sense

Only in India, in fact, do we find a comforting glimmer of common sense. In 1770 a famine struck the province of Lower Bengal, and the government immediately instituted price controls. So the rice that remained from the previous harvest was quickly eaten, and fully one-third of the population starved to death before another crop could be grown. But sixteen years later, when famine again struck the province, the government reversed its tactics. Instead of turning to controls, it deliberately encouraged speculation by publishing nationally the price of grain in every section of the country. Everyone knew where grain could be bought most cheaply and sold most profitably. Supplies, therefore, flowed promptly and naturally from the areas where food was most plentiful to the drought-stricken regions where it was most scarce—and disaster was averted.

The Dirty Maximum

Now there are some, of course, who might be unkind enough to say that another comforting glimmer of common sense was shown by the people of France during the French Revolution. The fixing of maximum prices had become one of the characteristic features of the Reign of Terror, but in this case it was the instigators of the controls who were ultimately put to death. And when Robespierre and his councilors were being trundled through Paris in the carts of the executioners, the street mobs jeered and shouted: “There goes the dirty maximum!”

Evil Consequences

Here in America, our forefathers were fully alive to the lessons of history and were far more ready than we are to profit by experience. Price controls had been widely attempted on many occasions and in many of the colonies, but never with success; and in 1778 the American Continental Congress adopted a formal resolution which declared:

... it hath been found by Experience that Limitations upon the Prices of Commodities are not only ineffectual for the Purposes proposed, but likewise productive of very evil Consequences to the great Detriment of the public Service and greivous Oppression of Individuals ...

Great Britain

That statement is even truer today than it was when the Continental Congress originally made it. England, for example, has now established what is probably the most successful system of price controls this world has ever seen. And certainly no government in history has ever enjoyed a greater measure of compliance from its citizens. These controls have been in effect continuously for thirteen years, and they are still in effect today. Yet the latest information I have on the subject discloses that prices in England have gone up exactly as far and exactly as fast as have prices in the United States where we have had a comparatively free market during most of this period.

Road To Disaster

For nine years, beginning with World War II, France also tried to stop inflation by the imposition of price controls. Yet today the franc is worth only one-tenth as much as it was when that war began, and the cost of living in France has risen nearly twenty times as much as it has in the United States.

So the evidence is clear and overwhelming. Throughout forty centuries of human experience, price controls at their best have always been a miserable failure. At their worst, they have led to famine and to bloodshed—to defeat and to disaster.

About the Author

Irving S. Olds is retired chairman of the United States Steel Board. "The Price of Price Controls" is extracted from an address given for the Salt Lake City Chamber of Commerce, February 21, 1952, and was published the same year by the Foundation.

Attribution

Olds, Irving S. "The Price of Price Controls." In Essays on Liberty, Vol. 2, 169-174. Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc., 1954.