Case against Price Control

March 17, 1952

A year or so ago a leading Mexican banker wrote me that agitation for price control was rising in his country, and that those who favored it were citing the United States as the great example of how successful such controls had been in the second world war. Could I send him a list of the outstanding studies, pro and con? More recently, I received letters from students assigned to the negative of the topic chosen for national intercollegiate debate: “Resolved, that the Federal Government should adopt a permanent [sic] program of price and wage controls.” These students had been referred to some of my Newsweek articles or to my Economics in One Lesson. Could I refer them to further literature against price controls?

The answer was not easy. In favor of government price control there were tons of official propaganda in all languages, and plenty of theoretical fireworks by academic statists and New Dealers. But analyses and documentation critical of price control, except those buried in legislative hearings, were appallingly scarce.

At last, however, a good critical literature on price fixing is beginning to emerge. I should like to speak here of three outstanding recent pamphlets: Price Fixing for Foodstuffs, by Earl L. Butz, head of the Department of Agricultural Economics at Purdue University (American Enterprise Association, 4 East 41st St., New York City, 17); American Agricultural Policy during Rearmament, by Karl

Brandt (Food Research Institute: Stanford University, Stanford, Calif.); and The Price of Price Controls, by the Committee on Economic Policy (Chamber of Commerce of the United States, Washington, 6, D.C.).

Every one of these pamphlets is opposed to price control, and each is excellent in the field it covers. They combine a sound theoretical analysis with telling illustrations and facts. They recognize that inflation is caused primarily by increase in the supply of money and credit, and that the way to halt inflation is to halt this increase. They all point out that free-market prices perform a vital function. “Price is the device that determines how we use our resources and how we distribute our national product. Prices tell producers what to produce and tell consumers what and how much to consume” (Butz). And they explain how price control destroys this guide. They show how price ceilings curtail and distort production, encourage wasteful consumption, create shortages, and necessitate priorities, rationing, and subsidies to make them work at all over any long period. They point out that price control inevitably means profit control and gives a government bureaucrat power of life or death over an industry.

They cite liberally from the absurdities of price control in the second world war. “A lumber producer testified,” says the Chamber of Commerce pamphlet, “that his customers desperately needed one-inch boards, but due to OPA ceilings he could not sell these and break even, but he could sell three-inch boards and make a small profit. His customers were required to recut lumber to their specifications at increased cost.” “Early in 1942 [writes Butz] some farmers were being fined 42 cents per bushel for wheat grown in excess of their quota, at the very same time their neighbors were purchasing ‘feed’ wheat from the government [imported from Canada] which was subsidized approximately 49 cents per bushel.” Butz also points out that retail food prices have risen no more than factory wages since before the second world war.

FOOTNOTE ON ‘STATISM’

Since the appearance of my column of March 3 on “Statism,” a correspondent has pointed out to me that the word “Stateism” was used in a speech in Omaha as early as February 1940 by Herbert Hoover. The former President there contrasted the concept of “Stateism with its political bureaucracy, directing, dictating, and competing with farmers, labor, and business,” and controlling “price, wages, farms, . . . industrial output, and investment,” with the concept of “a free enterprise regulated to prevent abuses.”