Is Price Control Necessary?

April 9, 1951

The present price law expires on June 30, and the Administration is of course attempting to get even greater and more arbitrary control powers out of Congress. But if any economic sense prevails in Congress it will reduce and not increase the government’s control powers. Above all it ought to reduce if not eliminate the Administration’s power to fix prices.

I have argued so often on this page against price control that it will perhaps be more effective, and certainly more varied, if I cite the opinions and arguments of others. So I begin with a quotation from Frank H. Knight of Chicago, retiring president of the American Economic Association, from the American Economic Review for March:

“Of late, I have a new and depressing example of popular economic thinking, in the policy of arbitrary price fixing. Can there be any use in explaining if it is needful that fixing a price below the free-market level will create a shortage and one above it a surplus? But the public oh’s and ah’s and yips and yaps at the shortage of residential housing and surpluses of eggs and potatoes as if these things presented problems—any more than getting one’s footgear soiled by deliberately walking in the mud.”

I turn next to an article, in the same issue of the same learned quarterly, called “Is Price Control Really Necessary?” It is by Profs. Wytze Gorter and G.H. Hildebrand of the University of California at Los Angeles. “The duty of professional economists,” they declare, “is clear: to demonstrate once again the superiority of the price system over direct controls, even in the management of a preparedness economy.” And they proceed to advocate a pay-as-we-go system (which they call a “cash and carry fiscal-monetary policy”) with free prices and free markets, as “an alternative to the interminable queues, stamps, boards, and bureaucrats” of price control.

Exhibit C is a little 24-page pamphlet on Inflation, by F.A. Harper, just published by the Foundation for Economic Education. (Irvington-on-Hudson, N.Y. No charge for single copy.) I commend this for the simplicity and clarity with which it states the case against price control. Professor Harper begins by pointing out: “Inflation means too much money. The way to prevent inflation, is to close down the money factory. It is just that simple.” If it closes down the money factory, the government must live within its income. Inflation is a form of tax. When the government starts to appoint “inflation fighters” it is in effect illogically setting up a branch for the purpose of fighting the payment of the inflation-tax that it has assessed through another branch.

Price-ceiling laws, as Harper goes on to point out, were imposed at least as far back as 3,800 years ago in ancient Babylonia. They have always created shortages. Our memories are so short, however, that we have even forgotten the “meat famine” that price ceilings created in this country in 1946. Harper proceeds to give an elementary lesson on the way in which the free market price equalizes supply and demand and maximizes production and consumption, whereas arbitrarily fixed prices cause disequilibriums—distortions, surpluses, and shortages. “When the free market is allowed to operate and to set the price at a point where supply and demand will equate, each person will have purchase tickets in the market which correspond to the supply of something he puts into the market.”

In spite of the conclusiveness of the case against price control, the general ideological and political confusion is such that there is little practical hope that Congress will allow price control to terminate. But we can hope that it will at least put a light trigger on any renewal of its economic control legislation, that it will extend any control law for no more than a year, and retain the power to terminate even that at any time upon the vote of a simple majority of either House. Congress should not continue to be helpless against bureaucrats who issue nonsensical orders in the name of carrying out the will of Congress itself.