Price Control Means Politics

February 12, 1951

The confusion at Washington has reached such a point that even the price controllers admit that they don’t know what they’re doing. They announced the so-called overall price-and-wage freeze on Jan. 26. The very next day an executive of the Office of Price Stabilization said that his agency was working intensely to “cure the absurdities and inequities inherent in such a sweeping order.” How many times this order will be changed or amended no one can predict. But what can be predicted with complete confidence is that no matter how many times the order is changed or amended it will still be riddled with “absurdities and inequities.”

Those who, like Bernard Baruch, honestly believe in what they call “an overall ceiling across the entire economy,” assume that the nondiscriminatory and nonpolitical way in which this could be done would be to freeze all prices, wages, rents, fees, and so on as of a particular date. Mr. Baruch originally recommended June 25, the day hostilities broke out in Korea.

This proposal—or a proposal to take the prices of any other date or period as the basis for an overall freeze—has fatal defects. It treats the prices or price relationships of that date as peculiarly “normal,” “fair,” or “right.” But the general price level of that date reflects the money supply of that date; and the specific prices and price relationships reflect the individual state of supply and demand for each commodity on that date. Even if we disregard changes in the supply of money and credit, the commodity supply-and-demand relationships of yesterday are never those of today.

The function of free prices, free wages, and free markets is to direct production into the goods that are most needed and away from the goods that are least needed; to balance and synchronize production as among thousands of different commodities; to bring about a voluntary allocation of land, capital, and labor to their most efficient and productive uses.

Even an honest overall price-and-wage ceiling, therefore, would deprive us of the invaluable guidance that free prices give. It would misdirect and waste capital, labor, and other productive resources. It would cause both hardships and wastes in consumption. It would disrupt productive relationships and bring on artificial bottlenecks and shortages. But what we are getting is a dishonest “overall” price-and-wage ceiling, which is much worse. It is riddled with special exemptions and discriminations. It exempts farm prices under “parity.” It tries to free the farmer while controlling the processor and distributor. It treats wages quite differently from industrial prices. It holds some prices at the peak and “rolls back” some others. It is going to straighten out “inequities”—which means, as experience shows, that it is going to hand out political favors and penalties. Our price control, in brief, is saturated with politics.

Nor is the politics going to be taken out. Political favoritism is inevitable in government price control. The appointed price controllers are not solely to blame. They have to deal, for example, with discriminations already built into the law. Our farm-price-parity laws and labor laws are full of built-in inflationary pressures.

Price fixing does not merely put huge economic power, always abused, into the hands of politicians, but it serves to divert public attention away from the fact that it is the government itself that creates the inflation from which it then “protects” the citizens. At the very moment when the government resorts to the fraudulent remedy of a general price freeze, President Truman openly supports Secretary Snyder’s announcement that the rate on long-term government bonds must be kept pegged at 2½ percent. As Governor Eccles of the Federal Reserve Board has pointed out, this can only be continued “by the creation of tremendous sums of money, at the cost of progressive decline in the value of the dollar.”

No serious effort to stop inflation is possible until the government halts this government bond-pegging policy.