The Fraud of Price Control

August 14, 1950

Congress is being stampeded into granting—in fact, into forcing upon—the Administration all-out controls over the American economy. These would include not only powers to allocate and ration but to impose an overall freeze on prices and wages. The selling label for these powers is “total mobilization.”

The contention is that unless price controls are slapped on instantly there will be a runaway inflation. This fear rests on a lack of understanding of economic cause and effect. If the government refuses to print more money, or to permit an expansion of credit, then the average level of prices can rise very little or very briefly, even in wartime. For if civilian consumers and the government have between them no more money than before, then the more they pay for some commodities the less they can pay for others. Except within narrow limits, a general advance in prices is not possible unless the supply of money is increased correspondingly to finance it.

To seize on price control, therefore, in peace or war, as the way to “fight inflation,” is to adopt a fake remedy as disruptive as it is irrelevant. If the government adheres to noninflationary money and credit policies, general price control is not necessary. If, on the other hand, it resorts to money and credit inflation, any attempt to offset the effects by price control is worse than futile. Price control always restricts, unbalances, and disorganizes production. It brings artificial shortages. So far from “mobilizing” the economy, or speeding it up, price control puts it in a strait jacket.

General price control is at once an ineffective and a crippling device by which a government pretends to protect its citizens against the inescapable consequences of its own fiscal and monetary policies. But it has the merit for the bureaucrats of deflecting attention from their own irresponsible monetary policies onto private scapegoats known as “profiteers.”

It was assumed during the last war that the high prices were primarily the result of war scarcities. They were not. They were primarily the result of the overissue of money and credit. In the five years since the end of the second world war we have been producing goods in vastly greater volume than in the period from 1935 to 1939. This June, in fact, according to the Federal Reserve Board, industrial production was running at 199 percent of the 1935–39 rate. Yet retail consumer prices were 70 percent higher in June than in 1935–39.

Why did we have higher prices with more abundant goods? We don’t have to go far for the answer. There is in existence at present more than three times the volume of money and credit as in 1939. It is this increase in monetary purchasing power, brought about by government policy, and not a continuance of war shortages or so-called “profiteering,” that caused the high prices prior to June 25 of this year.

The Administration’s real duty now is not to start dictating prices and wages but to halt its own inflationary policies. It must ruthlessly slash needless nonmilitary expenditures. Senator Byrd, in an itemized statement, has estimated that the whole appropriation of $10,500,000,000 that the President requested could be taken out of the present nonmilitary budget.

This is the Administration’s economic job No. 1. The government must stop holding up prices of foodstuffs artificially; it must stop financing an inflationary housing boom; it must stop subsidizing an inflationary export boom. It must stop its inflationary government bond-pegging policy; it must stop its inflationary low-interest rates. Both the Federal Reserve System and the commercial banks must tighten down on new credit. Present hostilities and preparedness must be financed as far as possible out of taxation, or out of bonds paid for out of real savings. Congress should authorize the Administration to levy during this fiscal year excise taxes ranging as high as 50 percent on civilian nonessentials.

If such steps are taken we need not fear inflation, and we will get the all-out production that only free markets and a free economy can provide.