The Price-Control Straitjacket

January 1, 1951

The proclamation of a “national emergency,” followed by the immediate imposition of price control, was a double misfortune and a double diversion. It diverted public attention away from our military defeat in Korea, and even from our foreign policy in general, to internal controls. And it diverted public attention away from the sole cause of inflation—the government’s own money and credit policies—to a false and irrelevant remedy built on a false diagnosis.

Price fixing is not even a partial or a supplementary remedy for inflation. It is not a remedy at all. If the volume of money and credit is kept from expanding, there is no need for price control. If the volume of money and credit is recklessly encouraged to expand, price control is worse than futile. It must merely unbalance and disrupt production.

But these basic facts are still not understood in Washington—not in the White House, not in the Treasury, not by most members of Congress. And so our economy is being snarled in the red tape of price control.

There cannot be such a thing as intelligent price control. Price control is unsound in principle. Yet the theory today seems to be that the reason the OPA made a mess of things is that the Hendersons and Bowleses and Porters did not know what they were doing. It is true that they did not know what they were doing, but it is also true that they were being asked to do something that not even geniuses or archangels could do well.

Our present price controllers have begun, not by trying to hold down the price of foodstuffs (of, say, bread or milk) but by rolling back the price of—automobiles! They have announced cloudy, confused, and obviously unworkable overall “voluntary” and “honor system” standards for price ceilings. These are certain to break down. This will then “oblige” the controllers to impose their threatened mandatory price ceilings.

The controllers did not dare to announce parallel wage standards. The union bosses, who had at first demanded price control without wage control, suddenly switched tactics and demanded “wage stabilization” standards which were in fact wage-boosting.

But government price control is inevitably political, and perhaps even present discriminations are no more flagrant than in the past. “At the moment of writing this [I wrote in Newsweek of Oct. 28, 1946] our whole price-control system is a mass of fantastic contradictions. The price of whisky is controlled, but the price of milk is not. Lamb prices go where the market sends them; but automobiles are held down by government edict so that he poor can buy their share of Lincolns and Cadillacs.”

Present discriminations do not prove, however, that Bernard Baruch’s dream of “an overall ceiling across the entire economy,” made nondiscriminatory by a rollback or freeze of all prices and wages as of June 25, would have been any better economically even if it had been politically possible. For the advocates of both selective and overall price ceilings overlook the function of free prices, which is to maximize and balance production continuously in accordance with today’s, not yesterday’s, supply and demand. Only free markets can balance and synchronize the relative production of thousands of different commodities, and bring the quickest conversion to production of war goods.

The worst feature of price control is that it concentrates public attention on a false remedy which can only put the economy in a straitjacket, and divert attention from the remedies that really need to be applied. It is the very government that pretends to be “protecting” us against “inflation” by price controls that is causing the inflation by its monetary and credit policies-by unbalanced budgets, bad taxation, wasteful spending, and by holding down interest rates and monetizing the public debt.

And because these elementary things are still not understood, we are returning, on an even greater and more dangerous scale, to all the errors of the past.