Supply and demand have been allowed to work in energy markets, resulting in ups and downs in gasoline prices. Strong demand coupled with regulatory supply restrictions that were worsened by severalhurricanes caused gasoline prices to go up. Consequently, accusations of “price gouging,” i.e. allowing market forces to set prices, abound in Congress and state legislatures, as do calls for price controls. They aren?t always called “price controls,” but some slick euphemism such as “anti-price-gouging legislation.” It?s the same thing.
The case against price controls is not merely an academic exercise, restricted to economics textbooks. There is a 4,000-year historical record of economic catastrophe caused by price controls. This record is partly documented in an excellent book titled “Forty Centuries of Wage and Price Controls,” by Robert Schuettinger and Eamonn Butler, first published in 1979.
The authors begin by quoting Jean-Philippe Levy, author of “The Economic Life of the Ancient World,” as noting that in Egypt during the third century B.C. “there was a real omnipresence of the state” in regulating grain production and distribution. “[A]ll prices were fixed by fiat at all levels.” This “control took on frightening proportions. There was a whole army of inspectors.” Egyptian farmers became so infuriated with the price-control inspectors that many of them simply left their farms. By the end of the century, the “Egyptian economy collapsed ? as did her political stability.”
In Babylon some 4,000 years ago, the Code of Hammurabi was a maze of price-control regulations. “If a man hire a field-labourer, he shall give him eight gur of corn per annum;” “If a man hire a herdsman, he shall give him six gur of corn per annum;” “If a man hire a 60-ton boat, he shall give a sixth part of a shekel of silver per diem for her hire.” And on and on and on. Such laws “smothered economic progress in the empire ? for many centuries,” as the historical record describes. Once these laws were laid down “there was a remarkable change in the fortunes of the people.”
Moving closer to modern times, George Washington?s revolutionary Army nearly starved to death in the field thanks to price controls on food that were imposed by Pennsylvania and other colonial governments. Pennsylvania specifically imposed price controls on “those commodities needed for use by the Army,” creating disastrous shortages of everything needed by the Army. The Continental Congress wisely adopted an anti-price control resolution on June 4, 1778, that read: “Whereas ? it hath been found by experience that limitations upon the prices of commodities are not only ineffectual for the purpose proposed, but likewise productive of very evil consequences ? resolved, that it be recommended to the several states to repeal or suspend all laws ? limiting, regulating or restraining the Price of any Article ? .” And, write Schuettinger and Butler, “By the fall of 1778, the Army was fairly well provided for as a direct result of this change in policy.”
At the end of World War II, American central planners were even more totalitarian minded when it came to economic policy than were the former Nazis. During the post-war occupation of Germany American “planners” rather liked the Nazi economic controls, including price controls, that were in fact preventing economic recovery. The notorious Nazi Herman Goering even lectured the American war correspondent Henry Taylor about it! As recounted by Schuettinger and Butler, Goering said:
“Your America is doing many things in the economic field which we found out caused us so much trouble. You are trying to control peoples? wages and prices ? peoples? work. If you do that, you must control peoples? lives. And no country can do that part way. I tried and it failed. Nor can any country do it all the way either. I tried that too, and it failed. You are no better planners than we. I should think your economists would read what happened here.
Price controls were finally ended in Germany by Economic Minister Ludwig Erhard in 1948, on a Sunday, when the American occupation authorities would be outof their offices and unable to stop him. This spawned the “German economic miracle.”
Price controls were the cause of the “energy crisis” of the 1970s and of the California energy crisis of the 1990s (only the wholesale price of electricity was deregulated there; controls were placed on retail prices).
For more than 4000 years dictators, despots, and politicians of all stripes have viewed price controls as the ultimate “something for nothing” promise to the public.
And for more than 4000 years, the results have been exactly the same: shortages, sometimes of catastrophic consequence; the proliferation of black markets; destruction of productive capacity in the industries where prices are controlled; the creation of oppressive and tyrannical price-control bureaucracies; and a dangerous concentration of political power in the hands of the price controllers.
Thomas DiLorenzo is a professor of economics at Loyola College; the author of How Capitalism Saved America (Crown Forum/Random House, 2004); and a member of The Examiner?s editorial board.
