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Will the Feds Try Price Controls to “Fix” Price Inflation? | Mises Wire

Posted by M. C. on July 15, 2021

Capping the amount of money a producer can charge for a product will not stimulate increased production or investment—why would it? This is why shortages inevitably follow: Who would enter into production or increase their production of a good at a time when doing so is a money-losing venture?

That being the case, price controls and the determined politicians who support them, are likely to push us even further down the road to serfdom than we already are.

https://mises.org/wire/will-feds-try-price-controls-fix-price-inflation

Joseph Solis-Mullen

As it began rapidly expanding the money supply early in 2020, the Fed confidently assured the public there would be no unanticipated or serious rise in inflation. Now that their projections have failed to materialize (in fact, their forecasts were off by almost 40 percent), they assure us that this will be but a temporary spike.

But for the sake of argument, let us imagine they are wrong—something that considering their track record is not difficult to do: What then?

As policymakers continue to mine the twentieth century for mistakes to repeat—from protectionism to higher taxes, to trying to start a second Cold War technology and arms race—it seems only logical to ask how long it will be before popular discontent over the rising consumer prices generated by their mismanagement of the money supply leads them to resurrect one of the most serious and notable policy failures of the last hundred years: price controls. After all, prices are rising rapidly, right?

Meant to arrest the rise in prices brought on by the increased amount of money pursuing the same basic amount of goods—since February 2020 M2 has expanded more than 25 percent—price controls have only ever brought shortages and poverty despite their typical initial popularity.

Should inflation persist or accelerate, price controls may be presented as a temporary necessity, as in 1971 under Nixon. Far more certain, however, is that price controls, whatever their guise, will do nothing to resolve the issue underlying the inflation: the amount of goods and services being produced are being outstripped by the growth in the money supply.

Capping the amount of money a producer can charge for a product will not stimulate increased production or investment—why would it? This is why shortages inevitably follow: Who would enter into production or increase their production of a good at a time when doing so is a money-losing venture?

That being the case, price controls and the determined politicians who support them, are likely to push us even further down the road to serfdom than we already are.

As Ludwig von Mises explained in a 1958 address at the University of Buenos Aires, attempting to control the price of a good or goods will ultimately require control over the prices of the inputs that go into creating them—and then further control over the inputs that go into the inputs that go into the creation of the good, and so on.

The reason is simple: the government’s desire to see continued production of a good maintained or expanded at prices less than the cost of the inputs necessitates, by their thinking, the capping of the prices of those inputs as well.

These are frankly dangerous times, and we should be earnestly unsettled by the fawning masses at the feet of an increasingly interventionist government comfortably ensconced in power despite manifold ineptitudes on virtually all sides—including in the handling of the present crisis. Indeed, under the auspices of preserving public health, in the last year the government, at various levels, has undertaken violations of property rights previously almost unimaginable in a liberal republic whose constitution explicitly provides for their protection.

Should the Fed’s forecast prove incorrect yet again—and by a similarly enormous margin—the pressure on the Biden administration from the Left will intensify. It supported rent freezes, direct payments, massive fiscal stimulus, and an almost doubling of the federal minimum wage—what next if not price controls?

And if, in an attempt to control prices, your business or labor are “needed” to produce something you don’t want to produce at a price you won’t agree to, attempted requisitions and appropriations may be only an executive order away. Author:

Joseph Solis-Mullen

A graduate of Spring Arbor University, J.S. Mullen is a current graduate student in the political science department at the University of Illinois. An author and blogger, his work can be found at http://www.jsmwritings.com.

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The Puritan Experiment with Price Controls

Posted by M. C. on August 31, 2020

The Puritans had to be a practical people. The New England wilderness was a rugged testing ground. Commitment to principle was important for their religious and psychological survival, but they were always convinced that Christianity is an eminently practical religion. If a particular policy failed again and again, then Puritan political leaders and ministers were willing to rethink the policy. Either it had to be based on a false principle, or else there had to be a misapplication of a general principle. After half a century of failure with price control legislation, Puritans were quite willing to let the civil government retreat from the market’s pricing activities. They did not stop preaching about economic oppression or personal immorality in economic transactions, but they no longer sought to involve the machinery of civil government in questions of cost and price.

The important fact for American economic history is that the old belief, imported uncritically in the name of Christianity, that the civil government needs to set “just” prices, was abandoned. A medieval legacy — itself the product more of Aristotelian logic than biblical exposition — no longer was assumed to be necessary in a Christian commonwealth. Men were left free to truck and barter at prices determined by mutual consent. A crucial break with an intellectual tradition that had been somewhat hostile to the free market was accomplished in 1676. Americans in peacetime would be left free to pursue their vocations as they chose, not as some governmental panel of “disinterested, distinguished persons” might choose.

https://www.garynorth.com/public/18062.cfm

Gary North – May 11, 2018

The court having found by experience, that it would not avail by any law to redress the excessive rates of laborers’ and workmen’s wages, etc. (for being restrained, they would either remove to other places where they might have more, or else being able to live by planting and other employments of their own, they would not be hired at all), it was therefore referred to the several towns to set the rates among themselves. This took better effect, so that in a voluntary way, by the counsel and persuasion of the elders, and example of some who led the way, they were brought to more moderation than they would by compulsion. But it held not long. — Gov. John Winthrop Winthrop‘s Journal, II, p. 24.

The little band of Pilgrims who settled Plymouth Colony in 1620 are more famous in children’s textbooks than their neighbors, the Puritans. Plymouth Rock, Thanksgiving, Miles Standish, and Speaking For Yourself, John, are all ingrained in the story of America’s origin. Nevertheless, in terms of historical impact, the Pilgrims never rivaled their Puritan neighbors. Plymouth Colony remained a relatively isolated and closed society until it finally merged with Massachusetts in 1692. It was Gov. John Winthrop, not Gov. William Bradford, who left his mark on American institutions.

The first generation of New Englanders were an optimistic bunch. Even those social and religious outcasts who wound up in Rhode Island shared this faith in the future. The Puritans, in the famous words of Gov. Winthrop, expected to become a “city on a hill,” like the shining community mentioned in the Gospel of Matthew (5:14) —a light to the darkness of the world, an example of how godly living, both personal and social, might bring prosperity and peace on earth. By the preaching of the gospel and the establishment of Christian institutions, they believed, Christian reconstruction of the world is not only possible but mandatory. This vision is best seen in the history of New England written by Edward Johnson in 1653: “I am now pressed for the service of our God Christ, to re-build the most glorious Edifice of Mount Zion in a wilderness. . . . Then my dear friend unfold thy hands, for thou and I have much work to do, aye, and all Christian Soldiers in the world throughout.”

The question of what constituted a truly godly economic system did not immediately disturb them. The leaders of the colony were sons of the lesser British gentry, made up of men trained in law, theology, and the classical education of the universities, Cambridge and Oxford. Most of the people were farmers, with a scattering of craftsmen and artisans (too few, as they were to discover); they were literate, reflecting the Puritan emphasis on education, but hardly scholars. What little economics their leaders brought with them was basically the economics of the medieval schoolmen. Economics was only just beginning to become an independent discipline in England; there were no professional academic economists, and very few men who were more than pamphleteers even among the “professionals.” Thus, it is not surprising that the first two generations of leaders in New England should have fallen back upon “tried and true” medieval economic concepts. One of these was the concept of the just price.

A “JUST” PRICE

A lot of needless confusion has emerged from discussions of scholars concerning the just price. From the time of Thomas Aquinas right up until the mid-seventeenth century, a “just” price was assumed to be the market price during “normal” times. No widely read schoolman ever tried to compute some mathematically precise formula on the basis of ethics; indeed, Aquinas himself had denied that such precision is possible. The problem of justice arose when there were disruptions in the market — a war, a famine, a local production monopoly — that made it appear that justice was being thwarted by greedy exploiters. Then the standard approach was to assemble a group of distinguished, “impartial” leaders in the community, and they were supposed to determine the proper prices for various commodities. The goal, officially, was consumer protection. More often, not unsurprisingly, the result was the creation of an even more monopolistic guild, for the “just” or “reasonable” price was, in the absence of a competitive market price, computed on a “cost-plus” basis. As in World War II, this was more apt to lead to producer protection — from more competitive producers.’

These restrictions on free entry — to guarantee “quality” production from “unscrupulous” producers who would offer shoddy goods at lower prices — were the foundation of the medieval guild system. Similar restrictions operated in New England during the first half-century of its existence. Licensing, municipality-enforced inspections, and self-policing by guild members were all features of the medieval city and the New England town. But the most common feature was a system of price and wage controls.

EARLY CONTROLS

Almost from the beginning, the colony of the Massachusetts Bay Company placed controls on the wages of artisans. The colony was begun in 1629; in 1630 a law was passed which established wage ceilings for carpenters, joiners, bricklayers, sawyers, and thatchers. Common laborers were limited to twelve shillings a day, or six if meat and drink were provided by the employer. Any artisan violating this statute was to be assessed a ten shilling fine. The effect of these wage ceilings must have presented itself almost immediately: an excess of demand for the services of artisans over the available supply. Under such conditions, it is always difficult to recruit labor. Within six months, these wage ceilings were repealed, leaving wages “free and at liberty as men shall reasonably agree.”° The implication was clear enough, however: if men should again grow unreasonable, the controls would be reimposed. They were.

The history of price and wage controls in New England is an “on again, off again” affair. The year 1633 brought a new set of regulations, a law which the magistrates saw fit to repeal in 1635. The repeal was of a special nature, however. The civil government imposed a general profit margin of 33 per cent on any goods sold retail in the colonies if the particular good was imported. No imported good could therefore be sold above 33 per cent over the London price. The magistrates then inserted a clause which was almost calculated to drive merchants and laborers to distraction. Instead of setting forth in the statute a precise, predictable definition of what constitutes economic injustice and therefore a breach of the written law, the magistrates chose instead to warn citizens against violating the intent of the law:

Whereas the former laws, the one concerning the wages of workmen, the other concerning the prices of commodities, were for diverse good considerations repealed, this present Court, now, for avoiding such mischiefs as may follow thereupon by such ill-disposed persons as may take liberty to oppress and wrong their neighbors, by taking excessive wages for work, or unreasonable prices for such necessary merchandise or other commodities as shall pass from man to man, it is therefore now ordered, that if any man shall offend in any of the said cases against the true intent of this law, he shall be punished by fine or imprisonment, according to the quality of the offense, as the Court upon lawful trial and conviction shall adjudge.

In short, there was a law against “excess profits” back in 1635, and it provided the law enforcement agents with a considerably broad unspecified coverage. The men involved in trade in 1635 had about as little notion of what constituted the limits of state authority in the realm of economics as men have today. The 33 per cent figure was one of the few to appear in the legislation of that era, but men could never be certain that the court or courts would uphold the validity of any given transaction. It made for a considerable degree of uncertainty in economic exchange.

THE ROAD TO SERFDOM

Max Weber, the great German sociologist, argued on several occasions that the essence of both theocratic commonwealths and socialist regimes is this reliance upon substantive concepts of justice. The law of the land is governed in terms of a higher ethical or theological system than mere economic efficiency or the possibilities for profit. (It could be argued, of course, that the emphasis on economic efficiency to the exclusion of everything else is equally religious in impact, equally ethical.) What characterizes most capitalist economies, on the other hand, is a system of written, formal, predictable law that inhibits the decision-making power of theocratic rulers or socialist bureaucrats and planners. F. A. Hayek concurs with Weber, and his Road to Serfdom and especially The Constitution of Liberty are eloquent defenses of the rule of formal law as the foundation of the free society as well as the free market. What is essential to capitalism, both Hayek and Weber agree, is legal predictability. Written law is important, though not absolutely essential. (England has resisted formal written law for centuries, while the Soviet Union had a nice written Constitution that was operationally impotent.) Men need to know what to expect from the civil government if they are to plan rationally and make economic decisions effectively.

The magistrates, by assuming that the inherited medieval concern about “ethical” pricing was the Christian approach to economic affairs, necessarily created a dilemma for themselves and the citizens of Massachusetts. How does one determine what is a just price? What are the legitimate limits on economic oppression? How is the individual bargainer to estimate whether or not he is making an infraction against the “true intent of this law”? What are the legitimate limits on state authority? Prediction becomes exceedingly difficult, for the traders can never be sure of how the magistrates — who were also the final court of appeals — would estimate “the quality of the offense.”

Another problem was the establishment of the locus of authority. (The Soviet Union was eternally caught on the horns of this dilemma.) Should the local civil government set prices in terms of local conditions, or is the central government responsible? In October, 1636, the General Court of Massachusetts delegated the authority to regulate prices and wages to the various towns. Nevertheless, the magistrates could not resist the cry of “oppression,” and in March of 1638, a committee was set up to investigate complaints against exorbitant prices and wages. Such ruthless pricing, the authorities stated, is “to the great dishonor of God, the scandal of the gospel, and the grief of diverse of God’s people, both here in this land and in the land of our maturity. . . .” The city on a hill was not setting a godly example to the heathen and the people back home in England. The central government continued to maintain its right to step in and regulate prices when such action seemed warranted by the situation, but in general the towns did most of the regulating work after 1636. Only with the great Indian war of 1675-76 did the central government step in to take vigorous action against high prices. As Prof. Richard B. Morris summarizes the history of the controls: “The codes of 1648 and 1660, and the supplement of 1672, continued substantially the basic law of 1636 against oppression in wages and prices, leaving to the freemen of each town the authority to settle the rates of pay.”

CONNECTICUT’S WAGE CODE

The other Puritan colonies were no better, with the exception of the Pilgrim group in Plymouth. Connecticut‘s General Court insisted that men had not proved reliable when left as “a law unto themselves,” and therefore it passed an incredibly detailed wage code. At first, the officials apparently had no insight into the consequences of the regulatory nightmare they were constructing. Skilled craftsmen were not to accept more than 20 pence a day (12 pence to a shilling) from March 10 through October 11, nor above 18 pence for work on any other day during the year. This included carpenters, masons, coopers, smiths, and wheelwrights. All other handicraft workers were prohibited from taking more than 18 pence per day for the first half of the year, nor more than 12 pence during the remainder of the year. Workers were obligated to work an eleven-hour day in the summer, in addition to eating and sleeping, and nine hours in the winter. Price controls were placed on sawed boards.” This jumbled mass of legislation was repealed within a decade.

New Haven Colony, which was merged with Connecticut in 1662, imposed controls in 1640, just as the great economic depression of the 1640’s struck New England. No longer would there be the massive exodus of Puritans from England, for the Civil War of the Cromwell era had begun, and English Puritans stayed in the British Isles to fight. Thus, the capital and currency brought in by immigrants from 1630-40 was instantly cut off. Prices collapsed almost overnight. The irony of imposing price controls in the year of the beginning of a collapse in prices should be obvious. As in the comparable medieval legislation, a group of supposedly disinterested men served as the committee which judged individual situations in cases involving disputes. These controls do not appear in the 1656 law code of the colony, indicating that they had abandoned price controls in the intervening period.

THE TRIAL OF CAPTAIN KEAYNE, A TYPICAL CASE

Historians are not agreed on the actual effects of such legislation. Some think that the Puritans were in dead earnest about enforcing the codes.” On the other hand, one scholar has argued that they probably were not that crucial in operation; between 1630 and 1644 — the years of the most rigorous legislation in Massachusetts Bay Colony — less than twenty people were actually convicted for violating the wage and price guidelines. Twice as many people were convicted for speaking out against public authority in this period. The most famous case was the trial of Capt. Robert Keayne, but there is good reason not to regard this as a typical case.

Capt. Keayne, officer of the Artillery Company, was a zealous Puritan, a merchant of Boston, a public leader, and the subject of the most famous economic trials of New England. The 1639 trial involved a dispute over his alleged price gouging; the 1642 trial involved a dispute with a local woman over the ownership of a sow. (Incredibly, this was one of the most important trials in American history. The dispute over its result — Keayne was judged innocent by the magistrates — led to the establishment of a bicameral legislature, for the elected representatives of the towns, the deputies, sided with Keayne’s opponent, goodwife [Goodie] Sherman. The magistrates had vetoed the deputies, and the deputies finally pressed for a division in the legislature. A pig helped to destroy unicameralism in America!) In the 1639 trial, Keayne was convicted of economic oppression, and he was fined £200 (later reduced to £80 by the magistrates, to the dismay of the more “democratic” deputies), and he was forced to confess his economic sins before the First Church in Boston. This is the only case of economic confession in the archives of the Massachusetts ecclesiastical records.²º Thus, far from being typical, this famous trial was more of a pre-1640 symbol. Once his “deviant” behavior was exposed publicly, the public promptly forgot about it, although Keayne never did.

Keayne’s last will and testament, which has become one of the most important of all primary source documents for early New England history, records his disapproval of the whole affair. He desperately wanted to clear his name, a decade and a half later, even to the point of asking his estate’s overseers to petition the General Court to repeal the original sentence “and to return my fine again after all this time of enjoying it. . . . which I believe is properly due to my estate and will not be comfortable for the country to enjoy.” His economic practices had been fair, he claimed, and well within the bounds of merchants’ ethics. Those who had accused him were all liars, he said, and spent several pages of his will to refute them. Furthermore, other men had committed really serious crimes, but they had been fined lightly. Keayne’s most incisive observation related to the changed status of some of his former detractors. This statement offers considerable insight into the process of gradual decontrol of the economy after 1650:

[My own offense] was so greatly aggravated and with such indignation pursued by some, as if no censure could be too great or too severe, as if I had not been worthy to have lived upon the earth. [ Such offenses] are not only now common almost in every shop and warehouse but even then and ever since with a higher measure of excess, yea even by some of them that were most zealous and had their hands and tongues deepest in my censure. [At that time] they were buyers, [but since then] they are turned sellers and peddling merchants themselves, so that they [the crimes] are become no offenses now nor are worthy questioning nor taking notice of in others.

What had taken place to change the public’s opinion about price controls? First, as Keayne noted, the self-interest of some of the participants had changed, so their ethics had changed. Second, the depression of 1640-45 had begun to slacken in the later 1640’s, and one of the sources of revival was the birth of the New England shipping trade. The merchants were important in the economy now — crucial, in fact — and their influence could not be ignored without cost. New England in 1650 was no hotbed of laissez-faire capitalism by any stretch of the imagination (or manipulation of the footnotes), but the old suspicion toward business was never completely revived after the 1640’s.

A PROBLEM FOR POLITICIANS

Keayne’s case had posed a serious problem for the political leaders and the ministers who served as their advisers. (Ministers were not permitted to hold political office in New England, for this was regarded as a breach of separation between two God-ordained offices. There was no separation of religion and state — except, as always, among the outcasts of Rhode Island — but there was an official separation of powers, sword and word.) Gov. John Winthrop records in his diary the problems confronting the judges. Rev. John Cotton, probably the leading social theorist among the New England clergy, had outlined for the magistrates the standard medieval critique of free pricing, already over four centuries old in European thought. Primary rule: no man has the right to buy as cheaply as he can in all cases, nor sell as dearly as he can in all cases, even if the market should permit it. Second, no man of business should take advantage of another’s ignorance to make a profit. Third, he may not sell above the current market price, even to make up for losses on other items, a restriction which was basic to medieval Christian casuistry. (Casuistry: the application of general principles to specific circumstances.)

In applying these standards in Keayne’s case, Winthrop said, the magistrates had tended toward leniency. He offered several reasons why. First, there was no law prohibiting profit as such. Second, because men in all countries use their advantage to raise retail prices. Third, he was not alone in his fault. But the fundamental point was the final one. It is here that we see the ultimate chink in the armor of all price control schemes, from 1100 A.D. to the present: “Because a certain rule could not be found out for an equal rate between buyer and seller, though much labor had been bestowed upon it, and diverse laws had been made, which, upon experience, were repealed, as being neither safe nor equal.” Aquinas himself had warned that “the just price of things is not fixed with mathematical precision, but depends on a kind of estimate, so that a slight addition or subtraction would not seem to destroy the equality of justice.” Finding that elusive “equal rate” proved to be more of a task than successive pieces of legislation could achieve in New England, no less than in Europe as a whole. No one knew what a just price was.

Kai Erikson has written with respect to social deviants that they perform a kind of communal function. The deviant is ushered into his role “by a decisive and often dramatic ceremony, yet is retired from it with scarcely a word of public notice.” This was certainly Keayne’s fate. He was later elected as a magistrate, and his occasional lapses into drunkenness are noted in the official records only by the imposition of small fines. The humiliation of the trial disturbed him until his dying day, but the Puritan community, having made its point, was content to let bygones be bygones. It had asserted its medieval economic standards, and it promptly went about undermining them, a fact which Keayne saw clearly, but which did not bother the majority of his more energetic contemporaries. So long as a man’s conscience was sound and his intent was just, he was free to go about his business. Obviously, to prove the state of a man’s conscience, especially if the suspect happened to be a leader in Puritan politics, industry, or shipping, would be no easy task. This difficulty would be far more obvious to the magistrates in 1650 than it had been in 1639.

WAGE CONTROLS IN 1641

The last major attempt by the central government of Massachusetts to control wages in peacetime came in 1641. The scarcity of money — scarce in comparison to prices common the year before —had disrupted the economic life of New England. Immigration from England came to a standstill; indeed, a few energetic Puritans returned to England to participate in the Civil War against Charles I. Merchants were closing their doors, manufacturers were refusing to hire laborers. The General Court declared that laborers must accept a mandatory reduction of wages proportional to the reduced price of the particular commodity they labored to make. Laborers, the law declared, “are to be content to partake now in the present scarcity, as well as they had their advantage in the plenty of former times…” At least the magistrates had enough sense to control prices in the general direction of the market. In tying the laborer’s wage to the value of his output, they acknowledged the close relation between the market price of the produced good and the value of labor’s services. In contrast to modern wage controls during a depression — wage floors, compulsory collective bargaining, artificial restrictions on entry into labor markets, and so forth — the Puritans of 1641 understood that laborers should accept a lower wage if the value of their output was falling. Three centuries later, their descendants were not to show equal wisdom in the face of a similar collapse in price expectations, even those who were the officially certified experts in economics, a discipline undreamed of in 1641. The Puritans used shipping and increased agricultural output to revive their economy; their descendants used deficit financing and a world war, and even then their depression lasted longer. The price controls of the seventeenth century, however misguided, were a lot more sensible than those of the twentieth century.

1675: THE TURNING POINT

After 1650, there was a relaxation of economic controls, especially price controls. (The controls on product quality and guild output did continue, sporadically.) As the new shipping trade expanded, the market expanded. This expansion of market transactions, especially in the Boston vicinity, encouraged the greater specialization of production, and hence encouraged greater economic productivity. Furthermore, as more people entered the markets, both as producers and buyers, the ability of individuals to manipulate specific prices decreased. There was more competition, greater knowledge concerning alternative prices and substitutes, and more familiarity with trade. The price spread between producer and consumer naturally decreased as participants became more skilled in their transactions. Thus, the need for specific legislation was reduced, as far as the magistrates were concerned. Medieval just-price theory had always accepted market pricing as valid, except in “uncommon” or emergency conditions, and with the expansion of the free market came a respite from political intervention into market pricing. The last great outburst of intervention came in 1675-76, during the serious Indian uprising known as King Philip’s War.

People seldom hear of King Philip’s War today, yet in terms of the percentage of Americans who died in any war, this was by far the worst. The Indians, led by their prince who was known as King Philip by the whites, struck without warning up and down the edge of the New England frontier. For almost a year it looked as though they would triumph, or at least seriously restrict European settlement in the area. Estimates of the loss of life have ranged above ten percent of the total population of the whites, unmatched by any other war. Thousands lost their homes and fled to the urban areas of more populated towns. Understandably, such population shifts put terrible burdens on the New England economy. Outfitting the militia and paying the salaries intensified the disruption, as men left their farms and shops to join the armed forces.

PASTORAL PESSIMISM

For years, Puritan preaching had become increasingly pessimistic in approach. After 1660, the old theological optimism had begun to fade, and a new sermon style appeared. Known today as the “jeremiad,” these sermons warned the people against the consequences of sin and the failure of the young generation to join the churches as members (membership had always been a minority affair in New England, but after 1660 it was even more of a minority affair). Michael Wigglesworth’s famous poem, the Day of Doom, and his less famous God’s Controversy with New England, became bestsellers in their day (the early 1660’s). Pastors warned of God’s impending judgment; the old faith in New England as a triumphant “city on a hill” appeared less and less in the sermons. The Indian uprising seemed to confirm all the dire prophecies of the ministers.

Rev. Increase Mather (who along with his son Cotton became the most prolific writing team in American history) pressed the General Court to pass a list of “Provoking Evils” that had brought on the curse of the war. The “democratic” deputies instantly followed his advice; the “aristocratic” magistrates held out for a week, until the news of another Indian victory forced them into action. The list included the usual social failings: the ignoring of God’s warnings, the many uncatechized children in the commonwealth, the decline of church membership, the wearing of wigs, long hair among men, and luxurious wardrobes, the existence of Quakers (this issue had faded in the early 1650’s). (Topless fashions among women — far more common in 1675 than today — drew a fine of 90 per cent less than the fine for being a Quaker, which may indicate something about Puritan priorities in 1675.) But the list of “Provoking Evils” could not be rounded out without calling attention to various economic oppressions. Double restitution for price gouging was imposed (for the amount of the overcharge); fines could also be imposed by the court. (Today, we also hear suggestions to impose a system of restitution for crime victims, but with this grim variation: the victims are to be reimbursed by the taxpayers, not the criminals.) Complaints against artisans and merchants could be lodged by “victims,” but there was no mention of inflated agricultural prices.

The key concern of the magistrates was shown in the following year, 1676. Inhabitants of different counties were charging varying prices for the same goods sold to the militia. (You can be virtually assured that the higher prices appeared in those areas where the militia was actively engaged at any point in time.) The General Court asserted that goods and services are the same in value, wherever found, that is, a rifle is a rifle, in any county of Massachusetts. The answer to this problem, said the Court, was the imposition of full-scale price controls, and this became law on May 3, 1676. This was the last fling; not for another century, when a new war broke out, would any New England legislature pass such a comprehensive scheme of price controls. So they created a central council:

It is ordered by this Court, that a committee shall be chosen in each county to examine the rates put upon all manner of things used or expended for the public, and to view the particular bills allowed by the militia of each town for expenses, until the first of this instant [month]. And so far as they judge right and equal, to pass the same under their hands. And the committees above said are hereby ordered to choose one man from among themselves, in every [one] of the counties, who shall meet at Boston the first fourth day in July next, and bring with them the accounts allowed and passed in the several counties, where and when their work shall be to compare them together, and to regulate the whole, as to them shall seem most just and equal. . . .

ONE LAST TRY, THEN A CENTURY OF FREEDOM

A very similar piece of legislation was passed by the Connecticut legislature in the same month. Under the pressure of war, the magistrates and deputies could not resist the lure of officially stable, universal prices. The lessons provided by four and a half decades of price control legislation had not sunk in; the leaders still thought that they could legislate away the economic realities of scarcity and dislocation. Fortunately for the New England economy, the war ended before the year was over; the price controls of 1676 were allowed to lapse before the shortages, black markets, and disrupted supplies that are the inevitable products of price controls, could appear.

This was the high-water mark for price controls in New England. English mercantilism imposed controls on external trade, but not until 1776 were the people of New England to see full-scale price and wage controls. (Those controls proved to be economically disastrous.) After 1676, a whole series of restraints on free bargaining were allowed to fade away. Controls on fashion — status-oriented sumptuary laws —disappeared. As discussed in a previous article, controls on the buying and selling of land were abandoned. Clearly, it was the end of an era. A half-century of experimentation with intermittent price and wage controls had ended.

There was one exception to this general rule. The Massachusetts legislature did try, from time to time, to regulate the price and quality of bread. This continued until 1720. Finally, the legislature passed one last bill, an incredibly complex set of regulations on the price and size of each loaf — four general price categories, 23 different weights, three types (white, wheaton, household) — and explained why such a law was necessary. The preface of this bill is an archetypal summary of the total ineffectiveness of price controls through the ages:

. . . the act made and passed in the eighth year of King William III, entitled “an act for the due assize of bread,” is found not effectual for the good ends and purposes therein designed, and a little or no observance has been made thereof, but covetous and evil-disposed persons have, for their own gain, deceived and oppressed his majesty’s subjects, more especially the poorer sort. . . .

I have not been able to ascertain if anyone was ever brought to trial as a result of this law, but there is no indication in the colony records that I have been able to locate which indicates that this control of bread prices was ever attempted again. My guess is that this absence is not due to the success of the law in thwarting “covetous and evil-disposed persons,” but rather that the law was, as all the others before it had been, a failure. The search for the “just price” was over.

CONCLUSION

The Puritans had to be a practical people. The New England wilderness was a rugged testing ground. Commitment to principle was important for their religious and psychological survival, but they were always convinced that Christianity is an eminently practical religion. If a particular policy failed again and again, then Puritan political leaders and ministers were willing to rethink the policy. Either it had to be based on a false principle, or else there had to be a misapplication of a general principle. After half a century of failure with price control legislation, Puritans were quite willing to let the civil government retreat from the market’s pricing activities. They did not stop preaching about economic oppression or personal immorality in economic transactions, but they no longer sought to involve the machinery of civil government in questions of cost and price.

The important fact for American economic history is that the old belief, imported uncritically in the name of Christianity, that the civil government needs to set “just” prices, was abandoned. A medieval legacy — itself the product more of Aristotelian logic than biblical exposition — no longer was assumed to be necessary in a Christian commonwealth. Men were left free to truck and barter at prices determined by mutual consent. A crucial break with an intellectual tradition that had been somewhat hostile to the free market was accomplished in 1676. Americans in peacetime would be left free to pursue their vocations as they chose, not as some governmental panel of “disinterested, distinguished persons” might choose.

___________________________

This was published in May 1974. The original with footnotes is here. I have put references to the Soviet Union into the past tense.

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EconomicPolicyJournal.com: Krugman Calls for Price Controls

Posted by M. C. on April 4, 2020

https://www.economicpolicyjournal.com/2020/04/krugman-calls-for-price-controls.html

It is difficult to believe that Paul Krugman was trained as an economist.

He is now calling for price controls.

It is precisely during a crisis that it is more important than ever for price signals to be in operation so that businessmen and entrepreneurs know where to direct their skills, talent and product.

Price controls distort these signals and result in less of the most important products demanded to be produced and delivered.

RW

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EconomicPolicyJournal.com: There is Plenty of Toilet Paper

Posted by M. C. on March 22, 2020

Those of us that are good at figuring out angles will keep our lifestyles but for those of you who aren’t aggressive entrepreneurs, the socialists are going to make your lives miserable.

https://www.economicpolicyjournal.com/2020/03/there-is-plenty-of-toilet-paper.html

By Robert Wenzel

There are plenty of empty shelves in San Francisco. You can’t find any toilet paper or paper towels in any stores.

Some are blaming capitalism as if things would be different if Venezuelan president Nicolás Maduro were in charge.

The real problem is that the San Francisco government along with many other US governments is acting too much in the anti-free market authoritarian manner of Maduro.

Here’s a recent message from the socialist San Francisco district attorney Chesa Boudin:

What a confused little man.

Maduro has price controls in effect and we all know how that is working out.

The current problem is one of distribution and incentives, both short-term and long-term.

In the recent past, most stores and consumers operated on pretty much “just in time” inventory when it came to toilet paper and paper towels.

This changed when the government started a panic over COVID-19. Some fearing a lockdown went to stores and grabbed as much toilet paper and paper towels as they could handle.

That left many more, well, shit out of luck, when it comes to toilet paper.

But the big problem is the anti-free market, anti-gouging rules.

People who have been selling toilet paper and paper towels for decades on a “just in time” inventory basis are not exactly, cutting edge, figure every angle entrepreneurs. They like steadiness and consistency.

I mean, they even understand this. The famous”don’t squeeze the Charmin” ads were built on the theme that grocers want steadiness and consistency—and certainly no one squeezing the Charmin.

If you want steadiness and consistency, you can have a nice life by being Mr. Whipple, but rarely are you going to become super-rich. That’s for the shrewd and aggressive.

When you have a supply line break, the Mr. Whipple’s of the world have no clue how to get aggressive about supply chains and pricing. They don’t want to, it is not in their blood.

What is needed is for the super aggressive to get working on the matter but they need to be motivated by money. A lot more money than the margin made by Mr. Whipple. You need the free market A Team working on this.

Government authoritarians like Boudin don’t get this. They consider free market, incentivized prices as “price gouging.” But when there has been a severe supply distortion for a commodity you want to buy, you really need sharp entrepreneurs to figure the angles and they are not going to do it for Mr. Whipple wages.

Consider my own situation. My just-in-time supply of toilet paper was running low. There is none, here in San Francisco, in supply at grocery stores or at any Walgreens or CVS stores.

So I had to think for a minute, then the solution came to me.

There are some restaurants that remain open in San Francisco but are operating on a “grab and go” basis. So my thought was, they must be packed with toilet paper that they aren’t using that they had in stock for in-restaurant dining. I will approach them and offer to buy some toilet paper.

The first two places I approached gave me a song and dance about why they couldn’t do it. There are just a lot of people who can’t think outside of routines.

Then I scored on my third try. I explained I wanted to buy some toilet paper. I told the owner, “I will pay good money.”

So the proprietor brought out a two-roll pack. The closet was close enough when he got the pack that I could see he had a full carton of toilet paper, 12 sets of 2 packs.

With the two roll pack in front of him, he said, “I am going to have to charge you $3.00.”

I replied, “I will buy the full carton for $60.” That’s $5.00 a pack, he was ecstatic.

As I walked home, I thought to myself, San Francisco is filled with toilet paper in gyms to skyscrapers that are not being used. I thought of the angles I could use to gain access to that toilet paper for around $5.00 a roll.

The city is filled with toilet paper.

I am pretty confident I could put a kid at a table on the sidewalk and sell them for $10.00 a roll, when you consider the alternative for prospective buyers. I think I could bank six figures every few days and take care of the asses of the masses.

But Boudin makes that impossible.

I have no incentive.

The masses will be wiping their asses with newspapers, at best, because Boudin thinks I would be gouging by hustling and figuring out the angles to free up the toilet paper that is out there that people want desperately.

Those of us that are good at figuring out angles will keep our lifestyles but for those of you who aren’t aggressive entrepreneurs, the socialists are going to make your lives miserable.

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Doug Casey on the Crisis “Medicare for All” Will Cause

Posted by M. C. on December 6, 2019

https://internationalman.com/articles/doug-casey-on-the-crisis-medicare-for-all-will-cause/

by Doug Casey

…The system revolves around the FDA. In theory, it should protect the consumer, but in fact it does the opposite. The FDA should be renamed the Federal Death Authority, because it kills more people every year than the Defense Department does in a typical decade.

Why do I say that? For one thing, it takes 10 years for a new drug to be approved, and it averages not just $1 billion dollars, but now more than $2 billion for the typical drug to be approved—and only very few are ever approved. That’s because there’s only a minimal risk to the FDA in not approving them but a huge risk that they’ll be embarrassed if something goes wrong with one that is approved.

Second, the whole system is very bureaucratized. When you go to a doctor’s office, you’ll notice that probably half the staff is not engaged in delivering medical services. They’re shuffling papers: insurance forms, regulatory forms, and various cover-your-ass records.

Third, the medical system is law driven more than science driven. Doctors have to be very careful about what they say and do; the society has become very litigious. One of the major expenses of being a doctor is malpractice insurance. Particularly for some specialties.

There are thousands of lawyers in the US who specialize in suing doctors for real or imagined mistakes. For that reason, some specialists pay hundreds of thousands of dollars per year for their malpractice insurance.

Because of the dangers of being sued, doctors are practically forced to engage in defensive medicine. They prescribe all kinds of tests that don’t make sense, but they figure that it’s better to be safe than sorry—not for the patient’s sake but for the sake of a potential lawsuit.

All of this started with Franklin Delano Roosevelt. During World War II, he installed wage and price controls, and it was impossible for companies to give raises to workers. So they substituted benefits for cash, namely employer-paid medical insurance. One of the many disastrous distortions FDR cranked into the US economy.

On the bright side, despite these things, medical care has gotten much better because of advances in science and technology. The cost of medical care should have and would have been dropping—like the cost of computers—if not for State intervention. But that’s beside the point we’re discussing…

It’s a subtle corruption of the language to call “medical insurance” “health insurance.” It doesn’t insure your health. All it does is cover medical expenses. But they like to use the term “health care” because it sounds friendly and loving. “We’ll care for your health.” That sounds great! Sign me up! “Medical,” however, implies surgery, dangerous drugs, hospitals, and pain.

It’s a euphemism, and like all euphemisms, it’s dishonest. Health care or health insurance should always be called “medical insurance,” because it will at best cover your medical expenses. Calling it “health care” and saying it’s “free” is just dishonest marketing…

Doug Casey: To start with, the 34% of Americans who are “insured” through a government plan aren’t actually insured. They’re not paying market-based premiums based on actuarial tables—considering age, preexisting conditions, and the like—intended to spread the risk of serious sickness or injury.

Medicare and Medicaid are actually welfare programs. They have nothing to do with insurance. Using that term gives them and those who use them undeserved respect.

Medicaid is one hundred percent welfare, and Medicare is mostly a welfare program. They shouldn’t be termed “insurance.”

The important point is that they shouldn’t exist. Why should the State cover a person’s medical costs? If it should, maybe it should also cover their food, shelter, and clothing—oh, wait, I forgot, it does. And even the cost of their cellphones. But cars are also important. When someone’s car stops working, shouldn’t that be covered as well?

How about their dog? How about farm animals?

Is somebody else’s bad health a mortgage on my life?

Bad things happen. That’s why you buy insurance. If you can’t afford insurance, that means you managed your life badly. It’s not up to strangers to kiss it all and make it better for you.

Most diseases and many injuries are a result of people not taking care of themselves. They overeat, don’t exercise, use alcohol and drugs, and engage in bad lifestyles. Those are moral failures. I don’t want to pay for those people’s moral failures. Neither should you.

International Man: Over 59 million Americans are on Medicare. Bernie Sanders and other presidential candidates have made “Medicare for all” one of their biggest campaign promises.

What type of care can Americans expect to receive in a single-player system, with national coverage for all?

Doug Casey: It would mean disastrous and degenerating care.

They like to bring up Canada and Britain as examples—and they’re very good examples.

The medical systems of both countries are in crisis. If you need an operation, it can be delayed for many months, sometimes more than a year. Forget about something that’s noncritical. The reason is simple: When you have scarce commodities like a doctor’s time and medical equipment, they have to be rationed.

There are three ways you can ration a commodity. By dollars, time, or political connections. In other words, you can pay for it and get it when you want it. Or you can wait in line—for who knows for how long. Or if you’re a VIP with friends in high places, you’re moved to the front of the line.

In places like Canada and Britain, you hardly have a choice. The single payer determines if you get treated, when you get treated, and how you get treated.

Furthermore, if something is “free,” which care from a single payer supposedly is—although it’s paid for by taxes—everybody wants as much as they can get. And as with any free good, people won’t economize.

Certain people are going to live at the doctor’s office. It’s going to turn some people into hypochondriacs. The idea of Medicare for all—or for that matter, Medicare for oldsters—is stupid and uneconomic from every point of view. More important, it’s morally depraved, because it uses the State to force some people—namely doctors and productive people—to pay for those who were too imprudent to provide for their own care.

As a fringe benefit, it will destroy the medical system. Doctors will wind up as veritable government employees. That will discourage them from spending six years and hundreds of thousands to learn their trade. There will be a lot more demand but a much smaller supply of doctors. At the same time, the amount of capital available for developing new drugs, new technology, and basic research will collapse. Why? All governments today are running gigantic deficits. This is likely to get much worse. They’ll put off the important in favor of the urgent, and the results are inevitable…

Just the other day I got an email from someone in Aspen who’s a member of a luncheon group I attend. Most of the guys are typical Aspen rich guys. One member, who’s in temporary (I presume) financial straits, wrote that his dog has a type of operable cancer. But it’s an expensive operation, and he can’t afford to pay for it.

He’s asked the guys at the luncheon group and his other friends to contribute to the cost of the surgery.

I have zero doubt he’ll raise the money. I don’t believe in charity, for reasons I’ve spelled out in the past. But I sent him a hundred dollars.

I wouldn’t, however, send anything to someone in the Third World with a problem (not to mention the fact it’s probably a scam run by some Nigerians). There are roughly 7.5 billion people on this planet. They all have problems and would all like $100.

But I sent him $100 for his dog. Why?

The fact that I did might generate further good feelings between us. (He seems like a decent guy, although I don’t know him well.) If I had just sent it into the ether for the medical care of some person in Africa, as opposed to this man’s dog, I know I’d be getting nothing back for it. In fact, maybe the African is a member of Boko Haram and would want to kill me just on general principles. This is one of many reasons giving money to “charity” is usually a mistake. Giving to an individual, even as a test of their character, is much wiser

Frankly, sometimes you value the life of a dog more than the life of some poor person outside of your circle. And sometimes you should. If it were my dog, there’d be no question about it.

That’s what this whole thing about insurance, Medicare, and a single-payer system is all about. It’s up to individuals—not State bureaucrats, not “the system”—to decide who lives and who dies. Including you yourself.

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EconomicPolicyJournal.com: California Governor Signs Law to Prevent Easing of Housing Crisis

Posted by M. C. on October 12, 2019

https://www.economicpolicyjournal.com/2019/10/california-governor-signs-law-to.html

Yes, that is exactly what he did.

California Governor Gavin Newsom signed a law that limits rent increases to 5% each year plus inflation until Jan. 1, 2030. It bans landlords from evicting people for no reason, meaning they could not kick people out so they can raise the rent for a new tenant. And while the law doesn’t take effect until Jan. 1, it would apply to rent increases on or after March 15, 2019, to prevent landlords from raising rents just before the caps go into place.

This will have serious impact whenever the limitation prevents the rental market from clearing. The state has 17 million renters.

As Dr. Walter Block explains in The Concise Encyclopedia of Economics:

Rent control, like all other government-mandated price controls, is a law placing a maximum price, or a “rent ceiling,” on what landlords may charge tenants. If it is to have any effect, the rent level must be set at a rate below that which would otherwise have prevailed. (An enactment prohibiting apartment rents from exceeding, say, $100,000 per month, would have no effect since no one would pay that amount in any case.) But if rents are established at less than their equilibrium levels, demand will necessarily exceed supply, and rent control will lead to a shortage of dwelling spaces. Absent controls on prices, if the amount of a commodity or service demanded is larger than the amount supplied, prices rise to eliminate the shortage (by both bringing forth new supply and by reducing the amount demanded). But controls prevent rents from attaining market-clearing levels and shortages result…

Economists are virtually unanimous in the conclusion that rent controls are destructive. In a late-seventies poll of 211 economists published in the May 1979 issue of American Economic Review, slightly more than 98 percent of U.S. respondents agreed that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, the June 1988 issue of Canadian Public Policy reported that over 95 percent of the Canadian economists polled agreed with the statement. The agreement cuts across the usual political spectrum, ranging all the way from Nobel Prize winners Milton Friedman and Friedrich Hayek on the “right” to their fellow Nobel Laureate Gunnar Myrdal, an important architect of the Swedish Labor Party’s welfare state, on the “left.” Myrdal stated, “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” Fellow Swedish economist (and socialist) Assar Lindbeck, asserted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”
Economists have shown that rent control diverts new investment, which would otherwise have gone to rental housing, toward other, greener pastures—greener in terms of consumer need. They have demonstrated that it leads to housing deterioration, to fewer repairs and less maintenance. For example, Paul Niebanck reports that 29 percent of rent-controlled housing in the United States is deteriorated, but only 8 percent of the uncontrolled units are in such a state of disrepair. Joel Brenner and Herbert Franklin cite similar statistics for England and France.

The economic reasons are straightforward. One effect of government oversight is to retard investment in residential rental units. Imagine that you have $5 million to invest and can place the funds in any industry you wish. In most businesses governments will place only limited controls and taxes on your enterprise. But if you entrust your money to rental housing, you must pass one additional hurdle: the rent-control authority, with its hearings, red tape, and rent ceilings. Under these conditions is it any wonder that you are less likely to build or purchase rental housing?…
Rent control has destroyed entire sections of sound housing in New York’s South Bronx. It has led to decay and abandonment throughout the entire five boroughs of the city. Although hard statistics on abandonments are not available, William Tucker reports estimates that about thirty thousand New York apartments were abandoned annually from 1972 to 1982, a loss of almost a third of a million units in this eleven-year period.

RW

Rent control: Does it work? - BBC News

I bet Londonstaners would like tax control even better.

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How So Many Bad Ideas Manage to Win on Election Day | Mises Wire

Posted by M. C. on November 9, 2018

The reason is well-captured by a quote from Jonathan Swift, in 1710: “Falsehood flies, and the truth comes limping after it.” At the last minute, lies, damned lies and statistics, not to mention unsupported claims, rumors, innuendo, etc., can have their greatest power, because there is not time for serious thought, research, and effective rebuttal before voters must cast what will therefore be far more misinformed ballots.

https://mises.org/wire/how-so-many-bad-ideas-manage-win-election-day

What struck me most as an example this year was “Rent control could spur more building,” by Gary Painter, in the Los Angeles Times (10/31). It was written in favor of California’s Proposition 10, which would have re-enabled majority-renter communities to vote themselves large benefits from others’ pockets by imposing new rent control laws (currently banned by state law).

While many studies have shown that rent control reduces construction, Painter offered an alternate theory to convince voters who oppose rent control for that reason. The core of his argument, which he intimated was a standard Econ 101 lesson (despite over 90% of economists expressing disagreement with his conclusion), was:

Price controls can actually spur an increase in supply. When housing developers have too much power in the market, they can maximize profits by raising rents on the apartments they already own. But if rent control limits that option, developers have to go to Plan B if they want to make more money: Build more units.

The core of Painter’s argument was that the consolidation of the homebuilding industry due to the great recession (the number of builders was approximately halved from 2007 to 2012) and further subsequent concentration in the industry, had given builders monopoly power, which they were using to reduce construction. Consequently, he argued that imposing rent control would be able to tame their monopoly power to increase rents, and leave them with building more rental housing as their sole means to higher profits.

There were many holes in this argument, but there was too little time to it to effectively rebut it before the election. Read the rest of this entry »

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How Champions of the Poor Become Tyrants | Mises Wire

Posted by M. C. on September 30, 2018

https://mises.org/wire/how-champions-poor-become-tyrants

In a free society, income and wealth gaps are driven by variations in skill, knowledge, talents, independence, creativity, drive, and willingness to take risks. People who are satisfied with safe and secure occupations — like economics professor, school teacher, nurse, dentist or tax return preparer — expect to have much less wealth and income than risk-taking individuals who successfully capitalize on splendid ideas that result in products and services that benefit all of society. In this system, quantity, quality, and prices are determined by the demand and supply of goods and services.

The diagram below depicts one of many markets. The good or service being exchanged could be homes, X-rays, bank reserves, hours of low-skilled labor needed, tickets to Solo: A Star Wars Story, or, in this case, smartphones. Demand (the blue line) and supply (the red line) meet at the purple point. Assuming a free market system of no taxes, subsidies, price controls, regulations, prohibitions, government ownership, etc., 150 smartphones are produced and sold to 150 consumers at a price of $700.

demand1.png

The blue demand line represents a queue that sorts people according to their willingness to pay. The person with the lowest willingness to pay is at the right end of demand (the blue point). He or she is only willing to pay $200 for a smartphone. The person with the highest willingness to pay is at the left end of demand. He or she is willing to pay up to $1200. Whereas only one smartphone would be sold if the price is $1200, 300 smartphones would be sold at a price of $200. Read the rest of this entry »

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