Forty Centuries of Wage and Price Controls by Robert Schuettinger, published in 1979, reviews how controls placed on wages or prices by governments from Sumer to Nixon have failed. As the book was written prior to Reagan’s presidency his economic ideas are not covered. Using many ancient texts the author is able to demonstrate that whatever government has tried to control the economy it results in distorting the market to such a degree that the economy often ceases to work at all.
The normal result of controlling prices is products leave the market. Controlling wages causes people to leave the market. In some remarkable examples, especially during the Roman Empire and the Diocletian Reforms, the price of critical commodities were pegged below the market and those items just disappeared. In the case of wheat the farmers left the land. It got so bad that the government ordered people to stay on the land and grow the crops on pain of death. The prices were so low and the taxes so high the farmers were starving. Thus, the wage and price control plan failed miserably.
Governments also try to control inflation; however, argues the author, inflation is always caused by an excess of money – which is debatable. Cheapening the money by increasing its supply only works for awhile because the inflation it creates eventually destroys the economy. Mr. Schuettinger cites, naturally, the great German inflation of the 1920s.
The book also tackles the problems of controlling the economy in war; however, the arguments here are less effective. War is so different from a “normal” economy. In wars the government buys items and then destroys them in combat. It also takes large numbers of people out of the economy (soldiers) reducing their consumer buying activities.Read more ›
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