Schuettinger and Bulter's FORTY CENTURIES OF WAGE AND PRICE CONTROLS, written and first printed in the late-1970s (when stagflation was raging) looks at the phenomenon of inflation, and at governments' efforts to fight it through price fixing, throughout the last four millenia -- from the ancient Egyptians and Babylonians, through the Romans, medieval times, the early modern era, and into the twentieth century. To make a long story short, wage and price controls have NEVER been truly effective at fighting inflation, and almost always lead to even worse unintended consequences.
If you want to understand why wage and price controls never really work, and more often than not lead to side effects that are worse than the original problem of rising prices, you should read this book. It's amazing to find out that the ancients did the same stupid things that we keep doing from time to time today, and that it worked just as poorly when they tried it as it does for us moderns.
The authors -- whether looking at Revolutionary France, Weimar Germany, or Diocletian's Rome -- find a predictable pattern that goes roughly as follows: Excessive money creation, currency debasement, and/or spending by government leads to (surprise surprise) rising prices for goods and services. The government (whether monarchical or democratic doesn't seem to matter in this regard) refuses to acknowledge or accept its own culpability and instead blames private interests (who are often characterized as "greedy" and "selfish", even though it is the government's policies that have forced them to raise prices in order to stay alive in an inflationary economy.Read more ›
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 ›