Governments Can't Resist

by Jeffrey Tucker
Mar. 21, 2012

The old adage that we don’t learn from history is true enough, but it needs amendment. Governments, in particular, don’t learn from history. That’s the conclusion I reach after a wild weekend ride with Forty Centuries of Wage and Price Controls, a delightful book by Robert Schuettinger and Eamonn Butler. They scour history books from the ancient world to the Nixon administration to find a hilarious or depressing pattern — depends on how you look at it.

It’s always the same. An arrogant ruler needs revenue, so he plays with the money stock using various tricks from coin clipping to depreciation to outright printing of unbacked paper money. Prices begin to rise and the workers and peasants start to complain. So the ruler blames speculators and merchants, decides to fix wages and prices by law and punishes violators with violence and death. The producers bail out, everyone becomes a criminal, growth stops and poverty results.

When I say always, I mean from the beginning of recorded history. Consider the Code of Hammurabi, the first of the great written law codes cobbled together in 1772 B.C. or thereabouts. This Hammurabi fellow ruled for what must have 42 insufferable years because he imagined himself to be the god of Babylonia. And of course, no god can be stopped by such a thing as economics! So of course, his great code included a gigantic list of fixed prices and wages, such as:

• If a man hire a field laborer, he shall give him eight gur of corn per annum
• If a man hire a herdsman, he shall give him eight gur of corn per annum
• If a man hire a pasturer for cattle and sheep, he shall give him eight gur of corn per annum
• If a man has hired an ox for threshing, 20 ka of corn is its hire
• If an ass has been hired for threshing, 20 ka of corn is its hire
• If a young animal has been hired for threshing, 10 ka of corn is its hire.

And so on and on and on. He figured that if he was a great warrior and could lead so many wonderful military victories, surely, he could centrally plan the economy. So he continued his predecessor’s penchant for control.

But he had forgotten a few points. Supply and demand are real things. Like gravity, for example. Plus, people aren’t robots. Merchants can decide to sell or not to sell. Producers can decline to produce. Consumers can decline to buy. There is nothing a law can do about a shortage, because laws produce nothing you can eat, build, plant or buy.

Sure enough, the historical records that we do have show that the only thing that Hammurabi managed to create was vast administrative documents — paperwork. Meanwhile, the merchants dropped out and the rich fled, leaving poverty and suffering.

No reason to be too hard on Hammurabi. He was just doing what leaders do. The same pattern repeated itself in China, in ancient Greece and Rome, at the end of the Roman Empire, throughout the Middle Ages, into the Renaissance, through the founding period in the United States, into the French Revolution, during the First World War, between the wars, in Soviet Russia and Nazi Germany and oh, yes, last Friday.

What happened last Friday? The Obama administration sent out a decree in the form of an executive order, a mere update that traced its origins to 1950. In the National Defense Resources Preparedness edict, the president says that any agency must provide subsidies so that he can “ensure the supply of raw or nonprocessed materials from high-cost sources” and “ensure maximum production or supply in any area at stable prices of any materials in light of a temporary increase in transportation cost.” Plus, the government can “employ persons of outstanding experience and ability without compensation.”

It’s not quite a mandate for price control — the zero compensation rule excepted — but the truth is that the threat of price controls is always just beneath the surface of American politics. This whole document presumes total control over all resources, and there is nothing to stop them under the right conditions. Nothing.

After all, after every natural disaster, we see the imposition of anti-gouging rules that amount to price controls. And look at the minimum wage. It says that no one can go to work for less than $7.25 per hour. It’s a price control that contributes to the continued unemployment of millions of marginal workers today. It is also a human rights violation — a direct intervention in the freedom of people to negotiate the terms of their own contracts.

Or consider the way in which the Fed is suppressing interest rates. It’s more complex today but no different in substance from the Law of the Twelve Tables of the Roman Republic passed in 449 B.C. The interest rate was fixed at 8%, and politicians forcibly permitted debtors to write off debts, effectively wrecking loan markets. A Licinian law of 367 B.C. went event further to require that interest paid be deducted from principal borrowed, effectively imposing a rate of zero.

How silly! How despotic! Except that the zero interest rate policy is now official policy of the Federal Reserve, achieved not through outright laws, but through fancy finance that allows the Fed to set rates and keep them that way via the buying of government bonds with fake money. And of course, today, governments all over the world manipulate currency values in a grand and globalized price control scheme that has been dubbed the currency war.

Conclusion: Nothing changes in government policy. The same tricks are tried again and again. Yet nothing works. I’m especially delighted by the appendixes in this book. We get full reprints of the Code of Hammurabi, the Edict of Diocletian, the tax-based incomes policy and Carter’s wage-insurance plan. No doubt that the next time we have all-around planning, it will not be called “price control” but something else like the Homeland Security Resource Guarantee and Preparedness Plan.

Governments may not learn from history, but we still can. Forty Centuries of Wage and Price Controls provides an eye-opening look into the history of arrogance, pretension and despotic control, from the beginning of recorded history until our own times.
__
Jeffrey Tucker, publisher and executive editor of Laissez-Faire Books, is author of Bourbon for Breakfast: Living Outside the Statist Quo and It's a Jetsons World. You can write him directly here.