Price Controls and the Reign of Terror

by Don Boudreaux on April 25, 2008

in History, Prices, Reality Is Not Optional

In their 1975 book The Age of Napoleon, Will and Ariel Durant argue that the Reign of Terror during the French revolution was sparked, in part, by price controls.

The economy itself was a battlefield.  The price controls established on May 4 and September 29 [1793] were being defeated by the ingenuity of greed.  The urban poor approved the maxima; the peasants and the merchants opposed them, and increasingly refused to grow or distribute the price-limited foods; the city stores, receiving less and less produce from market or field, could satisfy only the foremost few in the queues that daily formed at their doors.  Fear of famine ran through Paris and the towns….

On August 30 a deputy pronounced the magic word: Let Terror be the order of the day.  On September 5 a crowd from the sections, calling for "war on tyrants, hoarders, and aristocrats," marched on the headquarters of the Commune in the Hotel de Ville.  The mayor, Jean-Guillaume Pache, and the city procurator, Pierre Chaumette, went with their delegation to the Convention and voiced their demand for a revolutionary army to tour France with a portable guillotine, arrest every Girondin, and compel every peasant to surrender his hoarded produce or be executed on the spot [pp. 62-63].

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Fabio Franco April 25, 2008 at 11:50 am

Price controls are like government decisions prohibiting gravity. Only the most brutal force will thwart the natural laws of human cooperation. Terror is what it takes to impede the emergence of the spontaneous order of the market. And through its fascist longing for a return to the ways of the French Revolution, government is always trying to find a formula to control gravity (with the aid of willing economists). In the process, it applies its daily mini-terror campaigns in order to force us all to walk on air.

John V April 25, 2008 at 6:33 pm

It's so sad how many sorry and violent events in history were brought about, directly or indirectly, by bad economics or a poor understanding of man's limited ability to make economic forces work in a less than natural way.

John V April 25, 2008 at 6:34 pm

It's even sadder how seldom it's discussed when trying to understand history…

Paul from Florida April 26, 2008 at 8:04 am

Sounds like China or Zimbabwe.

gergle April 28, 2008 at 11:21 am

While I'm not a fan of price controls, I have to ask is this absurdist comedy? What caused the French Revolution was abuse of the poor by the affluent. It wasn't price controls. You even state that in your piece. The flauting of price controls, and contiued abuse is what led to the riots you claim. Even the idiot Ben Stein understands that, and he thinks gravity is caused by God's heaviness. But by all means, continue eating your cake.

Garrett Schmitt April 28, 2008 at 1:29 pm

Mr. gergle,

The Terror (1793-1794) started sometime after the French Revolution had already begun (1789). The post refers to a food crisis and price controls in advance of the Terror, and the not the revolution itself.

While there was also a food crisis in advance of the start of the revolution, I'm not aware of the monarchy instituting price controls in response.

Jonathan Hearn April 29, 2008 at 10:46 pm

This article was very interesting and discussed Inflation. The author is Michael M. Grynbaum from the New York Times on April 16, 2008. It described the tough position the Federal Reserve is in recently because of steep inflation. “Oil and food costs hit record highs, leaving the Federal Reserve policy makers in a difficult spot ahead of their meeting later this month” (Grynbaum). It also discussed the price increases in production such as the cost of unfinished products known as intermediate goods. Energy prices also rose from .8 percent in February and in March the prices were up 2.9 percent. All these price increases are signals that businesses might face higher prices in months to come. The Federal Reserve has the ability to affect the money supply. This is a main economic concept called monetary policy. The purpose of this policy is to try to maintain desired price levels, economic output, and employment. The policy is designed to expand the growth of money and restrict the growth of money. This is known as expansionary monetary policy and contractionary monetary policy. The Federal Reserve has three tools it uses to carry out monetary policy open market operations, discount rate, and the most powerful reserve requirements. Inflation is another important economic concept and is defined as an increase in the overall level of prices in the economy. “The higher prices put pressure on businesses to pass on costs to consumers, though some economists said the housing slump and weakening job market could discourage businesses from raising their prices” (Grynbaum). The act of higher prices increases the overall price level so inflation goes up. “The closely observed core measure of the Producer Price Index, which excludes volatile costs of food and energy, rose .2 percent in March, falling back from .5 percent rise in February” (Grynbaum).
It was learned that the low core rate could take some pressure off the Fed as it tries to balance rising inflation with the overall slowdown in growth. It was also learned how serious a concern inflation is to Federal Reserve officials and how there focus is to keep the economy from a prolonged recession. The Fed’s task is somewhat of a balancing act in which they choose different ways to take action.

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