Just a few years ago I would have assumed that this piece in the New Yorker is a brilliant intentional spoof, meant to elicit laughs. Unfortunately, it’s no spoof.
Editor, New Yorker
Zachary Carter writes that Isabella Weber’s proposal to control inflation by using price ceilings is “carefully grounded in history. Price controls, she argued, had been an essential element of the U.S. mobilization strategy during the Second World War” (“What if We’re Thinking About Inflation All Wrong?” June 6). Mr. Carter and Prof. Weber need to brush up on their history.
Contrary to what Mr. Carter and Prof. Weber apparently believe, no economist has ever denied the undeniable fact that government prohibitions of nominal price increases keep nominal prices from increasing. As even my freshman students would say, ‘Duh.’ And nor has any economist ever denied that price controls during WWII did indeed suppress inflation. But because the value of the monetary unit necessarily falls when the supply of money is increased relative to people’s desire to hold money (as it was during WWII) – and because inflation-induced price hikes reflect this falling value – price controls only distort this reflection. Price controls no more render goods and services as abundant as their low nominal prices make them appear to be as would me covering over my bathroom mirror with a picture of Chris Hemsworth render 64-year-old me younger and more handsome and hulking.
In fact, because price controls hide from consumers and producers accurate information about the true state of the economy, they worsen the economy’s performance. For example, as found by economic historian Robert Higgs,
For the four years from 1942 through 1945 as a whole, gross private investment fell to such low levels that it failed to compensate for the depreciation of the private capital stock. For that period, net private investment totaled minus $6.2 billion. In U.S. history, the only comparable evaporation of private capital occurred during the early years of the Great Depression.
And consider this report from economic historian Alexander Field:
In the presence of price controls, curtailment of consumption resulted from an interaction of limitation orders and other supply disruptions that restricted deliveries and availability, and end-user rationing, which constrained purchases even when consumers had money and an intent to buy….
In the summer of 1942 pumps went dry all along the Eastern Seaboard. Most filling stations closed. Automobiles would tail a gasoline tanker truck until it stopped for a delivery, trailed by a string of desperate drivers. If word got out that a station had gas, lines of cars – as many as 350 of them – would form.**
Save us, please, from any further such ‘successes’ of price controls.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* Robert Higgs, Depression, War, and Cold War (Oxford: Oxford University Press, 2006), page 84.
** Alexander J. Field, The Economic Consequences of U.S. Mobilization for the Second World War (New Haven: Yale University Press, 2022), page 160.