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Theory of Price Controls

3. The Significance of the Theory of Price Control for the Theory of Social Organization

The most important theoretical knowledge gained from a basic analysis of the effects of price controls is this: the effect of intervention is the very opposite of what it was meant to achieve. If government is to avoid the undesirable consequences it cannot stop with just market interference. Step by step it must continue until it finally seizes control over production from the entrepreneurs and capitalists. It is unimportant, then, how it regulates the distribution of income, whether or not it grants a preferred income position to entrepreneurs and capitalists. It is important, however, that government cannot be satisfied with a single intervention, but is driven on to nationalize the means of production. This ultimate effect refutes the notion that there is a middle form of organization, the “regulated” economy, between the private property order and the public property order. In the former only the play of market forces can determine prices. If government prevents this play in any way, production loses its meaning and becomes chaotic. Finally, government must assume control in order to avoid the chaos it created.

Thus, we must agree with the classical liberals and some older socialists who believed it impossible in the private property order to eliminate the market influence on prices, and thereby on production and distribution, by decreeing prices that differ from market prices. For them it was no empty doctrinarism, but a profound recognition of social principles, when they emphasized the alternative: private property or public property, capitalism or socialism. Indeed, for a society based on division of labor there are only these two possibilities; middle forms of organization are conceivable only in the sense that some means of production may be publicly owned while others are owned privately. But wherever property is in private hands, government intervention cannot eliminate the market price without simultaneously abolishing the regulating principle of production.

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