Mises Daily Articles
Price Fixing in the Massachusetts Theocracy
[This article is excerpted from Conceived in Liberty (1975), volume 1, chapter 31: "Economics Begins to Dissolve the Theocracy: The Failure of Wage and Price Controls." An MP3 audio file of this article, narrated by Floy Lilley, is available for download.]
From the first, the Massachusetts oligarchy, seeing that in the New World land was peculiarly abundant in relation to labor, tried by law to push down the wage rates that they had to pay as merchants or landowners. Maximum-wage controls were persistently imposed. John Winthrop set the tone in 1633, complaining that "the scarcity of workmen had caused them to raise their wages to an excessive rate." What else was supposed to happen with a scarce product?
As in the South, there were at the base of New England's economic structure indentured servants and Negro slaves, who sometimes were farm labor but mostly were artisans, helpers, and domestic servants. After the servants' terms expired, they received small grants of land and became farmer-settlers. The Massachusetts gentry also supplemented this system of labor with general compulsory service in harvesting neighboring farms — a neat way of exploiting the local citizenry at wage rates far below the market.
Maximum-wage control always aggravates a shortage of labor, as employers will not be able to obtain needed workers at the statutory price. In trying to force labor to be cheaper than its price on the free market, the gentry only made it more difficult for employers to obtain that labor. By 1640 Winthrop was admitting that Massachusetts had
found by experience that it would not avail by any law to redress the excessive rates of laborers' and workmen's wages, etc. (for being restrained, they would either remove to other places where they might have more or else being able to live by planting or other employments of their own, they would not be hired at all).
Of course, one method of alleviating this induced shortage was by using the forced labor of slavery, servitude, and compulsory harvest service. Thus, one intervention by violence in the market created conditions impelling a further and stronger intervention. But apart from forced labor, the Massachusetts authorities, as we have noted, found it extremely difficult to enforce maximum-wage control.
The first maximum-wage law was enacted by Massachusetts as early as 1630. Due to the high wages commanded by the scarcity of construction craftsmen, the law concentrated on maximum-wage rates in the building trades. Carpenters, bricklayers, etc., were limited to two shillings a day and any payment above this rate would subject both the employer and the worker to punishment (for instance, a buying-cartel of employers established by the law punished the recalcitrant employer who decided to break ranks). Almost immediately, the magistrates decided to imbibe more of the magic medicine, and legal wage rates were pushed down to 16 pence a day for master carpenters and bricklayers, and correspondingly lower for other laborers.
But the economic laws of the market made enforcement hopeless, and after only six months, the General Court repealed the laws, and ordered all wages to be "left free and at liberty as men shall reasonably agree." But Massachusetts Bay was not to remain wise for long. By 1633 the General Court became horrified again at higher wage rates in construction and other trades and at the propensity of the working classes to rise above their supposedly appointed station in life by relaxing more and by spending their wages on luxuries. Denouncing "the great extortion … by divers persons of little conscience" and the "vain and idle waste of precious time," the court enacted a comprehensive and detailed wage-control program.
The law of 1633 decreed a maximum of two shillings a day without board and 14 pence with board, for the wages of sawyers, carpenters, masons, bricklayers, etc. Top-rate laborers were limited to 18 pence without. These rates were approximately double those of England for skilled craftsmen and treble for unskilled laborers. Constables were to set the wages of lesser laborers. Penalties were levied on the employers and the wage earners who violated the law. Sensing that maximum controls below the market wage led to a shortage of labor, the General Court decreed that no idleness was to be permitted. In effect, minimum hours were decreed in order to bolster the maximum-wage law — another form of compulsory labor. Workmen were ordered to work "the whole day, allowing convenient time for food and rest."
Interestingly, the General Court soon decided to make an exception for the government itself, which was naturally having difficulty finding men willing to work on its public-works projects. A combination of the carrot and the stick was used: government officials were allowed to award "such extraordinary wages as they shall judge the work to deserve." On the other hand, they were empowered to send town constables to conscript laborers as the need arose.
Although merchants were happy to join the landed oligarchy and the Puritan zealots in forcing down the wage rates of laborers, they were scarcely as happy about maximum controls on selling prices. The gentry were eager, however, to force downward the prices of products they needed to buy. A blend of mercantilist fallacies and Puritan suspicion of commerce, the result was persistent attempts to force commodities below their market prices. Having little conception of the function of the price system on the free market, the Massachusetts authorities also felt that maximum-price control would bolster the maximum-wage-rate program. There was no understanding that general movements in prices and wages are governed by the supply of and demand for money, and that this too can best work itself out on the free market.
Corn was the major monetary medium of the North, and in 1630 Massachusetts set the sterling price of corn at six shillings per bushel. Failing to work, this control was repealed along with the wage laws of 1631, and corn was "left at liberty to be sold as men can agree." In 1633, however, maximum-price controls were reimposed as an auxiliary to the wage controls.
The massive wage laws of 1633 were quickly discovered to be a failure; once again the quiet but powerful economic laws of the market had triumphed over the dramatic decrees of the coercive state. After one year the actual wage rates were 50 percent higher than the statutory levels. At that point, the General Court repealed the penalties against paying, but retained those against receiving, wages above the fixed legal rate. While, in fact, no employer had ever been tried or penalized under the old act, the wage law was now an open and flagrant piece of class legislation. This was nothing new, however, as there were ample precedents in English maximum-wage laws since the early 15th century.
Another change made in 1634 allowed a little flexibility in decreed prices and wages by permitting each town to alter the legal rate in case of disputes. Only a year later the General Court, despairing of the continued failure of the law to take hold, repealed the comprehensive wage controls and the auxiliary price controls. Just before this comprehensive repeal, the courts had apparently been driven by the failure to inflict ever harsher penalties; fines had been so heavy that two workers were imprisoned for failure to pay. The authorities were at the crossroads: should they begin to impose on workers violating clearly unworkable economic decrees the sort of punishment meted out to heretics or to critics of the government? Happily, common sense, in this case, finally prevailed.
Made wary by its thundering failure, the theocracy no longer attempted a comprehensive planned economy in Massachusetts Bay. From then on, it was content to engage in annoying, but not fatal, hit-and-run harassments of the market. Penalties were made discretionary, and in 1636 wage and price regulations were transferred by the provincial government to the individual towns, as suggested by the leading Puritan divine, Rev. John Cotton. The General Court was supposed to exercise overall supervision, but exerted no systematic control. Control by each town, as had been anticipated, was even more ineffective than an overall plan, because each town, bidding against the others for laborers, competitively bid wages up to their market levels. The General Court wailed that all this was "to get the great dishonor of God, the scandal of the Gospel, and the grief of divers of God's people." A committee of the most eminent oligarchs of the Bay colony was appointed to suggest remedies, but could think of no solution.
Of the towns, Dorchester was perhaps the most eager to impose wage controls. During the Pequot War, and again in 1642, it combined maximum wages with conscription of any laborer unwilling to work and to work long enough at the low rates. Hingham also enacted a maximum-wage program in 1641, and Salem was active in prosecuting wage offenders.
In 1635, the year of the repeal of the wage and price plan, the Massachusetts authorities tried a new angle: under the cloak of a desire to "combat monopolizing," the Massachusetts government created a legal monopoly of nine men — one from each of the existing towns — for purchasing any goods from incoming ships. This import monopoly was to board all the ships before anyone else, decide on the prices it would pay, and then buy the goods and limit itself to resale at a fixed 5 percent profit. But this attempt to combine monopoly with maximum-price control failed also. The outlawing of competing buyers could not be enforced and the import monopoly had to be repealed within four months. What ensued was far better but was still not pure freedom of entry. Instead, licensing was required of all importers, with preference usually given to friends of the government.
Generally, the merchants were the most progressive, worldly, and cosmopolitan element in Massachusetts life. The merchants were able to gain political control of the growing commercial hub of Boston by the mid-1630s. But the rest of Massachusetts remained in the hands of a right alliance of Puritan zealots and landed gentry who dominated the magistrates' council and the governorship. During the decade of the 1630s only 2 out of 22 magistrates were merchants, 1 of these being the Hutchinsonian leader William Coddington. This reflected the occupational differences of their native England. The gentry had, by and large, been minor gentry in rural England, while the merchants usually hailed from London or other urban centers. In contrast to the authoritarian and theocratic gentry, the merchants had a far more individualist and independent spirit and often opposed the Massachusetts oligarchy. It was no accident that almost all the merchants championed the Hutchinsonian movement — including Coddington, John Coggeshall, and the Hutchinson family itself. In spite of the earlier failures, Massachusetts tried to resume its harassment and regulation of the merchants, but even more sporadically than in the case of wages. Millers were fined for charging what were arbitrarily termed "excessive" prices for their flour. A woodmaker was fined in 1639 for charging the Boston government "excessive" prices for making Boston's stocks, and, as Professor Richard Morris notes in Government and Labor in Early America, the General Court "with great Puritan humor sentenced him, in addition, to sit in the stocks he himself had made." Heavy fines and Puritan denunciations were also the lot of merchants supposedly overcharging for nails, gold buttons, and other commodities. The Puritan church was quick to condemn these merchants, and insisted on penitence for this "dishonor of God's name" in order to regain membership in the church.
The most notable case of persecution of a merchant occurred in 1639. Robert Keayne, a leading Boston importer and large investor in the Massachusetts Bay Company, and the devout brother-in-law of Rev. John Wilson, was found guilty in General Court of gaining "excess" profit, including a markup of over 150 percent on some items. The authorities displayed once more their profound ignorance of the functions of profit and loss in the market economy. Keayne was especially aggrieved because there was no law on the books regulating profits. In contrast, the Maine court, in the case of Cleve v. Winter (1640), dismissed charges against a merchant for setting excessive prices, on the grounds that it was not legitimate to regulate a man's profit in trade. So a sounder strain of thought did exist despite the official view.
Massachusetts' sister colonies also tried to impose a theocratic planned economy. As we might have expected, the effort of New Haven Colony, founded in distaste for the alleged laxity of Massachusetts Puritanism, was the most comprehensive. New Haven's Act of 1640 established fixed profit markups of varying grades for different types of trade: 3 pence in the shilling, for example, for retail of English imports, and less for wholesale. Prices were supposed to be proportionate to risk for colonial products. Above all, a highly detailed list of maximum-wage rates for each occupation was issued. A year later, an ambitious new schedule was decreed, pushing down wage rates even further.
But even fanatical New Haven could not conquer economic law, and only nine months later the authorities were forced to admit defeat, and the entire program was repealed. After that resounding failure, no further comprehensive controls were attempted at New Haven, although there were a few sporadic attempts to regulate specific occupations.
Comprehensive wage control was also attempted in Connecticut. An abortive regulation of wages was imposed in early 1640, but repealed later the same year. The following year Connecticut, again alarmed about "excessive" and rising wages (with men "a law unto themselves"), enacted a maximum-wage scale for each occupation. However, instead of the heavy fines imposed by Massachusetts, the only prescribed penalty was censure by the colony's General Court.
Because the monetary medium of Connecticut was corn, wheat, or rye, maximum-wage legislation, to be effective, depended on minimum rates of exchange of these commodities in terms of shillings — otherwise, maximum wages in shillings would be effectively negated by declines in the shilling prices of corn. Minimum corn, wheat, and rye prices were, accordingly, fixed at legal tender for wage and other contracts. A slight reduction of wheat and corn prices, however, was allowed in 1644, and, finally, in 1650 Connecticut also abandoned the foolhardy attempt to plan the price and wage structure of the colony's economy.
This article is excerpted from Conceived in Liberty (1975), volume 1, chapter 31: "Economics Begins to Dissolve the Theocracy: The Failure of Wage and Price Controls." An MP3 audio file of this article, narrated by Floy Lilley, is available for download.