Forty Centuries of Wage and Price Controls

15

The U.S., Britain and Canada: 1970–78

Two roughly parallel programs aimed at keeping down prices and wages were introduced on both sides of the Atlantic in the early seventies. The persons in charge of each of these programs must have had at least a few misgivings as they set out to tread a well-worn path. Milton Friedman had just written in Newsweek (on January 11, 1971) that

The Johnson Administration tried wage-price guidelines. The guidelines failed and were abandoned. The British tried a wage-price board. It failed and has just been abolished. The Canadians tried voluntary wage-price controls. Their Prices and Incomes Commission recently announced the program was unworkable and would be abandoned January 1 [1971].

AMERICA’s PHASES

From August 15, 1971 through April 30, 1974, government officials in the United States attempted to suppress the rise in prices by imposing varying degrees of controls. During this period, the Wholesale Price Index (WPI), nevertheless, increased at an annual rate of 12.0 percent and the Consumer Price Index (CPI) increased at an annual rate of 7.2 percent. In contrast, during the twelve months before the start of the controls, WPI increased 3.3 percent per annum, and CPI increased at an annual rate of 4.3 percent. An observer from Mars could be forgiven for committing the fallacy of post hoc ergo propter hoc and suggesting that the price controls caused the inflation!

The initial Freeze was a surprise action aimed at avoiding strategic price and wage increases while a more sophisticated control program was formulated and implemented.

Just prior to the Freeze, the rate of inflation was running about 4.5 percent per annum; so after the end of a 90-day freeze the level of prices would be about one percentage point below the level that market forces would have produced if the market price level had continued to grow at about the same rate as previously. Even this is a high estimate of the difference between what we might call the “ceiling” and the “market” price levels, however. Since the growth rate of wages normally exceeds the growth rate of prices by the amount of productivity growth, a successful freeze on wages might cause the price level to fall over time. If this is to happen, the freeze on wages must not result in labor shortages. In fact, firms were able to hire increased quantities of labor at the frozen wage scales and employment grew at the rapid rate of 4.2 percent per annum from August to November 1971.1

Eventually Phase One came to an end, and Phase Two started on November 14, 1971. The object of the Price Commission (which was the regulatory agency) was to disallow all price increases except those justified by rising costs. The belief was that Phase Two controls would reduce the rate of increase in the general level of prices to about 2.5 percent per annum. In fact, Phase Two lasted until January 1973 and, during that time, the Wholesale Price Index increased at an annual rate of 6.4 percent and the Consumer Price Index increased at an annual rate of 3.4 percent.

Like the seasons, price control policies merge one into the other more quickly than we realize, and Phase Two gave way to Phase Three in January 1973. Here, the mandatory controls were replaced with voluntary controls. The goal for Phase Three was also to keep prices down to 2.5 percent, but having noted the ineffectiveness of the Phase Two policies, one might anticipate the effect of Phase Three. In fact, Phase Three also did not achieve its aim and, during the five months of its existence, WPI increased at an annual rate of 20.1, while CPI increased at an annual rate of 8.1 percent. Phase Three was a failure.

Despite this experience, President Nixon ordered a second price freeze on June 13, 1973. The freeze was to last for sixty days and controlled the prices of most commodities, as well as wages. There should, again, have been no increase in prices during those sixty days. In fact, prices increased at an annual rate of 5.0 (WPI) and 5.1 (CPI) percent.

It was an Administration of surprises and Phase Four controls were introduced on August 12,1973; an unsuspecting America was again under mandatory price controls. The Secretary of the Treasury, George Schultz, stated that the goal of the Administration was to reduce price increases to three percent per annum or less. During the nine months of Phase Four, WPI went up at an annual rate of 18.3 percent, and the Consumer Price Index went up at an annual rate of 11.4 percent. Phase Four was the fifth failure of the program. The steady rise in prices was inexorable.2

So much for what controls did not do; now let us see what did happen. When the rate of inflation is corrected for quality deterioration during the period 1971–74, we see that the price level continued to rise at a very steady rate through the period of controls.3

Darby is skeptical of the overall effectiveness of the Economic Stabilization Program when it is considered in the longer run. He comments:

From the second quarter of 1971 through the third quarter of 1975 the GNP deflator rose by 31.9 percent. Allowing for the usual lag of 1.5 years for price changes behind money supply changes, this is to be compared with a 31.0 percent increase in the money supply from the fourth quarter of 1969 to the first quarter of 1974. Now the trend growth rate of the real quality of money demanded over the last several decades is between 0 and 0.5 percent per annum depending on the method of calculation used. So over 4.5 years the increase in the price level should be between 0 and 2 percentage points less than the increase in the money stock over the corresponding period. So the fact that the actual growth in prices exceeded that of money by 0.9 percentage points would indicate that the overall effect of the ESP on prices was either nil or to slightly increase them relative to what they otherwise would have been.4

It is startling that an economist of Darby’s expertise and reputation could assert that the net effect of price controls could have been to increase prices. He also believes that there is no evidence that output was at all influenced by the program, contrary to the claims of the Administration at the time.

Congressman Steven Symms of Idaho (who opposed the Economic Stabilization Act) inserted into the Congressional Record a succinct analysis of the results of the Nixon program offered by the editor of Barron’s, Mr. Robert Bleiberg, in a lecture at Hillsdale College, Michigan.

Representative Symims noted that

The conclusion of Mr. Bleiberg’s lecture may be summarized in one paragraph. He asked:

What did wage and price controls achieve? Well, let’s look at the record. In early May of 1972, Don Conlan, chief economist of the Wall Street brokerage firm of Dean Witter & Co., estimated that wholesale prices at the time were roughly where they would have been without controls. Projecting trends evident prior to August 15, 1971, he reckoned that the Wholesale Price Index in March of 1972 would have stood at 117.5% of the 1967 average. The actual figure was 117.4% observed Mr. Conlan. All that grief and confusion for one tenth of a percentage point improvement over free markets.5

The opposition to the Nixon program of wage and price controls cut across party lines, political philosophies and all economic classes. George Meany, the President of the American Federation of Labor and the Congress of Industrial Organizations strongly opposed controls,6 as did Members of Congress, ranging from the conservative Republican Philip M. Crane7 to the able chairman of the Republican Conference of the House of Representatives, generally regarded as a liberal leader, John Anderson.8

FROZEN MEAT PRICES

It would be fair to credit the United States government with some “success” in keeping the price of meat down during the period of the Economic Stabilization Program. This was an important issue, because the power of the American housewife cannot be overestimated, especially when she is angry, as many American housewives were over the cost of meat. In response to this pressure, the Administration imposed ceiling prices on red meats in March 1973 and extended them in June 1973.

The disruption of supply was quite severe, at least for a short time. According to Brittan and Lilley, “The meat price ceilings and Freeze 2 produced much more dislocation and appearance of shortage than the public had anticipated. . . . The dismay at the disruption caused by Freeze 2 was so great that opinion switched round overnight against controls.”9

Since the price of live steers continued to rise during the freeze, red meat dealers found themselves working on closer and closer margins; many small plants had to close their operations. By August, many retail chains were eliminating the middle-men who remained and were ordering custom slaughtering in an effort to accommodate demand. The price of live animals was once more bid up.

The effect of all this disruption was to make supplies of meat much more uncertain than in the previous year, fluctuating wildly throughout the period of the controls.

Nevertheless, the government held to a rigid price limitation on cattle products, despite the predictions of severe shortages (which were only partially evident on the butcher’s block). The continuation of the policy was made possible by frequent and accurate information as to the state of the market. Quite simply, the Department of Agriculture received daily reports of the slaughter of food animals, and this enabled it to measure the intensity of the threatened beef shortage by the number of animals slaughtered that day. While supplies of beef became short, the meat was never completely inaccessible. Even so, the restrictions on price were quickly removed.

If the government, with daily information about the state of supplies, cannot hold down the price of essential items like beef, then its attempts to check price-rises in the whole economy, amongst products whose precise supply is uncertain at any particular moment, must be that much more difficult. There is no doubt that a substantial number of civil servants in the Department of Agriculture were working on the beef shortage full time; offices were humming, telephones ringing constantly throughout the length and breadth of the continent in order to ascertain daily supplies. It was a veritable triumph of modern government planning. But could it really have been worth the cost?10

AFTER THE NIXON CONTROLS

Since the foreclosure of the Nixon program in 1974, the scenario has been a mixture of threatening noises about the reintroduction of controls and a world slump that has been said to have been the worst since the Great Depression. Throughout 1974 and 1975 inflation fell rapidly in the U.S., but then an upsurge of output in 1977 renewed talks of controls with support coming from the most unlikely quarters. The Federal Reserve Bank of New York, previously a staunch Opponent of controls, suggested11 that a wage and price policy may have a role in reducing inflationary expectations and cited Britain’s renewal of controls as evidence of this. Opposition followed from the AFL-CIO in the figure of George Meany who stated, “We’re very wary of wage and price controls. ”12

Carter also seemed to rule out controls upon his election to office but subsequent events showed his alternative “anti-inflation policy” to consist only of exhortations and budgetary recommendations wholly opposed to price stability. As inflation rose again in 1978 (at the rate of 10.1 percent in the second quarter), the congressional Joint Economic Committee recommended controls and Carter’s opposition started to look less and less believable.

In the fall of 1978, most economic reporters and economists active in politics were predicting that the Carter Administration would soon unveil a new and stronger “anti-inflationary program” which would include “voluntary controls” especially for big business and big labor backed up by strong governmental “persuasion.”

As early as the end of 1976, for instance, the economic columnist for The Washington Post, Hobart Rowen, wrote that “To make both goals—greater employment and control of inflation—compatible, fiscal and monetary policy must be supplemented by voluntary wage-price restraints—sometimes called “income policies.”13

Ralph Nader, in a recent column, warned that”. . . should inflation remain at current or higher levels, Carter will find it difficult to avoid imposing a selective, mandatory price-wage control policy in . . . key industries.”14

Dr. Herbert Stein, a former economic adviser to President Nixon (who reluctantly took part in the Nixon period controls), has flatly predicted that mandatory controls are likely in the near future.15

A leading economist with ties to the liberal Democrats, Dr. Robert Lekachman, recently asserted that “I agree with Stein that controls are in our near future.” He added that “Unlike him, I consider them potentially benign, if they are appropriately designed and judiciously applied.”16

And, of course, the talented novelist from Cambridge, Massachusetts, John Kenneth Galbraith (who has never been happier than when he was serving his country in the Office of Price Administration) chimes in periodically with the same advice.17

An important factor is that a majority of the people (a) regard inflation as the number one problem facing the country and (b) favor wage and price controls as a means of combatting it. According to the Gallup Poll of February 10–13, 1978, 44 percent of those polled favored controls while 40 percent were opposed. In a poll taken during April 14–17, the percentage favoring controls rose to 50 percent. More recent polls show that percentage nearing 60 percent.

On the other hand, the arguments against controls are so strong that many powerful voices within the liberal community still oppose them. The Washington Post’s lead editorial for July 27, 1978, for instance, offered a concise summary of why controls won’t work.

With the current surge of inflation, the question of wage and price controls keeps bobbing up. Prices rose at an annual rate of 7.1 percent in the first three months of this year. But in the next three months, through June, it was up to 10.1 percent. Once again, food prices have been leading the way. Why not invoke controls again?

The answer is that they did serious damage the last time the country tried them, in 1971–73, and the effects are still visible. President Carter has flatly ruled out controls, and he’s right. One reason is the adamant opposition of the labor unions, who learned that it is easier to control wages than prices. But the controls also conveyed other lessons that are worth recalling now. . .

Controls do queer things to investment and production. Throughout the 1960s, oil and gas drilling slowly declined in this country. The turnaround came in 1972 when controls were in effect. The steel companies had regarded drilling pipe as a minor product.

They made it on aging equipment, and profit margins were low. When orders for new pipe began to pick up, the steel companies had little incentive to make more of it. The result was a wild scramble among drillers for pipe, and something very much like a black market appeared. Drilling costs shot upward much faster than the general inflation rate, and kept going even after controls expired. Moral: Price controls can sometimes be, paradoxically, more inflationary than no controls.

For consumers, it’s the inflation in food prices that is the most immediately painful. But food prices are the hardest for a government to control. Housewives’ demonstrations against the high cost of beef, in early 1973, induced the White House to put ceilings on meat prices. Some stock raisers held their animals off the market to wait out the controls. Others exported their cattle, mainly to Canada.

Two morals here: First, a country can’t maintain price controls unless it is also prepared to curb exports, which in turn damages foreign markets and violates trade agreements. Second, controls create shortages. The disappearance of beef from the stores turned customers toward fish and poultry in such numbers that those were soon in shortage as well. At that point a lot of people began to fear a looming nationwide shortage of food in general. To head off a public panic, the administration was forced to drop the controls.

Controls are tolerable only for very short periods, in emergencies. The Carter administration knows that working down the current inflation is going to take a long, long time. It is relying mainly on exhortation, persuasion and, increasingly, cuts in federal spending. That isn’t very dramatic, and it doesn’t produce quick results. But it’s better than the alternative.

VOLUNTARY CONTROLS UNDER CARTER

As many had predicted, on October 24,1978, President Carter, in a televised address, announced his new program of voluntary wage and price controls. The President’s aim is to hold inflation in the year ahead to a maximum of 5.75 percent. (On October 27, the Labor Department stated that, according to its statistics, consumer prices rose in September at an annual rate of 10 percent. Double-digit inflation had arrived.)

The Administration’s guideline for wage increases was set at 7 percent. The limits on price increases are much more complicated, as befits the magnitude of the task the President is attempting. The absolute limit on price increases was set at 9.5 percent, no matter what the general rate of inflation turns out to be. The government’s powers of persuasion coupled with its ability to influence big business through government contracts will be enlisted in the new war on inflation.

In a new proposal, President Carter said he would ask Congress to grant tax rebates to workers who abided by the 7 percent limit and were then hurt because of a rise in inflation over that figure. (Such a rise now seems likely.)18

The reaction of most unions was hostile. George Meany, the President of the AFL-CIO, in a concise letter to The Washington Post (November 3, 1978) clearly stated the position of most labor unions:

The AFL-CIO’s call for mandatory, across-the-board economic controls is not a public-relations maneuver . . . It is a carefully considered, completely responsible alternative to the ill-advised, inequitable program of the administration,

Our proposal specifically rejected the same legislative route— the “blank check to the president”—that led to the Nixon package. It is precisely because we remember the 1971–73 disaster—and the World War II success—that we urge the Congress to draw up firm, comprehensive legislation based on equity and equal sacrifice.

Such a program would by no means open the door to the pre-control inflationary price increases The Post predicts. We would expect that the Congress would thwart any inequitable price increases with a firm roll-back order and stop profiteering by an excess profits tax.

Since we are convinced legislation is inevitable—and that is certainly the end result of the administration’s program—we have stressed the need for immediate congressional action. We hope the president will reconsider his rejection of a special session of the Congress, so that America can get to work halting inflation, not just talking about it. And an open declaration of that intent by the president would clearly have the opposite effect to that envisioned by The Post.

We don’t like controls—mandatory or “voluntary.” We want to return to the free marketplace at the earliest possible moment. But there are worse things than controls. Recession is worse. Runaway inflation is worse. Discriminatory and unequal controls are worse. Scapegoating of wage-earners without due process is worse.

We see no possibility that anything short of full, fair, and equal controls on all segments of the economy will do the job. The actions on Wednesday to ensure sharp, inflationary increases in interest rates, with even graver danger of recession, heighten that need.

As this book went to press in late 1978, it was, of course, unclear what the future will bring. When Congress returns it will doubtless have before it several proposals for action, including the imposition of mandatory controls in 1979.

BRITAIN’s STAGES

Over the period 1972–1974, the government of the United Kingdom operated a wage and price stabilization program which was almost identical to that in the United States one year earlier and which was largely copied from it. Conservative Party Prime Minister Edward Heath introduced this program after the inflationary monetary expansion earlier in his government and learned a lesson which even Mr. Heath now acknowledges.

The policy was a major failure; it failed to stabilize prices and led only to a pressure from trade unions toward higher pay settlements which eventually toppled the government in 1974.

A strike by coal miners (who in the United Kingdom are all government employees) and its settlement led off a round of wage and price increases during the summer of 1972; in response the government imposed its pay freeze in November of that year. The effects of the freeze were fairly dramatic, although earnings (which included overtime and bonuses not covered by the regulations) were far from static.

There was a jump to almost 15 percent annual rate of increase in weekly earnings during Stage 2 despite the government target of 7.5 percent.19

During Stage 3 of the controls, the pay bill was expected to rise by about nine percent, but the actual average settlements of 9.1 percent and the average retail price index rise of 9.8 percent triggered a threshold agreement which pushed wages up further. This agreement had been negotiated with the unions by the government and allowed for an increase in weekly pay of 1.20 pounds for some ten million workers—plus regular adjustments in line with the cost of living.

Prices during the period of regulation were much influenced by external factors such as the oil crisis, which the government attempted to take into account and which weakened the apparent sanctions of the price rules. Even so, the huge increase in the inflation rate from 1970 onwards cannot be explained away so easily. The rate quickly rose to 15 percent during 1973 and at the end of 1976 was running at an annual rate of over 26 percent despite the maintenance of wage controls by the Labor government.

It might be significant that the money supply, measured in terms of a broad definition, M3, expanded by about 25 percent in 1972 and 1973.20

Samuel Brittan and Peter Lilley have provided us with a perceptive commentary on the results of the Heath government’s policies.

. . . the major reason for Britain’s propensity to experiment with incomes policy lies probably not in material performance but in its intellectual climate.

The British opinion-forming classes—civil servants, politicians, commentators and academics—had largely stopped thinking in terms of the market mechanism. They felt much more at home with politically determined ‘strategies’. Consequently the market was readily assumed to have ‘failed’ even when it was working, and when inflation did worsen this was always attributed to the inherent weaknesses of collective bargaining rather than to prior monetary excess. By contrast, the persistent failure of incomes policies has rarely been attributed to the inherent weaknesses of centrally administered systems of controlling prices and wages, but to some specific failure of administration, union sabotage or electoral cowardice which would not be repeated ‘next time’.

It is not only in Britain that incomes policies have failed. Neither in those democratic countries studied in detail in the previous chapters nor in other similar countries which have also experimented with incomes policies have such policies succeeded in suppressing inflation more than temporarily. Indeed, with the possible exception of the Netherlands, controls do not appear to have succeeded in restraining wages for much more than a year below the level they would have obtained in the absence of controls. Even such brief periods of restraint have been followed by wage explosions which have usually more than wiped out the temporary gain.

Although incomes policies are often advocated to restrain so called ‘cost-push’ forces and then make it easier to bring monetary expansion under control, in practice incomes policies have not been so used. They have been used almost exclusively to suppress and delay the effect of previous monetary expansion on prices and wages. Even though the overall effect on the level of prices and wages has been minimal (outside the totalitarian states) the effect on the structure of relative prices has often led to serious distortions.21

The present Labor Government of Prime Minister James Callaghan seems to have learned something from recent experience. The Secretary of State for Prices and Consumer Protection Roy Hattersley (a moderate Labor MP) told an interviewer last December that there were certain prices he could control, but that he does not wish to control them. If he did do so, he commented, he would be working against the greater good of economic prosperity. “I do not think an investment climate is there,” he went on, “if there is a suspicion that every time prices go up a fraction more than I think right, there have to be questions. People won’t take the risks of investment. The net result is lower profits, less investment, less employment.”

He also pointed out that the cost of regulation of prices is very counterproductive: “It takes a great deal of statistical accounting work to supply the information that the Price Commission needs. I was told that one big company had people in their thousands working out the price code—as many as they had working on making the best of the tax laws. It doesn’t seem to me that that is very productive.”22

Perhaps there is still some hope that democratic socialists will realize what their Tory predecessors did not, namely that the major cause of inflation is government over-spending and that all the regulations of wages and prices in the world will not bring about economic health until the government sets its own house in order.

Britain’s latest round of “incomes policy” commenced in August 1975 and consisted of a “pseudo-voluntary” guideline on wages and statutory limitations on price increases combined with gradual reductions in income tax.

The policy was enacted against a background of rapidly rising unemployment (to the highest postwar levels) and world slump. Inflation certainly fell during the time incomes policy was in force, but even traditional supporters of wage and price controls have been unable to attribute this to the government program. They point to the fact that the massive rise in unemployment and world slump has reduced union bargaining power, prevented firms from raising prices as demand sagged and lowered the cost of imported raw materials. At the time of this writing, inflation is expected to rise again before the end of the year (1978)23, despite the fact that the British government is seeking an even lower guideline for wage increases. Monetary policy was also tighter in 1974–76 and this can be presumed to be the reason for much of the abatement in inflation. It is because of the recent increase in the money supply that most commentators expect inflation to rise again soon.

The 1977–78 ceiling on wage increases was 8–10 percent but the actual increases ran at 14 percent due to “wage drift.” Union resistance to a “Stage 4” running through to mid-1979 is increasing.

At the annual Trades Union Congress in September of 1978, the unions turned down the Prime Minister’s appeal to support his “Stage 4” wage limit of 5 percent.24 Mr. Callaghan threatened to use monetary and fiscal policy to keep down the rate of inflation if the unions would not “voluntarily” support his limit. And so “incomes policy” in Britain staggers on, facing a double-digit inflation rate next year, with little cooperation from the powerful unions. It is unclear exactly what form future wage and price controls will take, but it is a good bet that they will be around in Britain for some time to come.

CANADA: THE LATE ENTRY

As if North America had not only recently learned its lesson, the Canadian Prime Minister Pierre Trudeau asked his parliament to impose wage and price controls in October 1975. The ceiling on wage increases that he wanted was a fairly high one, ten percent or $2,400, whichever was the lower.

In the final version of the Canadian controls, adopted in 1976, wage increases were limited to 14 percent and fines were levied for noncompliance. Irving Pulp and Paper was fined for its grant of a 23 percent increase in wages.

It may be noted that Canadian businessmen are not the only ones finding wage and price controls difficult to bear. In November 1976, Canadian workers participated in a general strike to protest the government’s program. A day of strikes and demonstrations was called by the giant Canadian Labor Congress in an effort to persuade the government of Pierre Trudeau to repeal all the controls or at least to curtail them before their schedules expire in 1978. The opposition of ordinary workers to wage and price controls can be seen in many countries—Canada, the United States and Great Britain being the most prominent recent examples. Yet these workers are presumably the very people whom controls are supposed to help.

A newly-founded center for economic research in Canada, the Fraser Institute, which has already built up a considerable reputation for its scholarly publications, analyzed the recent history and probable consequences of Canadian controls soon after they were imposed.25 Michael Walker, their editor, noted that there is little likelihood that the controls which then afflicted his nation would have any substantially different result than all the others of the past centuries.

Canadian controls followed two years of double-digit inflation which was running close to 11 percent by the time the controls were introduced. They consisted of a three year program to limit wages to 12 percent, 10 percent, and 6 percent rises in 1976, 1977, and 1978 respectively and, profit margins were constrained to 95 percent of the average in the five years before controls. These restraints applied only to those in companies with more than 500 employees and thus covered only half the Canadian work force.

Initially, price increases fell to half their pre-controls levels (from 10.6 percent to 5.6 percent) within a year of the start of the program and this naturally led politicians to start praising the efficacy of their anti-inflation program. In fact, the chief economist of Toronto Dominion Bank was nearer the mark when he said that much of the improvement in Canada’s price performance cannot be attributed to controls since foodstuffs were not subject to the controls and their prices declined.26

Since then the rate of inflation has risen to 8 percent in 1977 and still higher in 1978.

The deleterious effects of the policy have been far more obvious. Strikes and walkouts have increased, unions and management have joined forces to outwit the government, construction has fallen to record lows and capital spending by industry has plunged. J. Peter Gordon, Chairman and Chief Executive of Steel Company of Canada, says, “We have got to stop to adjust the economy. It should be lights out, immediate abandonment.”27

Patrick Wallace of The Wall Street Journal’s Toronto Bureau noted that “Many economists . . . say controls not only are having little effect on inflation, but threaten to leave the Canadian economy a shambles.”28

Richard G. Lipsey of Queen’s University, writing in Canadian Public Policy, summed up the recent Canadian experience as follows:

It is important to note that the harmful effects of controls are quite independent of the monetary and fiscal policies that accompany them. The effects follow directly from the impact of particular types of government intervention on the economy, the economic changes that this impact creates, and the durability of these changes. There is, therefore, no more reason to be sanguine about the harmful long-term effects of repeated applications of controls when they are instituted along with sensible monetary and fiscal policies (as appears to be the case in Canada) than when they are accompanied by self-defeating monetary and fiscal policies (as was often the case in Britain). My main message then is as follows. Wage-price controls are shown by economic theory, and demonstrated by an enormous wealth of factual evidence, to have no permanent effect on the price level. If these controls are never repeated in Canada, the long-term effects of this one attempt are not likely to be too serious. There are forces, however, that will be at work to cause the experiment to be repeated. If this does happen, then the time for alarm will already have passed. If these forces for repetition are to be resisted, and the long-term consequences are not to occur, then an appreciation of the long-term effects of repeated controls policies are needed in Canada now.

I say, therefore, that now is the time to stand up and be counted. Now is the time to say loudly and clearly that wage-price controls are ineffective in their main objective and extremely harmful in all of their other effects.29

In April of 1978, Canada’s wage and price controls were officially abandoned, although the wages of many workers will be held down if their contracts were negotiated during the controls period.30 (For this reason, many trade unionists in both the U.S. and Canada have been talking about one year rather than three year contracts.) It was about last April that many people in the United States started to seriously consider bringing back controls. And so it goes.

FOOTNOTES

1. Michael R. Darby, “The U.S. Economic Stabilization Program of 1971–1974,” in Michael Walker (ed.), The Illusion of Wage and Price Control (Vancouver, Canada: The Fraser Institute, 1976) pp. 136–37.

2. For more facts and figures on President Nixon’s “Phases” see, besides the chapter by Michael R. Darby cited above, Samuel Brittan and Peter Lilley, The Delusion of Incomes Policy (London: Temple Smith, 1977) pp. 136–51.

3. Darby, op. cit., p. 152.

4. Ibid., p. 155.

5. Congressional Record, August 14, 1974, p. E5498.

6. See, for instance, “Business, Labor Join to Scrap Controls,” Human Events, January 19, 1974, p. 1.

7. See Philip M. Crane, “The Economic Stabilization Act,” Congressional Record, December 9, 1971.

8. See John Anderson, “The Cost of Controls,” The Ripon Forum, April 1, 1974; and “Wage and Price Controls Are Not the Answer,” position paper of the Business Roundtable, Washington, D.C., January 7, 1975.

In addition, the president of the Chamber of Commerce of the United States, Arch N. Booth, wrote a tract entitled Wage-Price Controls: The Challenge to Learn From History (Washington, D.C., undated but published about 1975). The Chamber also published about the same time a booklet entitled Wage and Price Controls: A Failure in History, Theory and Practice.

9. Samuel Brittan and Peter Lilley, op. cit., p. 145.

10. For an inside account of just how controls work (or don’t work) see Jackson Grayson with Louis Neeb, Confessions of a Price Controller (New York: Dow-Jones Irwin, 1974). See also Mark Skousen, Playing the Price Controls Game (New Rochelle, N.Y.: Arlington House, 1977).

11. See The Wall Street Journal, March 1, 1978.

12. See The New York Times, November 11, 1976.

13. The Washington Post, December 12, 1976, p. Ml.

14. The Washington Star, June 17, 1978, p. B2.

15. An excellent summary of the situation as of October 1, 1978 was published in The Washington Post that day (p. M3) by Art Pine. Mr. Pine quotes Dr. Stem’s prediction and agrees with it.

Dr. Stein, by the way, has collaborated with his son, Benjamin Stein, to write a fascinating novel about a Weimar-style inflation which overtakes the U.S. in the near future. Entitled On the Brink, it is published by Simon and Schuster (New York, 1977).

16. Robert Lekachman, “The Case for Controls,” The New Republic, October 14,1978, p. 18. For balance, see also one of the best critiques of the Nixon controls, Alan Reynolds ‘incisive article, “The Case Against Wage and Price Control,” National Review, September 24, 1971.

17. See Tom Wicker’s column (The New York Times, July 4, 1978) for a summary of Dr. Galbraith’s views.

18. U.S. News and World Report, November 6, 1978, pp. 17–22.

19. For a good account of the Heath controls, see Michael Parkin, “Wage and Price Controls: The Lessons From Britain,” in Michael Walker (ed.), The Illusion of Wage and Price Control (Vancouver, Canada: The Fraser Institute, 1976). See also Samuel Brittan and Peter Lilley, The Delusion of Incomes Policy (London: Temple Smith, 1977), especially pp. 152–183. Stephen Eyres, the managing editor of The Free Nation has written a somewhat critical review of the Heath incomes policies under the title “The Fatal Temptation.” See The Free Nation (published by the National Association for Freedom, London) September 3, 1976.

20. Brittan and Lilley, op. cit., p. 169.

21. Ibid., pp. 178–180.

22. Elisabeth Dunn, “To the Manner Born,” The Spectator, December 18, 1976, p. 14.

23. The Economist of London predicts a 10 percent rate of inflation at the beginning of next year; see its issue for September 9, 1978, p. 15.

24. The Daily Telegraph, October 4, 1978, p. 1 and editorial page.

25. See Michael Walker (ed.), The Illusion of Price and Wage Control (Vancouver, Canada: The Fraser Institute, 1976).

26. Quoted in Patrick Wallace, “Canada’s Wage and Price Controls,” The Wall Street Journal, July 29, 1977.

27. Ibid.

28. Ibid.

29. Richard G. Lipsey, “Wage-Price Controls: How To Do a Lot of Harm by Trying To Do a Little Good,” Canadian Public Policy, Winter 1977, p. 12. For a more sympathetic view of Canadian controls, see Hobart Rowen, “Canada’s Wage-Price Controls Achieve a Modest Success,” The Washington Post, May 26, 1976, p. A14.

30. For a useful discussion of the recent Canadian experience under controls, see the anthology edited by Michael Walker, Which Way Ahead: Canada after Wage and Price Control (Vancouver, Canada: The Fraser Institute, 1977).

The current status of wage and price controls in Europe, Japan and Canada (both voluntary and mandatory) is concisely summarized in U.S. News and World Report, November 20, 1978, p. 74. The headline (“Wage-Price Guidelines Abroad—Not Much Encouragement for U.S.”) tells the story.