Forty Centuries of Wage and Price Controls

4

Canada and the United States: The First Centuries

THE EARLY CANADIAN EXPERIENCE

Records from Canada are scarce before the eighteenth century, but some general comments can be made about the regulations which existed at that time.

It is certain, for example, that the internal trade of Quebec was minutely regulated. Of particular concern in the late seventeenth century were the movements of itinerant merchants; they were usually forbidden to enter into retail transactions of any sort and were subject to no less than ten general prohibitions.1 This regulation of trade had the effect of a retail price maintenance law since the controls expressly forbade the competition of “outsiders” who, of course, threatened domestic merchants.

There is some evidence that the regulation was not an unqualified success. In 1727 the local Quebec merchants found it necessary to write to the king requesting that he suspend the operation of the itinerant merchants.2 But this seems to have been unsuccessful as well, for a memo from the king dated April 19, 1729, contains a paragraph indicating the king’s broad support for the activities of the itinerant merchants.3

In 1689, the Superior Council of Quebec, following the long-established European practice, gave explicit permission to municipalities to regulate the price of bread. Although the exact effect of this regulation is not known, it can be supposed that all was not well and that a change in the baker’s costs would have meant a shortage of bread. Perhaps it was a situation of this sort that led to further price controls on wheat in the autumn of 1700—certainly it was clearly set down in the regulation of that year that the bakers would be required, as a result of the order, to work for the city and were constrained from working in any other way.4

During the 1750s, regulations were imposed upon the price of fresh codfish. But the legislators of New France had learned that imposing a set price was not enough, and the regulation explicitly forbade fishermen to refuse to sell their fish at the posted price, provided only that the buyer was solvent. Since the bulk of New France’s wealth came from fishing, this was a serious law indeed, and it is significant that there was a subsequent decline in the fishery in that area as fishermen moved elsewhere.5

The most interesting commentary on inflation of this early period is by an unknown person writing in Quebec on April 19, 1759. The passage, which is worth reprinting here, was written as a commentary appended to an exposition of the price of commodities in Canada. The writer says:

The excessive expense which this picture presents is such that one has perhaps never seen before an example of it. And it comes less from real scarcity than from the enormous expenditures of the government which have multiplied paper money without any consideration for the stock of commodities nor for the number of consumers. . . . The price of commodities has been rising step by step because of a similar step by step increase in the expenditures of the government. These expenditures, which one can estimate by the sum of bills of exchange, drawn on the royal treasury, have mounted as follows:

in 1754 to 7 or 800 thousand livres

in 1755 to 4,000 thousand livres

in 1756 to 7 or 8,000 thousand livres

in 1757 to 13 or 14,000 thousand livres

in 1758 to 20 or 25,000 thousand livres

Perhaps in this year of 1759 they will go up to 50 millions and more from whence it is easy to forsee what will be the price of commodities before January 1760. . . .6

THE EXPERIENCE OF THE FUTURE UNITED STATES

The early New England colonists were convinced that government ought to extend its powers into the regulation of all aspects of society, from the religious and political to the economic. “This was a defect of the age,” the economic historian William Weeden tells us (though hardly a defect unique to seventeenth century Massachusetts), “but the Puritan legislator fondly believed that, once freed from the malignant influence of the ungodly, that once based upon the Bible; he could legislate prosperity and well-being for every one, rich or poor.”7

In 1630 the General Court made a fruitless attempt to fix wage rates. Carpenters, joiners, bricklayers, lawyers and thatchers were to receive no more than two shillings a day. A fine of ten shillings was to be levied against anyone who paid or received more.8 In addition, “no commodity should be sold at above four pence in the shilling [33 percent] more than it cost for ready money in England; oil, wine, etc., and cheese in regard to the hazard of bringing, etc., [excepted].”9

Weeden comments dryly that these regulations lasted about six months and were repealed.10

There was an attempt at about the same time to regulate trade with the Indians. . .with the same result. The price of beaverskins [an important article of trade at the time] was set at no more than 6 shillings a skin with a “fair” profit of 30 percent plus cost of transportation. A shortage of corn, however, drove the price of that commodity up to 10 shillings “the strike,” and sales of this dwindling supply to the Indians were prohibited. “Under this pressure, beaver advanced to 10 shillings and 20 shillings per pound; “no corn, no beaver,” said the natives. The Court was obliged to remove the fixed rate, and the price ruled at 20 shillings.11

The offshoot of the Massachusetts Bay Colony in Connecticut experienced the same artificial efforts to control prices and to divert trade from its natural courses. One nineteenth century historian has briefly summed up these attempts. “The New Haven colony,” he wrote, “was made notorious by its minute inquisition into the details of buying and selling, of eating and dressing and of domestic difficulties. Then the people were mostly of one mind about the wisdom of such meddling, the community was small and homogeneous in population and religious sentiments. If such legislative interference could have been beneficient, here was a favorable opportunity. It failed utterly. The people were wise enough to see that it was a failure.”12

The effects of controls on prices and wages were by no means confined to the English-speaking colonies in North America. In the territory that is now the State of Illinois, French settlers were faced with similar harassments from a far away government. In a history of that part of French North America, Clarence Alvord notes:

The imposition of minute regulations issued from Versailles had been a burden upon the beaver trade. Fixed prices for beavers of every quality, that had to be bought, whatever the quantity, by the farmers at the Canadian ports, had made impossible a free development and had reduced the farmers one after another to the verge of bankruptcy. . . . An order was issued on May 26, 1696, recalling all traders and prohibiting them from going thereafter into the wilderness. . . [though] complete enforcement of the decree was impossible.13

THE NEW REPUBLIC TRIES OLD EXPERIMENTS

The sporadic attempts during the seventeenth and early eighteenth centuries to control the economic life of the American colonies increased in frequency with the approach of the War of Independence.

One of the first actions of the Continental Congress in 1775 was to authorize the printing of paper money—the famous “Continentals.” Pelatiah Webster, who was America’s first well-known economist, argued very cogently in a pamphlet published in 1776 that the new Continental currency would rapidly decline in value unless the issuance of paper notes was curbed. His advice went unheeded and, with more and more paper in circulation, consumers naturally began to bid up prices for a stock of goods that did not increase as fast as the money supply. By November 1777, commodity prices had risen 480 percent above the prewar average.14

The Congress, at least when addressing the public, professed not to believe that their paper money was close to valueless but that prices had risen mainly because of unpatriotic speculators who were enemies of the government.

On October 20, 1774, the Continental Congress decreed that “all manufactures of this country be sold at reasonable prices,” and that “vendors of goods or merchandise will not take advantage of the scarcity of goods . . . but will sell the same at rates we have been respectively accustomed to do for 12 months last past.”15

“The real causes of advancing prices,” one historian notes, “were as completely overlooked by that body as they were by Lysias when prosecuting the corn-factors of Greece. As the Greek orator wholly attributed the dearness of corn to a combination among the factors, so did Congress ascribe the enormous advance in the price of things to the action of those having commodities for sale.”16

On November 19,1776, the General Assembly of Connecticut felt impelled to pass a series of regulations providing for maximum prices for many of the necessaries of life. It also declared that “all other necessary articles not enumerated be in reasonable accustomed proportion to the above mentioned articles.”17 Another similar act was passed in May 1777. By August 13, 1777, however, the unforeseen results of these acts became clear to the legislators and on that date both acts were repealed.18

In February 1778, however, the pro-regulation forces were again in the ascendancy and Connecticut adopted a new tariff of wages and prices. Retail prices were not to exceed wholesale prices by more than 25 percent plus the cost of transportation.19 In a few months it became evident once again that these controls would work no better than the former attempts and in June 1778, the Governor of Connecticut wrote to the President of the Continental Congress that these laws, too, “had been ineffectual.”20

The Connecticut experience, of course, was by no means unique. Massachusetts, among other states, went through almost exactly the same on-again, off-again syndrome with its own version of wage and price controls. In January 1777, a law was passed imposing “maximum prices for almost all the ordinary necessaries of life: food, fuel and wearing apparel, as well as for day labor. . . . So far as its immediate aim was concerned,” an historian concludes, “the measure was a failure.”21 In June 1777, a second law was passed (a Phase II), on the ground that the prices fixed by the first law were “not adequate to the expense which will hereafter probably be incurred in procuring such articles.”22 A few months later, in September, the General Court of Massachusetts, convinced that the price-fixing measures “have been very far from answering the salutary purposes for which they were intended,” completely repealed both laws.23

WASHINGTON BATTLES STARVATION

In Pennsylvania, where the main force of Washington’s army was quartered in 1777, the situation was even worse. The legislature of that commonwealth decided to try a period of price control limited to those commodities needed for use by the army. The theory was that this policy would reduce the expense of supplying the army and lighten the burden of the war upon the population. The result might have been anticipated by those with some knowledge of the trials and tribulations of other states. The prices of uncontrolled goods, mostly imported, rose to record heights. Most farmers kept back their produce, refusing to sell at what they regarded as an unfair price. Some who had large families to take care of even secretly sold their food to the British who paid in gold.

After the disastrous winter at Valley Forge when Washington’s army nearly starved to death (thanks largely to these well-intentioned but misdirected laws), the ill-fated experiment in price controls was finally ended. The Continental Congress on June 4, 1778, adopted the following resolution:

Whereas. . .it hath been found by experience that limitations upon the prices of commodities are not only ineffectual for the purposes proposed, but likewise productive of very evil consequences to the great detriment of the public service and grievous oppression of individuals. . . resolved, that it be recommended to the several states to repeal or suspend all laws or resolutions within the said states respectively limiting, regulating or restraining the Price of any Article, Manufacture or Commodity.24

And when the controls were so removed, the repressed inflation immediately boiled out; prices rose to eighty times their pre-war level for a short period before settling down to a level just greater than the pre-war average, where they remained for the next decade.

One historian of the period tells us that after this date, commissary agents were instructed “to give the current price. . .let it be what it may, rather than that the army should suffer, which you have to supply and the intended expedition be retarded for want of it.” By the fall of 1778 the army was fairly well-provided for as a direct result of this change in policy. The same historian goes on to say that “the flexibility in offering prices and successful purchasing in the country in 1778 procured needed winter supplies wanting in the previous year.”25

The able research economist for the First National Bank of Chicago, in a recent study of controls during the Revolution, summed up the unhappy experience in these words:

Public jawboning, private threats, ostracism, boycotts, fines— all proved useless against the flood of paper money. The price of common labor in Boston, which was fixed at three shillings a day in 1777, had risen to 60 shillings by mid-1779. In April 1779, George Washington complained that “a wagon-load of money will scarcely purchase a wagon-load of provisions.” In 1779, when the Continental Congress again endorsed price controls, the request was for state laws limiting wage and price increases “not to exceed twenty fold the levels of 1774.” Not even that modest goal was attainable, however, and Congress allowed controls to expire when it met again in February 1780.26

A contemporary American economist, Pelatiah Webster, writing toward the end of the War of Independence in January 1780, evaluated in a few succinct words the sporadic record of price and wage controls in the new United States. He wrote:

As experiment is the surest proof of the natural effects of all speculations of this kind, . . . it is strange, it is marvelous to me, that any person of common discernment, who has been acquainted with all the above-mentioned trials and effects, should entertain any idea of the expediency of trying any such methods again. . . . Trade, if let alone, will ever make its own way best, and like an irresistible river, will ever run safest, do least mischief and do most good, suffered to run without obstruction in its own natural channel.27

FOOTNOTES

1. “Extrait des Registres du Conseil Superieur de Quebec,” Canadian Archives, Collection Moreau St. Mery, VI, 21 fevrier 1683, pp. 55–58.

2. Canadian Archives, CIIA, XLIX, 183–192 (Written about 1727).

3. “Memoire du Roi,” Canadian Archives, Collection Moreau St. Mery, XI, pp. 332–334.

4. “Regiment du Conseil Superieur de Quebec,” Canadian Archives, Collection Moreau St. Mery, VIII, Pt. 2, 30 mars 1701, pp. 211–214.

5. “Memoire sur le Commerce de l’isle Royale Joint a la Lettre de Monsieur Prevost,” Canadian Archives, CIIB, XXXIII, p. 124.

6. “Exposition du Prix des Denrees en Canada: Observations,” Canadian Archives CIIE, X, pp. 256–258.

7. William Weeden, Economic and Social History of New England, 1620–1789 (New York, 1890) Vol. 1, p. 99.

8. Ibid.

9. John Winthrop, The History of New England from 1630–1649 (Boston, 1825 and New York: Arno Press, 1972) Vol. 1, p. 116.

10. Weeden, loc. cit.

11. Ibid., p. 98.

12. Connecticut Bureau of Labor Statistics, Third Annual Report for Year Ending November 30, 1887 (Hartford, 1887) p. 225.

13. Clarence Alvord, The Illinois Country, 1673–1818 (Springfield, Ill., 1920 and Chicago: Loyola University Press, 1965) pp. 106–108.

14. Anne Bezanson, Prices and Inflation During the American Revolution (Philadelphia: University of Pennsylvania Press, 1951) p. 35.

15. Quoted in Alan Reynolds, “A History Lesson on Inflation,” First National Bank of Chicago World Report, July 1976.

16. Albert Bolles, The Financial History of the United States (New York; D. Appleton & Co., 1896) Vol. 1, p. 160.

17. Connecticut, Public Records of the State (Hartford, 1894) Vol. 1, p. 62.

18. Ibid., p. 366.

19. William Graham Sumner, The Financier and the Finances of the American Revolution (New York, 1891 and New York: B. Franklin, 1970) Vol. 1, p. 65.

20. Ibid., p. 66.

21. Ralph Harlow, Economic Conditions in Massachusetts During the American Revolution (Cambridge, Mass: J. Wilson & Son, 1918).

22. Ibid.

23. Ibid.

24. Journal of the Continental Congress (New York, 1908) Vol. 21, p. 569.

25. Bezanson, op. cit., p. 86.

26. Reynolds, op. cit.

27. Pelatiah Webster, Political Essays (Philadelphia, 1791 and New York: B. Franklin, 1969) pp. 65–66.