Forty Centuries of Wage and Price Controls

Preface

The co-authors began working on this book in 1974, just after the termination of President Nixon’s controls in the United States. Since that time, we have examined over one hundred cases of wage and price controls in thirty different nations from 2000 B.C. to A.D. 1978.

Naturally, we were only able to provide in one book a brief survey of so broad a subject. To our knowledge, however, this is the only history of wage and price controls in the major nations of the world in one volume. We hope, therefore, that the data we have gathered and analyzed and the ten page bibliography we have compiled will be of use to scholars wishing to do further work on more specialized aspects of the history of inflation and of government economic controls.

We have concluded that, while there have been some cases in which controls have at least apparently curtailed the effects of inflation for a short time, they have always failed in the long run. The basic reason for this is that they have not addressed the real cause of inflation which is an increase in the money supply over and above the increase in productivity. Rulers from the earliest times sought to solve their financial problems by debasing the coinage or issuing almost worthless coins at high face values; through modern technology the governments of recent centuries have had printing presses at their disposal. When these measures resulted in inflation, the same rulers then turned to wage and price controls.

After forty (or more) centuries, the problem is still with us. Recent polls reveal that the overwhelming majority of the American people regard inflation as the most important problem facing the country today.* Professor Karl Brunner of the University of Rochester and many other prominent economists now believe that we may be in an era of permanent inflation, that is, that the United States and Western Europe may be burdened by the kind of high and persistent inflation rates previously confined to Latin American nations. As a result of the current double-digit inflation, the latest Harris Poll (October 1978) indicates that 58 percent of the people now favor mandatory wage and price controls.

Naturally, we hope that those who read this book will come to conclude that controls are not the solution to the problem of inflation.

There can be little doubt that if a workable solution is not implemented in the near future the lives of most of us (and perhaps more importantly, the lives of our children) will be changed for the worse. The distinguished political commentator, David S. Broder, writing in The Boston Globe (October 25, 1978) put into eloquent and compelling language the dangers now facing us.

What inflation has done fundamentally [he wrote] is to deepen the insecurities in this country, and thus warp the opportunities for positive leadership on other issues . . . inflation damages the conservative social values which are essential to the country’s future. Stability, savings and investment are all undermined by inflation. Severe inflation makes a mockery of most families’ financial plans. Most working people feel there is no way they can protect their budgets against this kind of assault on the dollar.

It erodes the sense of trust on which an economy and a society rest, and it makes people cynical about the chances of attaining any social goal more ambitious than mere survival.

While it persists, there will hardly be room in our politics for any other major issue.

If, by writing this book, we are able to make a small contribution to the debate on this crucial issue and to move our countries a few steps forward to a realistic solution to this all-pervasive problem, our efforts will have been repaid.

Both the co-authors consulted each other on the chapters written by each and take responsibility for the book as a whole. Andrew Chalk, recently a Walker Fellow in economics at The Heritage Foundation and now a Ph.D. candidate at Washington University in St. Louis, did much of the research and wrote a first draft for Chapters 9 and 10 (on Germany and the Soviet Union). Eamonn F. Butler wrote the chapters on economic analysis (Chapters 12, 14, 16, 17, 18 and 19) while the co-authors jointly wrote Chapters 13 and 15. Robert L. Schuettinger primarily wrote the remaining, mainly historical, chapters.

The co-authors wish to thank several persons who made contributions, in various ways, to the final work. We are especially grateful to Edwin J. Feulner, Jr., the President of The Heritage Foundation, who initially suggested the idea of such a book to Schuettinger five years ago when they were both on the staff of the U.S. Congress; since that time he has retained a strong interest in the expansion and completion of what began as a short essay and he has taken an active role in seeing the book gradually assume finished form through several stages. Other persons who helped to make this a better book than it would otherwise be include: Herb Berkowitz, Jameson Campaigne, Jr., Beverly Childers, Marion Green, Eugene McAllister, Charles Moser, Hugh C. Newton, Richard Odermatt, Shirley Starbuck, John J. Tierney, Jr., Phil N. Truluck, and Richard S. Wheeler.

Naturally, there is no honorable way for the co-authors to shift responsibility for any remaining shortcomings to anyone but themselves.

ROBERT L. SCHUETTINGER

Burlington, Vermont

EAMONN F. BUTLER

St. Andrews, Scotland

February 12, 1979

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*The same view is held in Britain and a number of other industrialized nations. Inflation is obviously a worldwide problem, so it is not inappropriate that one of the authors (Schuettinger) is an American and the other (Butler) is British.