Review
See back cover of book for endorsements by F.A. Hayek, Henry Hazlitt, and William Simon.
From the Author
The following review by Roger Ream appeared in National Review in 1980.
Book Review: The Government Against The Economy by George Reisman February 1980 * Volume: 30 * Issue: 2
(Caroline House Publishers, Inc., P.O. Box 738, Ottawa, III. 61350) 1979 * 207 pages * $12.95 cloth
"This book is about the destructive effects of price controls," the author tells us. "It explains why price controls are destructive in principle and shows how they have actually been destructive in practice."
But the book is more than this. Reisman details how the profit motive and private ownership operate in a free society to produce consequences beneficial to all. He contrasts this with socialism, which destroys the possibility of rational economic activity and maintains control through-compulsion. He demonstrates how housing is provided efficiently in a free market, then examines the chaos of rent controls. He explains why shortages cannot exist in a free economy, then explodes the myths surrounding the energy crisis.
But by far the greatest importance of this book is that it comes at a time when "voluntary" wage and price guidelines are upon us and calls are increasing for the imposition of mandatory controls. This book demonstrates once again that you cannot fight inflation (an increase in the quantity of money) by trying to hide one of the symptoms--rising prices--with price controls. Reisman uses fresh arguments and examples to do battle with this worn out economic concept.
One of the blessings of a free economy is the peaceful social cooperation that results from free exchange. Reisman describes the free market as "a truly awe-inspiring complex of relationships in which the rational self-interest of individuals unites all industries, all markets, all occupations, all production, and all consumption into a harmonious, progressing system serving the well-being of all who participate in it." The consumer is sovereign. "The real advocates of the consumers their virtual agents--are businessmen seeking profit, not the leaders of groups trying to restrict the freedom of businessmen to earn profits."
Under price controls, the relationship between buyer and seller--consumer and businessman--is dramatically altered. Price controls cause shortages; rather than sellers seeking and serving buyers, the sellers have more buyers than they can possibly supply. As you may have noticed, your gas station attendant no longer routinely cleans your windshield and checks under the hood. If he loses your business, he suffers no financial loss since there are others in line--more than he can accommodate--hoping to buy his product. In fact, as we observed in the summer of 1979, consumers were offering gifts to gas station owners and taking their cars in for unnecessary tune-ups and minor repairs, all in an effort to keep on good terms with the seller. Price controls allow sellers to disregard consumer desires.
To understand this, it is important to see the distinction Reisman makes between a scarcity and a shortage. "An item can be extremely scarce, like diamonds, Rembrandt paintings, and so on," Reisman writes, "yet no shortage exists." Shortages exist when buyers demand more goods than sellers are willing to supply. This can only occur when prices are not free to reflect the constantly changing demand for, and supply of, the goods being exchanged. In a free market, if demand increases or supply decreases, prices tend to rise. This has two effects: it discourages the marginal uses of a product, while simultaneously encouraging the production of more goods. Controls prevent prices from approaching market-clearing levels.
A shortage, in other words, means that prices are held too low. Therefore, "in order to blame the oil companies for the shortage [of oil], one would have to show that the oil companies deliberately charged too low a price for their oil. That would be the only conceivable way they could have caused the shortage. But that is absolutely absurd. It was not the oil companies that were responsible for too low a price, but the government, with its price controls."
Reisman also shows how government acted directly to limit the supply of oil and was responsible for an enormous artificial increase in demand for petroleum products.
Reisman's analysis of price controls is hard-hitting. He uses brilliant examples to drive home his points. Unfortunately, his approach is sometimes holistic, rather than focusing on the individual. Also, his explanations of profit and what determines price are unclear. But the overall forcefulness of his conclusions concerning the central thesis of the book more than compensates and makes this a book well worth reading.
Americans experienced the chaos of comprehensive price controls in the early 1970s and again, on gas and oil last summer. Let us hope that Reisman's arguments get the attention they deserve, so that the destructiveness controls have caused over the centuries will be avoided in the years to come.
From the Back Cover
"Every commentator on current affairs who is not a fully trained
economist ought to read this book if he wants to talk sense. I
know no other place where the crucial issues are explained as
clearly and convincingly as in this book."
- F. A. Hayek, Nobel Laureate
in Economics for 1975
"Every principle set forth is fully illustrated by means of true-to-life
examples and is in turn used to explain recent economic
history. The reader may very well finish this book with a radically
different understanding of such events as the oil and natural gas
crises, chronic power failures, and the decline of rental housing
in places like New York City. I hope Professor Reisman's book
will succeed in reaching a large audience."
- William E. Simon, former
Secretary of the Treasury,
Author of A Time for Truth
"This is one of the most powerful and convincing books I know.
Its explanations are brilliantly clear; its analyses are lethal; it is
uncompromising. Readers who come to it without any previous
knowledge of basic economic theory will find it a luminous
introduction. If any book can slow down the economic destructionism
of our age, this could be it."
- Henry Hazlitt, Economist, Author,
former Newsweek columnist and New
York Times financial editor
About the Author
George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012), The Government Against the Economy; Warren Buffett, Class Warfare, and the Exploitation Theory; The Benevolent Nature of Capitalism and Other Essays; Labor Unions, Thugs, and Strom Troopers; and, most recently, Piketty's Capital: Wrong Theory/Destructive Program. His website is capitalism.net. His blog is georgereismansblog.blogspot.com. See his Amazon.com author's page and follow him on Twitter @GGReisman.
Dr. Reisman is married to Edith Packer, J.D., Ph.D., a clinical psychologist, with whom he lives in Laguna Hills, California.
He was personally a student of Ludwig von Mises, whose NYU seminar he attended for eight years and under whom he obtained his doctorate in economics in 1963. He is the translator of von Mises's Epistemological Problems of Economics (New York: D. Van Nostrand, 1960). From1957 until her death in 1982, he was an associate of Ayn Rand.
