• J.S. Mullen

Price Controls and the Road to Serfdom

As prices begin rapidly declining, we are reminded of the threat to our liberty posed by those who will inevitably cry out for intervention in the market during periods of crisis. Given that the Federal Government and Federal Reserve are expanding our money supply so recklessly as they are, it is difficult to see politically how serious inflation down the road is to be avoided. In which case, rather than price floors we will need to worry about those who will call for price ceilings.

As the cost of basic goods begins to rise, mass sentiments of indignance and injustice at the increased prices will be loudly and roundly heard. Politicians, mindful of little but public sentiment and its importance to maintaining their position of power through the end of such a crisis, will be quick to oblige. Indeed, for the price of a few dollars – a gallon of milk – our very liberty would be bargained away.

Incredible as it may sound to those who have never considered the matter closely, Ludwig Von Mises provides exquisite, if terrifying, insight into just how such a situation will likely be resolved. In his 1958 address at the University of Buenos Aires, Von Mises explained:

“The government hears people complain that the price of milk has gone up […] Consequently, the government declares a maximum price for milk, a maximum price that is lower than the potential market price would be […] On the one hand, the lower price of milk increases the demand for milk […] And on the other hand some of the producers, those producers of milk who are producing at the highest cost—that is, the marginal producers—are now suffering losses […] As he cannot take losses in milk, he restricts the production of milk for the market. He may sell some of his cows for the slaughter house, or instead of milk he may sell some products made out of milk […] Thus the government’s interference with the price of milk will result in less milk than there was before, and the same time there will be a greater demand.”

The future is clear: long lines of anxious customers eagerly pushing to get to shelves increasingly diminished. Then comes rationing.

Through it all, the government is not daunted. The people are angrier than ever and so politicians eagerly turn their ire on the next in line—those whose inputs make the cost of producing the in demand product so high! In the above case, milk, price ceilings will next be placed on the fodder to feed the cows, thereby alleviating the difficulty—except, as Von Mises explains:

“The same story repeats itself with fodder […] So the government must go a step farther, since it does not want to abandon the principle of price control. It determines maximum prices for producers’ goods which are necessary for the production of fodder. And the same story happens again. The government at the same time starts controlling not only milk but also eggs, meat, and other necessities. And every time the government gets the same result […] Once the government fixes a maximum price for consumer goods, it has to go farther back to producers’ goods, and limit the prices of the producers’ goods required for the production of the price-controlled consumer goods. And so the government, having started with only a few price controls, goes farther and farther back in the process of production, fixing maximum prices of all kinds of producers’ goods, including of course the price of labor, because without wage control the government’s ‘cost control’ would be meaningless.”

Being dead set on this suicidal mission, those in power cannot stop even there, Van Mises warns:

“Moreover, [the government] must necessarily include luxury goods, because if it did not limit their prices, capital and labor would abandon the production of vital necessities and would turn to producing those things which the government considers unnecessary luxury goods […] And as the government goes farther and farther, it will finally arrive at a point where all prices, all wage rates, all interest rates, in short everything in the whole economic system, is determined by the government. And this, clearly is socialism.”

And there you have it. Price controls, of all things, are one of the surest paths on the road to serfdom.

In Great Britain during the Second World War, crisis enabled the British government to begin intervening in the economy in just such a way, at the same time using its political and judicial power to suppress any dissent – all with the popular support of the people. As Covid – 19 has spawned an analogous dynamic, let us hope we take our lesson from Great Britain; who, as Von Mises reminds us, “Was not brought to socialism by the Labour government which was established in 1945. Great Britain became socialist during the war […] The Labour government simply retained the system of socialism which the government of Sir Winston Churchill had already introduced.”

These are dangerous times, and we should be earnestly unsettled by the fawning masses at the feet of an increasingly interventionist government comfortably ensconced in power despite manifold years of ineptitude on all sides – including in the handling of the present crisis.

For while the average citizen would likely recognize government ownership of industry as socialism, price controls would likely pass the same citizen by as an unalloyed good or just thing to legislate in such a time of crisis.

And on the road to serfdom we would go. For if, in an attempt to control prices, your business or labor are “needed” to produce something you don’t want to produce at a price you won’t agree to, requisitions are only a vote in Congress away.  

J.S. Mullen

June 2020