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Source link: http://archive.mises.org/4319/four-thousand-years-of-price-control/

Four Thousand Years of Price Control

November 10, 2005 by

Supply and demand have been allowed to work in energy markets, resulting in ups and downs in gasoline prices. But Congress is working diligently to put an end to that. Urged on by an economically ignorant public, Congress recently held one of its periodic Grand Inquisitions of oil company executives to demand an answer to the question: “How dare you profit from the American free enterprise system?” FULL ARTICLE

{ 19 comments }

Nospamforme November 10, 2005 at 9:53 am

I believe in free speech but when a post is utterly meaningless I do think it is a candidate for deletion by the admin.

Regarding the article…keep up the good work. Alas, people just never learn. Another four thousand years?

Curt Howland November 10, 2005 at 9:57 am

Hey! I liked the “tower of Babel” picture!

Mr. Kelley, I agree. The kinds of people who make up a majority of those in power are now, and seem to always have been, those who cannot learn. They exercise power for the sake of power and then act surprised when things don’t work out as they said they would.

I believe there is indeed an answer: Do not grant anyone else the power to tell you what to do.

Unfortunately, for us, those in power perpetuate the myth of the “social contract”, or even more insidiously the “democratic” ideal that since I can vote I have somehow agreed to whatever the result is.

I note that the historical record cited has time and again the restrictions repealed only after the leaders are threatened with credible violence. Too bad discussing practical assassination is illegal, ne?

John Christopher November 10, 2005 at 10:15 am

Great article with lots of good arguments for discussions. Thank you. Good to read someone whow believes in his opinions and does not need more-or-less-legalized violence to enforce them. Keep on singing.

Roland Leung November 10, 2005 at 10:21 am

Better ask why the general public is still as ignorant as those living 4000 years ago. Public schools brainwash!!!

Chuck George November 10, 2005 at 10:53 am

“Say it again, Tom,” to paraphrase a misquote. It is so straightforward; it has been said innumerable times before to readers of these pages; it’s a great reminder; it needs to be said over and over again; it needs to be propagated to the uninformed and the unthinking.

I’m going to send it to many of my friends and family who aren’t paying much attention, and to Bill O’Reilly.

Chuck George

Paul Edwards November 10, 2005 at 11:00 am

Great quote from Hermann Goering :

Your America is doing many things in the economic field which we found out caused us so much trouble. You are trying to control peoples’ wages and prices — peoples’ work. If you do that you must control peoples’ lives. And no country can do that part way. I tried and it failed. Nor can any country do it all the way either. I tried that too and it failed. You are no better planners than we. I should think your economists would read what happened here.

Paul Edwards November 10, 2005 at 12:15 pm

It occurred to me that there was some irony in Goering’s “I should think your economists would read what happened here.” It seems establishment economists have been forever making and repeating history by foolishly ignoring and not understanding what has happened in the past. Same mistake he made. He, of all people should not have been surprised. Life is funny.

Jack November 10, 2005 at 1:47 pm

Look at this:
http://finance.yahoo.com/q/bc?t=my&s=%5EXOI&l=on&z=m&q=l&c=&c=%5EGSPC

The “XOI” is an index that includes major oil companies such as BP, Exxon, Royal Dutch/Shell, Conoco, Sunoco, etc. Compare the oil index (the blue graph) to the S&P 500 index (the red graph) and you will see that over the last 20 years the oil index has not outperformed the SP by much (and I think there is a strong correlation between share price and profits, don’t you?). In fact, for 13 years prior to this year, oil stock price appreciation was BELOW the appreciation of the overall market. And so for a year of outperformance they need a windfall tax? Argh.

Chris Donabedian November 10, 2005 at 2:09 pm

Bravo! Bravo! Very powerful essay…

Philip Dimon November 10, 2005 at 3:11 pm

That is an awesome observation jack.

Maybe we can convince congress to impose a tax on the profits that the government has been making from their over taxing of gas and give it back to the people. However that would be inefficient and it would be best to just not have the tax there in the first place. However, we are actually talking about the congress so they would probably love a program like that. After all, as far as the government is concerned, it would appear the more inefficient the better. Fortunately in this instance no congressmen are informed or knowledgeable enough to read anything from mises.org. That is indeed unfortunate for the U.S. and the World in all other instances.

David Masten November 10, 2005 at 4:41 pm

One minor quibble, you said “only the wholesale price of electricity was deregulated there;”. But this is not what happened. There was no deregulation, even for wholesale, California only changed the regulations.

David Smith November 10, 2005 at 11:47 pm

Excellent essay–would that more people read it!
In the same vein (price controls) I was thinking how much vice in our society could be eliminated if the price of real estate were not controlled (i.e., rent controls). This is a major source of decay for our cities. People of lesser economic means should not be living in areas of naturally high-value real estate–near the centers of our cities. I know that this is a huge simplification, but I hope not an oversimplification. Poorer people should be, and would be, living where living costs are naturally lower if the market were allowed to operate. This would generally be in our rural, not our urban, areas. Not only that, but it would greatly benefit those who moved out of the fetid slums and onto the land in terms of finding meaningful employment, lessening of crime, gaining a sense of productivity and community, assimilating with the larger society instead of remaining in unassimilated enclaves, giving them a sense of empowerment and control over their lives and destinies, and instilling in them the ethic of contributing to society in exchange for a living. This list is by no means exhaustive, but just off the top of my head in a minute or two. It’s much more difficult for a non-producer to live off society in a rural/small town environment than in the city. Allowing the real estate market to operate would severely curtail this practice. Thanks for the opportunity to have my say.

Mark Sunwall November 12, 2005 at 3:23 am

Good to know that DeLorenzo has turned to other topics beyond what I still tend to call “The Civil War”.

On the other hand, showing that there were wage and price controls in antiquity and that their consequences were disasterous is a bit like shooting fish in a barrel and (even for a review) a waste of Austrian brainpower.

Far more important, from the point of view of general historical understanding is to show the primordial establishment of property rights in antiquity even (however surprisingly) in the ancient empires. The problem, from the point of view of catallactics, is that exchange was not yet based on monometalic standards. However this does not really affect the story going on with real property, cattle etc.

Documentation tends to be about market intervention rather than markets themselves. But even that is indirect evidence for property systems. To give an example where most people have ready access to the “ancient textual evidence”..at least in translation, there is the administration of Joseph when he was prime minister of Egypt. Joseph is a paragon of morality until he breaks into the upper etchelon of power, and he gets the idea of nationalizing the agricultural sector (which in ancient Egypt is pretty much everything). What is interesting is not that somebody would do such a thing, but that it was considered a novelty at the time. This popular story being one of a multitude of indications that there was a strong notion of “private domain” from the begining.

Instead of endless rehashings of (Karl) Polanyian and Wittfoglian ideas concerning the autocratic tendencies of ancient empires, might it not be better to look at them in light of the emerging Hoppian paradigm. The major point should be that private domains in antiquity were nestled within each other, and that in most places there was a definite system of recognized rights, although it had to maintain itself within the ebb and flow of centralization/decentralization (think feudalism). Some factors tended to skew towards autocracy (iron weapons, irrigation controls) but the underlying premise of society was private domains.

Hoppe changes Hegel’s historiography from
1) one is free (monarchy), 2) some are free (oligarchy), and finally 3) all are free (democracy), by pointing out the equivalency of all are free=all are slaves (of the demos). Perhaps we should rethink all the way back down the line.

Mark Sunwall

Nikki November 13, 2005 at 9:55 am

How come your essay doesn’t mention the effect of the release of oil from international stockpiles?

StickInTheMud November 17, 2005 at 9:02 am

Mark, you make some good points, and you should write an article for Mises that expands on that. I think you’re being a bit harsh on Mr. DiLorenzo, though – the mantra that price controls don’t work (and never have) can’t be repeated often enough.

Kevin November 18, 2005 at 9:07 pm

I’m not outraged with the high price of gas, but I am somewhat suspicious of the record levels of profit. Given the record level of gas prices, this has the appearance of tacit collusion. It seems logical that when the cost of a primary resource drastically increases, a company’s profit margin will decrease as they attempt to keep prices as low as possible. Instead we see oil companies raking in quarterly profit increases of over 60%. I understand it’s a cyclical industry, but isn’t anyone else suspicious?

Also, I certainly don’t recommend “windfall taxes” on oil companies, but the evidence does point to an energy market that lacks a proper level of competition.

Jerry McClellan November 20, 2005 at 5:32 pm

Great article, my first time posting here, nice blog!

Kevin, I agree with you on the point regarding the energy market lacking a proper level of competition, yet your point merely supports the underlying premise of the article, for the primary reason for the lack of “real” competition within the energy sector is due to too much government regulation and interference, mostly from the EPA who are egged on by environmental groups and lobbyists. Mr. DiLorenzo, I think you should expand on the notion of government interference in the overall economy, if you haven’t already, beyond price controls. For would you agree that even government policies and laws that also regulate how, when, where and to what extent production is done, causes the same amount of damage to the open market as limiting prices on goods and services?

Steve Rankin December 7, 2005 at 7:24 pm

The mention of the Roman emperor Diocletian reminded me of the 1980 presidential campaign, when wage and price controls were proposed. (Amazing, since the Richard Nixon-John Connally w/p controls of 1971-72 had so screwed up the economy.)

Ronald Reagan said in 1980 that wage and price controls had never worked, going back to Diocletian. Furthermore, he said, he was the only candidate who had known Diocletian personally!

Gregory E. Cromwell, I January 20, 2006 at 4:09 pm

I loved the article. It reminded me of a lesson I learned during my first summer as a young clerk in a video club. A then-recent immigrant from Russia came into the club one day and told me that she had just come from the supermarket across the parking lot from our store. She marvelled at the abundance and the quality of the foods. “Oh, the produce is beautiful here!” she exclaimed with tears in her eyes. It was her very first visit to a supermarket in the United States, she told me. She went on and on about the colors, the fresh smells, the firmness an what-have-you. She briefly told me of how the food in her native land was most often of poor selection: usually wilted, meager, drab in color, of poor taste and smell and all-too-often found rotting–and this was if one could find any produce at all! And then she went on and on about the food she found in the supermarket across the lot from me. I was shocked, to say the least, at the volumes of education that this woman (who is now a very successful entrepeneur in Charleston, SC), in only a few moments, gave me about free enterprise and economics. My heart went out to this woman, not only as a fellow person, but as if she were my sister or mother or daughter or any other relative, regardless of her age, race or native tongue. You are right: this matter is not merely one of academic ideals. When we place a person alongside a policy, we rightly consider where that policy will lead.

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