Do Government Price Controls Work?

Courtesy Reuters

NUMEROUS suggestions are being made as to how the present business recession in the United States can be relieved. Among the remedies proposed is regulation of prices by the government. It happens that in this particular field of controlled economy Germany has had the widest experience. My purpose here is to examine that experience and, so far as possible, to draw conclusions from it regarding the validity of government price control in general. My own knowledge gained as Reich Commissioner for Price Control will naturally form the basis of this analysis.

Within the last twenty-five years Germany has gone through four different periods of price control: during the World War; in 1931-32; in 1934-35; and since October 1936. The first and last of these four periods differ fundamentally from the other two. Price control systems were set up during the war and in 1936 in order to replace the law of supply and demand by governmental fiat. In the two intervening periods, however, the object of control was to restore the free flow of business, thereby permitting prices to conform to the diminished purchasing power.

Given the nature of the present economic crisis in the United States, it is Germany's experience with price control during 1931-32 and 1934-35 that will be of particular interest to Americans. Basically, the economic situation in America today is very similar to that of Germany in those two periods. On the other hand, Germany's present system of price control resulted from economic conditions purely German and without any American counterpart. Germany is now operating under a planned economy -- her Four-Year Plan -- in which price control plays a vital part. The regulation of prices, along with the control of exports and imports, performs the same function in maintaining the stability of the German currency as does the gold reserve for the currency of the United States.

The particular measures taken when setting up a system of price control should have a very practical basis. They should be

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