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Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of goods even during shortages, and to slow inflation, or, alternatively, to ensure a minimum income for providers of certain goods or to try to achieve a
living wage A living wage is defined as the minimum income necessary for a worker to meet their basic needs. This is not the same as a subsistence wage, which refers to a biological minimum, or a solidarity wage, which refers to a minimum wage tracking lab ...
. There are two primary forms of price control: a
price ceiling A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings ostensibly to protect consumers from conditions that could make com ...
, the maximum price that can be charged; and a
price floor A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. A price floor must be higher than the equilibrium price in order to be effective. The equilibrium p ...
, the minimum price that can be charged. A well-known example of a price ceiling is
rent control Rent regulation is a system of laws, administered by a court or a public authority, which aims to ensure the affordability of housing and tenancies on the rental market for dwellings. Generally, a system of rent regulation involves: *Price cont ...
, which limits the increases that a landlord is permitted by government to charge for rent. A widely used price floor is
minimum wage A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. B ...
(wages are the price of labor). Historically, price controls have often been imposed as part of a larger
incomes policy Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually seeking to establish wages and prices below free market level. Incomes policies have often been resorted to ...
package also employing
wage A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', '' prevailing wage'', and ''yearly bonuses,'' and remune ...
controls and other regulatory elements. Although price controls are routinely used by governments, Western economists generally agree that price controls do not accomplish what they intend to, and many economists instead recommend such controls should be avoided. For example, nearly three-quarters of a sample of 1,350 U.S. economists surveyed in the early 1990s disagreed with the statement, "Wage-price controls are a useful policy option in the control of inflation."


History

The Roman Emperor
Diocletian Diocletian (; la, Gaius Aurelius Valerius Diocletianus, grc, Διοκλητιανός, Diokletianós; c. 242/245 – 311/312), nicknamed ''Iovius'', was Roman emperor from 284 until his abdication in 305. He was born Gaius Valerius Diocles ...
tried to set maximum prices for all commodities in the late 3rd century AD but with little success. In the early 14th century, the
Delhi Sultanate The Delhi Sultanate was an Islamic empire based in Delhi that stretched over large parts of the Indian subcontinent for 320 years (1206–1526).
ruler
Alauddin Khalji Alaud-Dīn Khaljī, also called Alauddin Khilji or Alauddin Ghilji (), born Ali Gurshasp, was an emperor of the Khalji dynasty that ruled the Delhi Sultanate in the Indian subcontinent. Alauddin instituted a number of significant administrativ ...
instituted several market reforms, which included price-fixing for a wide range of goods, including grains, cloth, slaves and animals. However, a few months after his death, these measures were revoked by his son
Qutbuddin Mubarak Shah Qutb-ud-din Mubarak Shah () was a ruler of the Delhi Sultanate of present-day India. A member of the Khalji dynasty, he was a son of Alauddin Khalji. After Alauddin's death, Mubarak Shah was imprisoned by Malik Kafur, who appointed his younger ...
. During the
French Revolution The French Revolution ( ) was a period of radical political and societal change in France that began with the Estates General of 1789 and ended with the formation of the French Consulate in November 1799. Many of its ideas are conside ...
, the Law of the Maximum set price limits on the sale of food and other staples. Governments in
planned economies A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, par ...
typically control prices on most or all goods but have not sustained high economic performance and have been almost entirely replaced by
mixed economies A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economie ...
. Price controls have also been used in modern times in less-planned economies, such as
rent control Rent regulation is a system of laws, administered by a court or a public authority, which aims to ensure the affordability of housing and tenancies on the rental market for dwellings. Generally, a system of rent regulation involves: *Price cont ...
. During
World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was List of wars and anthropogenic disasters by death toll, one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, ...
, the
United States Food Administration The United States Food Administration (1917–1920) was an independent Federal agency that controlled the production, distribution and conservation of food in the U.S. during the nation's participation in World War I. It was established to preve ...
enforced price controls on food. Price controls were also imposed in the US and Nazi Germany during World War II.


Postwar

Wage controls have been tried in many countries to reduce
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
, seldom successfully. Modern
neoclassical economic theory Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
supports the alternative remedy of reducing the money supply and proposes that
monetary inflation Monetary inflation is a sustained increase in the money supply of a country (or currency area). Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it ...
is caused by too much
money creation Money creation, or money issuance, is the process by which the money supply of a country, or of an economic or monetary region,Such as the Eurozone or ECCAS is increased. In most modern economies, money creation is controlled by the central bank ...
by the
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a centra ...
.


United Kingdom

The
National Board for Prices and Incomes The National Board for Prices and Incomes was created by the government of Harold Wilson in 1965 in an attempt to solve the problem of inflation in the British economy by managing wages and prices. The board's chairman was Aubrey Jones, formerly ...
was created by the government of
Harold Wilson James Harold Wilson, Baron Wilson of Rievaulx, (11 March 1916 – 24 May 1995) was a British politician who served as Prime Minister of the United Kingdom twice, from October 1964 to June 1970, and again from March 1974 to April 1976. He ...
in 1965 in an attempt to solve the problem of inflation in the British economy by managing wages and prices. The Prices and Incomes Act 1966 c. 33 affected UK labour law, regarding wage levels and price policies. It allowed the government to begin a process to scrutinise rising levels of wages (then around 8% per year) by initiating reports and inquiries and ultimately giving orders for a standstill. The objective was to control inflation. It proved unpopular after the 1960s.


United States

In the United States, price controls have been enacted several times. The first time price controls were enacted nationally was in 1906 as a part of the
Hepburn Act The Hepburn Act is a 1906 United States federal law that expanded the jurisdiction of the Interstate Commerce Commission (ICC) and gave it the power to set maximum railroad rates. This led to the discontinuation of free passes to loyal shippers. ...
. In World War I the
War Industries Board The War Industries Board (WIB) was a United States government agency established on July 28, 1917, during World War I, to coordinate the purchase of war supplies between the War Department (Department of the Army) and the Navy Department. Becaus ...
was established to set priorities, fix prices, and standardize products to support the war efforts of the United States. During the 1930s, the
National Industrial Recovery Act The National Industrial Recovery Act of 1933 (NIRA) was a US labor law and consumer law passed by the 73rd US Congress to authorize the president to regulate industry for fair wages and prices that would stimulate economic recovery. It also ...
(NIRA) created the
National Recovery Administration The National Recovery Administration (NRA) was a prime agency established by U.S. president Franklin D. Roosevelt (FDR) in 1933. The goal of the administration was to eliminate " cut throat competition" by bringing industry, labor, and governm ...
, that set prices and created codes of "fair practices". In May 1935, the Supreme Court held that the mandatory codes section of NIRA were unconstitutional, in the court case of ''
Schechter Poultry Corp. v. United States ''A.L.A. Schechter Poultry Corp. v. United States'', 295 U.S. 495 (1935), was a decision by the Supreme Court of the United States that invalidated regulations of the poultry industry according to the nondelegation doctrine and as an invalid u ...
''. In 1971, President
Richard Nixon Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
issued Executive Order 11615 (pursuant to the
Economic Stabilization Act of 1970 The Economic Stabilization Act of 1970 (Title II of , formerly codified a12 U.S.C. § 1904 was a United States law that authorized the President to stabilize prices, rents, wages, salaries, interest rates, dividends and similar transfers as part ...
), imposing a 90-day freeze on wages and prices. The constitutionality of this action was challenged and upheld in the case of The individual states have sometimes chosen to implement their own control policies. In the 1860s, several midwestern states of the United States, namely Minnesota, Iowa, Wisconsin, and Illinois, enacted a series of laws called the
Granger Laws The Granger Laws were a series of laws passed in several midwestern states of the United States, namely Minnesota, Iowa, Wisconsin, and Illinois, in the late 1860s and early 1870s.American History, “The Granger Laws,” From Revolution to Reconstr ...
, primarily to regulate rising fare prices of railroad and grain elevator companies.
California California is a state in the Western United States, located along the Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the most populous U.S. state and the 3rd largest by area. It is also the m ...
controls the prices of
electricity Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as describe ...
within the state, which conservative economist
Thomas Sowell Thomas Sowell (; born June 30, 1930) is an American author, economist, political commentator and academic who is a senior fellow at the Hoover Institution. With widely published commentary and books—and as a guest on TV and radio—he becam ...
blames for the occasional electricity shortages the state experiences. Sowell said in 2001, "Since the utility companies have been paying more for electricity than they were allowed to charge their customers, they were operating in the red and the financial markets are downgrading their bonds." California's price-setting board agreed to raise rates but not as much as the companies were paying on the wholesale market for their electricity. Economist Lawrence Makovich contended, "We've already seen in California that price caps on retail rates increased demand and made the shortage worse and price caps also forced the largest utility,
Pacific Gas and Electric Company The Pacific Gas and Electric Company (PG&E) is an American investor-owned utility (IOU). The company is headquartered in the Pacific Gas & Electric Building, in San Francisco, California. PG&E provides natural gas and electricity to 5.2 millio ...
, into bankruptcy in four months." While some charged that electricity providers had in past years charged above-market rates, in 2002 the ''
San Francisco Chronicle The ''San Francisco Chronicle'' is a newspaper serving primarily the San Francisco Bay Area of Northern California. It was founded in 1865 as ''The Daily Dramatic Chronicle'' by teenage brothers Charles de Young and Michael H. de Young. The pa ...
'' reported that before the blackouts, many energy providers left the state because they could make a greater profit in other Western states. The
Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) is the United States federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce and regulates the transportation of oil by pipeline in ...
stepped in and set price caps for each
megawatt The watt (symbol: W) is the unit of power or radiant flux in the International System of Units (SI), equal to 1 joule per second or 1 kg⋅m2⋅s−3. It is used to quantify the rate of energy transfer. The watt is named after James ...
of power bought after lifting the caps to avoid
rolling blackout A rolling blackout, also referred to as rota or rotational load shedding, rota disconnection, feeder rotation, or a rotating outage, is an intentionally engineered electrical power shutdown in which electricity delivery is stopped for non-overl ...
s six months previously. The state of
Hawaii Hawaii ( ; haw, Hawaii or ) is a state in the Western United States, located in the Pacific Ocean about from the U.S. mainland. It is the only U.S. state outside North America, the only state that is an archipelago, and the only stat ...
briefly introduced a cap on the wholesale price of
gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most spark-ignited internal combustion engines (also known as petrol engines). It consists mostly of organic c ...
(the Gas Cap Law) in an effort to fight "
price gouging Price gouging is a pejorative term used to describe the situation when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or ...
" in that state in 2005. Because it was widely seen as too soft and ineffective, it was repealed shortly thereafter.


Venezuela

According to Girish Gupta from ''
The Guardian ''The Guardian'' is a British daily newspaper. It was founded in 1821 as ''The Manchester Guardian'', and changed its name in 1959. Along with its sister papers '' The Observer'' and '' The Guardian Weekly'', ''The Guardian'' is part of the ...
'', price controls have created a scarcity of basic goods and made
black market A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the ...
s flourish under President Maduro.


India

In India, the government first enacted price control in 2013 for the Drug Price Control order. This order gave local regulatory body, and the Pharmaceutical Pricing Authority the power to set ceiling prices on the National List of Essential medicines.


Sri Lanka

In 2021 the Sri Lankan government enacted price controls on several essential items resulting in shortages.


Price floor

A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. A price floor must be higher than the equilibrium price in order to be effective. The equilibrium price, commonly called the "market price", is the price where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change, often described as the point at which quantity demanded and quantity supplied are equal (in a perfectly competitive market). Governments use price floors to keep certain prices from going too low. Two common price floors are
minimum wage law Minimum wage law is the body of law which prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage. More than 90% of all countries have some kind of minimum wage legislation. History Until r ...
s and supply management in Canadian agriculture. Other price floors include regulated US airfares prior to 1978 and minimum price per-drink laws for alcohol. Advantages of a price floor are: * Motivates producers to produce more. * Prevents the fluctuation of prices of agricultural products. * Reduces the over-exploitation of producers. Disadvantages of a price are: * Supply will exceed demand. * Resources are wasted. * The government may be forced to buy the excess supply or it may be discarded (e.g., in an agricultural context).


Price ceiling

A related government intervention to price floor, which is also a price control, is the
price ceiling A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings ostensibly to protect consumers from conditions that could make com ...
; it sets the maximum price that can legally be charged for a good or service, with a common example being
rent control Rent regulation is a system of laws, administered by a court or a public authority, which aims to ensure the affordability of housing and tenancies on the rental market for dwellings. Generally, a system of rent regulation involves: *Price cont ...
. A price ceiling is a price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive. Such conditions can occur during periods of high inflation, in the event of an investment bubble, or in the event of
monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
ownership of a product, all of which can cause problems if imposed for a long period without controlled rationing, leading to
shortage In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply ( surplus). Definitions In a perfect market (one that matches a s ...
s. Further problems can occur if a government sets unrealistic price ceilings, causing business failures, stock crashes, or even economic crises. In fully unregulated
market economies A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...
, price ceilings do not exist. While price ceilings are often imposed by governments, there are also price ceilings that are implemented by non-governmental organizations such as companies, such as the practice of resale price maintenance. With resale price maintenance, a
manufacturer Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
and its
distributor A distributor is an enclosed rotating switch used in spark-ignition internal combustion engines that have mechanically timed ignition. The distributor's main function is to route high voltage current from the ignition coil to the spark plug ...
s agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), at or below a price ceiling (maximum resale price maintenance) or at or above a
price floor A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. A price floor must be higher than the equilibrium price in order to be effective. The equilibrium p ...
.


Isabella Weber and Paul Krugman debate on price controls

In December 2021, Isabella Weber deeply influenced the inflation debate (Allenbach-Ammann & Makszimov, 2022) by suggesting the implementation of price controls in an opinion piece in the Guardian (Weber, 2022). She believes it is the third option to deal with the global energy crisis, next to either waiting for the inflation to pass or raising interest rates and implementing austerity measures. High inflation and record-breaking profits were measured in 2021 (Reuters, 2021). The German Bundesbank found that these profits, and thus the consequent higher prices, are artificially manufactured. Companies are increasing their profit margins as well as costs from supply chain difficulties (Allenbach-Ammann & Makszimov, 2022). Weber compares this high inflation situation of 2021-2022 with the period right after the second world war. Just like the war, the pandemic has created bottlenecks in the economy due to an abrupt restructuring of production. Weber refers to this after-war period because then, inflation was tackled by strategic price controls that were still left during the war (Weber, 2022). Additionally, she claims that implementing price controls would have multiple positive aspects. Firstly, it would win time to deal with the pandemic-created bottlenecks in the economy. Secondly, monetary stability would improve, which is needed for several societal goals, like mitigation of environmental decay, carbon neutrality, and economic resilience (Weber, 2022). Paul Krugman, an opinion writer for The New York Times, responded to Weber in a tweet, calling her idea “truly stupid” (Showalter, 2022; Reed, 2022). After many critiques, Krugman deleted his tweet and apologized for his harsh tone (Krugman, 2022). Lawrence W. Reed echoed Krugman’s opinion and took it even further by mocking Weber (Reed, 2022). He claims that price controls do not work and are a disguised way of controlling people, not prices, because the increasing prices are only the consequence of inflation, not the cause. Because monetary authorities inflate, prices rise after, according to Reed. In an interview, Weber defends her stance on price controls (Gaal, 2022). To counter the critique that indicates that price caps or controls disincentivize people to save energy, she stated that this depends on the cap you implement. She advocates for a cap on necessary amounts, and any overconsumption needs to be paid with higher market prices. Another argument against price controls Weber denounces is that putting a price cap on one good will lead to controlling all prices. However, as Weber says, most countries already have a politically predetermined price for many essential goods, which has yet to lead to price controls on everything (Gaal, 2022).


Implementation of price controls in Europe: the case of Spain and Portugal

The high inflation of 2021 and 2022 has urged the EU member states to take measures. Spain and Portugal imposed a cap on natural gas prices (News Desk, 2022b; Fonseca, 2022). They received permission from the European Commission because the Iberian Peninsula is not as connected to the European power marker as other member states (News Desk, 2022a). Spain and Portugal are less dependent on Russian gas, as they mainly import from Algeria and produce much of their electricity through renewables. This measure will help around 70% of businesses and about 40% of households (News Desk, 2022a; News Desk, 2022b). The gas price for power production will remain under the cap of around 50 euros per megawatt hour (News Desk, 2022a). Portuguese politicians in the government said that these measures would protect vulnerable households, socialize the cost and prices of energy, and most importantly, protect against the volatile energy prices in Europe (News Desk, 2022b; Fonseca, 2022; Lusa, 2022). Critics say these measures will distort the markets and result in higher gas consumption (News Desk, 2022b). Additionally, they believe it might disrupt competition in the European markets. However, as noted above, the Spanish and Portuguese power markets are more self-sufficient and tightly linked to one another, so the impact on the other EU countries should remain minimal (News Desk, 2022a).


Criticism

The primary criticism leveled against the price ceiling type of price controls is that by keeping prices artificially low, demand is increased to the point where supply cannot keep up, leading to shortages in the price-controlled product.Walter J. Wessels, ''Economics'' (2000), pp. 232–33. For example,
Lactantius Lucius Caecilius Firmianus Lactantius (c. 250 – c. 325) was an early Christian author who became an advisor to Roman emperor, Constantine I, guiding his Christian religious policy in its initial stages of emergence, and a tutor to his son Cri ...
wrote that
Diocletian Diocletian (; la, Gaius Aurelius Valerius Diocletianus, grc, Διοκλητιανός, Diokletianós; c. 242/245 – 311/312), nicknamed ''Iovius'', was Roman emperor from 284 until his abdication in 305. He was born Gaius Valerius Diocles ...
"by various taxes, he had made all things exceedingly expensive, attempted by a law to limit their prices. Then much blood f merchantswas shed for trifles, men were afraid to offer anything for sale, and the scarcity became more excessive and grievous than ever. Until, in the end, the rice limitlaw, after having proved destructive to many people, was from mere necessity abolished." As with Diocletian's
Edict on Maximum Prices The Edict on Maximum Prices (Latin: ''Edictum de Pretiis Rerum Venalium'', "Edict Concerning the Sale Price of Goods"; also known as the Edict on Prices or the Edict of Diocletian) was issued in 301 AD by Diocletian. The document denounces mon ...
, shortages lead to
black market A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the ...
s where prices for the same good exceed those of an uncontrolled market. Furthermore, once controls are removed, prices will immediately increase, which can temporarily shock the economic system. Black markets flourish in most countries during
war War is an intense armed conflict between states, governments, societies, or paramilitary groups such as mercenaries, insurgents, and militias. It is generally characterized by extreme violence, destruction, and mortality, using regular o ...
time. States that are engaged in
total war Total war is a type of warfare that includes any and all civilian-associated resources and infrastructure as legitimate military targets, mobilizes all of the resources of society to fight the war, and gives priority to warfare over non-com ...
or other large-scale, extended
war War is an intense armed conflict between states, governments, societies, or paramilitary groups such as mercenaries, insurgents, and militias. It is generally characterized by extreme violence, destruction, and mortality, using regular o ...
s often impose restrictions on home use of critical resources that are needed for the war effort, such as
food Food is any substance consumed by an organism for nutritional support. Food is usually of plant, animal, or fungal origin, and contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals. The substance is in ...
,
gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most spark-ignited internal combustion engines (also known as petrol engines). It consists mostly of organic c ...
,
rubber Rubber, also called India rubber, latex, Amazonian rubber, ''caucho'', or ''caoutchouc'', as initially produced, consists of polymers of the organic compound isoprene, with minor impurities of other organic compounds. Thailand, Malaysia, and ...
,
metal A metal (from ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, shows a lustrous appearance, and conducts electrical resistivity and conductivity, e ...
, etc., typically through
rationing Rationing is the controlled distribution of scarce resources, goods, services, or an artificial restriction of demand. Rationing controls the size of the ration, which is one's allowed portion of the resources being distributed on a particular ...
. In most cases, a black market develops to supply rationed goods at exorbitant prices. The
rationing Rationing is the controlled distribution of scarce resources, goods, services, or an artificial restriction of demand. Rationing controls the size of the ration, which is one's allowed portion of the resources being distributed on a particular ...
and price controls enforced in many countries during
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
encouraged widespread black market activity. One source of black-market meat under wartime rationing was by farmers declaring fewer domestic animal births to the
Ministry of Food An agriculture ministry (also called an) agriculture department, agriculture board, agriculture council, or agriculture agency, or ministry of rural development) is a ministry charged with agriculture. The ministry is often headed by a minister ...
than actually happened. Another in Britain was supplies from the US, intended only for use in US army bases on British land, but leaked into the local native British black market. A classic example of how price controls cause shortages was during the Arab oil embargo between October 19, 1973, and March 17, 1974. Long lines of cars and trucks quickly appeared at retail gas stations in the U.S. and some stations closed because of a shortage of fuel at the low price set by the U.S. Cost of Living Council. The fixed price was below what the market would otherwise bear and, as a result, the inventory disappeared. It made no difference whether prices were voluntarily or involuntarily posted below the market clearing price. Scarcity resulted in either case. Price controls fail to achieve their proximate aim, which is to reduce prices paid by retail consumers, but such controls do manage to reduce supply.
Nobel Memorial Prize The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...
winner
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
said, "We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas." U.S. President
Richard Nixon Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
's
Secretary of the Treasury The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...
,
George Shultz George Pratt Shultz (; December 13, 1920February 6, 2021) was an American economist, businessman, diplomat and statesman. He served in various positions under two different Republican presidents and is one of the only two persons to have held fo ...
, enacting Nixon's "New Economic Policy", lifted price controls that had begun in 1971 (part of the Nixon Shock). This lifting of price controls resulted in a rapid increase in prices. Price freezes were re-established five months later.
Stagflation In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actio ...
was eventually ended in the United States when the Federal Reserve under chairman
Paul Volcker Paul Adolph Volcker Jr. (September 5, 1927 – December 8, 2019) was an American economist who served as the 12th chairman of the Federal Reserve from 1979 to 1987. During his tenure as chairman, Volcker was widely credited with having ended th ...
raised interest rates to unusually high levels. This successfully ended high inflation but caused a recession that ended in the early 1980s.


See also

*
2021–2022 global energy crisis The 2021–2022 global energy crisis began in the aftermath of the COVID-19 pandemic in 2021, with much of the globe facing shortages and increased prices in oil, gas and electricity markets. The crisis was caused by a variety of economic factor ...
* Administered prices *
Capital control Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measure ...
*
Council on Wage and Price Stability Albert E. Rees (August 21, 1921 – September 5, 1992) was an American economist and noted author. An influential labor economist, Rees taught at Princeton University from 1966 to 1979, while also being an advisor to President Gerald Ford. H ...
*
Monopsony In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. The microeconomic theory of monopsony assumes a single entity ...


References


Further reading

*


External links

*
The Theory of Price Controls
by Stephanie Laguerodie et Francisco Vergara (de Review of Political Economy, October 2008) *
Price Control
"About Price control money making {{Authority control