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[This article is excerpted from the book Forty Centuries of Wage and Price Controls: How Not to Fight Inflation.]

From the earliest times, from the very inception of organized government, rulers and their officials have attempted, with varying degrees of success, to "control" their economies. The notion that there is a "just" or "fair" price for a certain commodity, a price which can and ought to be enforced by government, is apparently coterminous with civilization.

For the past forty-six centuries (at least) governments all over the world have tried to fix wages and prices from time to time. When their efforts failed, as they usually did, governments then put the blame on the wickedness and dishonesty of their subjects, rather than upon the ineffectiveness of the official policy. The same tendencies remain today.

The passion for economic planning, as Professor John Jewkes has cogently pointed out,[1] is perennial. Centralized planning regularly appears in every generation, and is just as readily discarded after several years of fruitless experimentation, only to rise again on a subsequent occasion. Grandiose plans for regulating investment, wages, prices, and production are usually unveiled with great fanfare and high hopes. As reality forces its way in, however, the plans are modified in the initial stages, then modified a little more, then drastically altered, then finally allowed to vanish quietly and unmourned. Human nature being what it is, every other decade or so the same old plans are dusted off, perhaps given a new name, and the process is begun anew.

In the Land of the Nile

"Egyptian workers during this period suffered badly from the abuses of the state intervention of the economy…"

In the ancient world, of course, authority over the most important economic commodity, foodstuffs, was power indeed. "The man, or class of men, who controls the supply of essential foods is in possession of the supreme power. The safeguarding of the food supply has therefore been the concern of governments since they have been in existence," wrote Mary Lacy in 1922.[2] And as far back as the fifth dynasty in Egypt, generally dated about 2830 BC or earlier, the nomarch Henku had inscribed on his tomb, "I was lord and overseer of southern grain in this nome."

For centuries the Egyptian government strived to maintain control of the grain crop, knowing that control of food is control of lives. Using the pretext of preventing famine, the government gradually regulated more and more of the granaries; regulation led to direction and finally to outright ownership; land became the property of the monarch and was rented from him by the agricultural class.[3]

Under the Lagid dynasty (founded by Ptolemy I Soter in 306 BC) "there was a real omnipresence of the state…. The state … intervened by employing widely all its public law prerogatives … all prices were fixed by fiat at all levels."[4]

According to the French historian, Jean-Philippe Levy,

Control took on frightening proportions. There was a whole army of inspectors. There was nothing but inventories, censuses of men and animals … estimations of harvests to come…. In villages, when farmers who were disgusted with all these vexations ran away, those who remained were responsible for absentees' production… [one of the first effects of harsh price controls on farm goods is the abandonment of farms and the consequent fall in the supplies of food]. The pressure [the inspectors] applied extended, in case of need, to cruelty and torture.[5]

Egyptian workers during this period suffered badly from the abuses of the state intervention of the economy, especially from the "bronze law," an economic theory which maintained that wages could never go above the bare necessities for keeping workers alive.[6] The controls on wages set by the government reflected the prevailing economic doctrine.

"After a period of brilliance," Levy concludes,

Egyptian economy collapsed at the end of the third century BC, as did her political stability. The financial crisis was a permanency. Money was devalued. Alexandria's commerce declined. Workers, disgusted by the conditions imposed on them, left their lands and disappeared into the country.[7]

Sumeria

In his very instructive work, Must History Repeat Itself? Antony Fisher[8] calls our attention to a king of Sumeria,[9] Urukagina of Lagash, whose reign began about 2350 BC. Urukagina, from the scanty records that have come down to us, was apparently a precursor of Ludwig Erhard, who began his rule by ending the burdens of excessive government regulations over the economy, including controls on wages and prices.

A historian of this period tells us that from Urukagina

we have one of the most precious and revealing documents in the history of man and his perennial and unrelenting struggle for freedom from tyranny and oppression. This document records a sweeping reform of a whole series of prevalent abuses, most of which could be traced to a ubiquitous and obnoxious bureaucracy … it is in this document that we find the word "freedom" used for the first time in man's recorded history; the word is amargi, which … means literally "return to the mother" … we still do not know why this figure of speech came to be used for "freedom."[10]

Babylon

In Babylon, some forty centuries ago, the Code of Hammurabi, the first of the great written law codes, imposed a rigid system of controls over wages and prices. Remembering the somewhat limited nature of the ancient economies (particularly those as ancient as the Babylonian), it is interesting to note the extent of wage controls imposed by the Hammurabi Code and the explicit way in which they are recorded. A few of the Articles of the Code (the complete statutes on wages and prices will be found in Appendix A) will suffice to illustrate this:[11]

If a man hire a field-laborer, he shall give him eight gur of corn per annum. If a man hire a herdsman, he shall give him six gur of corn per annum. If a man hire a pasturer for cattle and sheep, he shall give him eight gur of corn per annum. If a man has hired an ox for threshing, twenty qa of corn is its hire. If an ass has been hired for threshing, ten qa of corn is its hire. If a young animal has been hired for threshing, one qa of corn is its hire. If a man hire cattle, wagon, and driver, he shall give 180 qa of corn per diem. If a man has hired a wagon by itself, he shall give forty qa of corn per diem. If a man hire a workman, then from the beginning of the year until the fifth month he shall give six grains of silver per diem. From the sixth month until the end of the year he shall give five grains of silver per diem. If a man hire a son of the people, Pay of a potter five grains of silver, Pay of a tailor five grains of silver, Pay of a carpenter four grains of silver, Pay of a rope maker four grains of silver, he shall give per diem. If a man hire a [illegible], her hire is three grains of silver per diem. If a man hire a makhirtu, he shall give two and a half grains of silver per diem for her hire. If a man hire a sixty-ton boat, he shall give a sixth part of a shekel of silver per diem for her hire.[12]

It is arguable that these controls blanketed Babylonian production and distribution, and smothered economic progress in the empire, possibly for many centuries.[13]

Certainly the historical records show a decline in trade in the reign of Hammurabi and his successors. This was partly due to wage and price controls and partly due to the influence of a strong central government, which intervened in most economic affairs in general. W.F. Leemans describes the recession as follows:

Prominent and wealthy tamkaru (merchants) were no longer found in Hammurabi's reign. Moreover, only a few tamkaru are known from Hammurabi's time and afterwards … all … evidently minor tradesmen and money-lenders.[14]

In other words, it appears that the very people who were supposed to benefit from the Hammurabi wage and price restrictions were driven out of the market by those and other statutes.

The trade restrictions laid down by "Hammurabi, the protecting king … the monarch who towers above the kings of the cities…" as he called himself, were, to some extent, built upon the foundations of the social system developed under his predecessor, Rim-Sin. There was a remarkable change in the fortunes of the people of Nippur and Isin and the other ancient towns that he ruled, which came in the middle of Rim-Sin's reign. The beginning of the economic decline corresponds exactly with a series of "reforms" inaugurated by him. It appears that the noble monarch, after a series of impressive military victories, succeeded in having himself worshipped as a god, and henceforth took more political and economic power for his own administration and broke the influence of wealthy and influential traders. Thence, the number of timkaru and wealthy men mentioned in the extant documents declines markedly. The number of property transactions for which records exist also diminishes. The number of administrative documents, which today we would call bureaucratic paperwork, simultaneously increases at a precipitous rate.[15]

The Other Side Of The World

On the other side of the world, the rulers of ancient China shared the same paternalistic philosophy that was found among the Egyptians and Babylonians and would later be shared by the Greeks and Romans. In his study, The Economic Principles of Confucius and His School, the Chinese scholar, Dr. Huan-chang Chen, states that the economic doctrines of Confucius held that "government interference is necessary for economic life and competition should be reduced to a minimum."[16]

The Official System of Chou, for instance, was a handbook of government regulations for the use of mandarins of the Chou dynasty under which Confucius (born 552 BC) lived. According to Dr. Chen, there was detailed regulation of commercial life and prices were "controlled by the government." There was a large bureaucracy entrusted with this task; Dr. Chen relates that there was a master of merchants for every twenty shops and his duty was to establish the price of each item sold according to the cost. "When there is any natural calamity," he writes, "the merchants are not allowed to raise their price; for example, during a famine grain should be sold at the natural price [that is, at the price believed to be "natural" by the government] and during a great epidemic coffins should be sold in the same way. "[17]

"Chinese economists of eight centuries ago were fully aware then of a law of economics that many political leaders have not learned to this day."

The officials of the ancient Chinese empire expected to do what members of their class have perennially attempted before and since: replace the natural laws of supply and demand with their own judgment, allegedly superior, of what the proper supply and demand ought to be. According to the official system of Chou (about 1122 BC), a superintendent of grain was appointed whose job was to survey the fields and determine the amount of grain to be collected or issued, in accordance with the condition of the crop, fulfilling the deficit of the demand and adjusting the supply. Indeed, lengthy economic "textbooks" on the subject of sensible grain management still exist from that time.

Dr. Chen comments laconically on this system in a footnote: "In modern times this policy has been changed to the opposite. During a famine, the price of grain is raised to induce merchants to bring in more grain."[18]

The regulations cited above, according to Dr. Chen, "were the actual rules under the Chou dynasty. In fact, in the classical time, the government did interfere with the commercial life very minutely."[19]

However, the results were not very favorable. "According to history," Dr. Chen notes, "whenever the government adopted any minute measure, it failed, with few exceptions … since the Ch'in dynasty (221–206 BC), the government of modern China has not controlled the economic life of the people as did the government of ancient China."[20] Apparently, the Chinese mandarins did learn from experience.

Even in the classical period of Chinese history, however, there were a number of perceptive economists who saw the futility of government regulation of prices as a means of controlling inflation. In fact, they placed the blame for high prices squarely on the shoulders of the government itself. The economist Yeh Shih (AD 1150–1223), for instance, anticipated by several centuries the principle known as Gresham's law in the West.

"The men who do not inquire into the fundamental cause," he wrote, "simply think that paper should be used when money is scarce. But as soon as paper is employed, money becomes still less. Therefore, it is not only that the sufficiency of goods cannot be seen, but also that the sufficiency of money cannot be seen."[21]

Another economist of about the same time, Yuan Hsieh (AD 1223), saw the principle even more clearly:

Now, the officials are anxious to increase wealth, and want to put both iron money and copper money in circulation. If money were suddenly made abundant during a period of scarcity, it should be very good. But the fact never can be so. Formerly, because the paper money was too much, the copper money became less. If we now add the iron money to it, should not the copper money but become still less? Formerly, because the paper money was too much, the price of commodities was dear. If we now add the iron money to the market, would the price not become still dearer? … When we look over the different provinces, the general facts are these. Where paper and money are both employed, paper is super-abundant, but money is always insufficient. Where the copper money is the only currency without any other money, money is usually abundant. Therefore, we know that the paper can only injure the copper money, but not help its insufficiency.[22]

Looking back at what we know to be the ineffectual history of government attempts to control inflation by regulating prices and wages, it is clear that these two Chinese economists of eight centuries ago were fully aware then of a law of economics that many political leaders have not learned to this day.

Ancient India

A renowned Indian political philosopher known as Kautilya and sometimes as Vishnugupta was an influential kingmaker who put the great Maurya Chandragupta on the throne in 321 BC He wrote the Arthasastra, the most famous of the ancient Indian "handbooks for princes" as a guide to Chandragupta and other rulers; this collection of essays on the art of statesmanship contains much wise and perceptive advice.[23] However, like most government officials of his time and since, Kautilya could not forbear the practice of trying to regulate the economy on the lines he thought best.

In a chapter entitled "Protection Against Merchants," Kautilya outlined in some detail how the grain trade should be regulated and the levels of prices that merchants should be allowed to charge:

[A]uthorized persons alone … shall collect grains and other merchandise. Collections of such things without permission shall be confiscated by the superintendent of commerce. Hence shall merchants be favorably disposed towards the people in selling grains and other commodities. The superintendent of commerce shall fix a profit of five percent over and above the fixed price of local commodities, and ten per cent on foreign produce. Merchants who enhance the price or realize profit even to the extent of half a pana more than the above in the sale or purchase of commodities shall be punished with a fine of from five panas in case of realizing 100 panas up to 200 panas. Fines for greater enhancement shall be proportionally increased.[24]

In a chapter entitled "Protection Against Artisans," Kautilya explains the "just" wages for a number of occupations, ranging from musicians to scavengers and concludes by saying, "Wages for the works of other kinds of artisans shall be similarly determined."[25]

Kautilya also recommends the appointment of government superintendents for a wide variety of economic activities, such as slaughterhouses, liquor supplies, agriculture and even ladies of the evening. For instance, there is a provision that states that "[t]he superintendent shall determine the earnings … expenditure, and future earnings of every prostitute." There is a footnote for guidance which states very clearly that "[b]eauty and accomplishments must be the sole consideration in the selection of a prostitute."[26]

It is not known exactly how these price and wage regulations worked out in practice, but it would not be unreasonable to suppose that the end results were similar to what happened in Egypt, Babylon, Sumeria, China, Greece and other civilizations.

Ancient Greece

"Despite the penalty of death, which the harassed government did not hesitate to inflict, the laws controlling the grain trade were almost impossible to enforce."

Moving across another continent, we find that the Greeks behaved in just the same way. Xenophon tells us that in Athens, a knowledge of the grain business was considered one of the qualities of a statesman.[27] As a populous city-state with a small hinterland, Athens was constantly short of grain, at least half of which had to be imported from overseas. There was, needless to say, a natural tendency for the price of grain to rise when it was in short supply and to fall when there was an abundance. An army of grain inspectors, who were called Sitophylakes, was appointed for the purpose of setting the price of grain at a level the Athenian government thought to be just. It was a Golden Age consumer-protection agency (of unusually large size for the period) whose duties were defined by Aristotle as

to see to it first that the grain was sold in the market at a just price, that the millers sold meal in proportion to the price of barley, that the bakers sold bread in proportion to the price of wheat, that the bread had the weight they had fixed.[28]

The professor of ancient history at the University of Cambridge, M.I. Finley, comments in his recent study, The Ancient Economy, that

[j]ust price was a medieval concept, not an ancient one, and this interference by the state, altogether exceptional in its permanence, is a sufficient measure of the urgency of the food problem. And when this and all the other legislative measures I have mentioned on other occasions failed, the state, as a last recourse, appointed officials called sitonai, corn-buyers, who sought supplies wherever they could find them, raised public subscriptions for the necessary funds, introduced price reductions and rationing.[29]

The result was as might be expected: failure. Despite the penalty of death, which the harassed government did not hesitate to inflict, the laws controlling the grain trade were almost impossible to enforce. We have a surviving oration from at least one of the frustrated Athenian politicians who implored a jury to put the offending merchants to death:

But it is necessary, gentlemen of the Jury, to chastise them not only for the sake of the past, but also as an example for the future; for as things now are, they will hardly be endurable in the future. And consider that in consequence of this vocation, very many have already stood trial for their lives; and so great are the emoluments which they are able to derive from it that they prefer to risk their life every day, rather than cease to draw from you, the public, their improper profits…. If then, you shall condemn them, you shall act justly and you will buy grain cheaper; otherwise, the price will be much more.[30]

But Lysias was not the first and he was hardly the last politician to court popularity by promising the people lower prices in times of scarcity if only they would put an occasional merchant to the sword. The Athenian government, in fact, went so far as to execute its own inspectors when their price-enforcing zeal flagged. Despite the high mortality rates for merchants and bureaucrats alike, the price of grain continued to rise when supplies were short and continued to fall when supply was plentiful.

Regulatory agencies have had the same problems from time immemorial.

T.F. Carney, in his informative book The Economics of Antiquity, has described the rise and the economic effect of ancient regulatory agencies in the following terms:

If a government and its key bureaucratic institutions can create a favourable environment for business, by the same token they can also do the reverse. Historically, economic development has been associated with public instrumentalities…. Bureaucrats [in the ancient world] were officials, with a punishment orientation towards their subject populations…. The government bureaucracy was regulative and extractive, not developmental. Originating in a scribal culture, it always tended to favour a mandarinate of literary generalists. There were no forces to countervail against it. Neither corporations, legislatures, nor political parties were yet in existence. In most cases, most of any society's tiny elite went into the apparatus of government. This government served an autocrat whose word was law. So there could be no constitutional safeguards for businessmen or against that apparatus….[31]

And there is another way in which such ancient regulatory efforts show great parallels with contemporary ones. The sitonai were originally intended to be temporary, but as shortages arose from time to time (in no way abated by their work) there was a growing desire to keep them as permanent officials.

If all else failed, Athenian colonial policy made it convenient enough to get rid of surplus citizens whom the regulated economy could not sustain. Some cynics might ask why some present-day economists have not thought of this solution to the commodity scarcities which inevitably follow upon price controls.[32]

Robert L. Scheuttinger and Eamonn Butler began working on Forty Centuries of Wage and Price Controls in 1974, just after the termination of President Nixon's controls in the United States. They examined over one hundred cases of wage and price controls in thirty different nations from 2000 BC to AD 1978. By special arrangement with the authors, the Mises Institute is thrilled to bring back this popular guide to ridiculous economic policy from the ancient world to modern times. Comment on the blog.