A Seminar on Price Controls

June 28, 2022
 
Few recent developments have been more shocking to economists than renewed calls for price controls to “fight” inflation. St. Louis Fed Vice President, Chris Neely, makes a plea for why price controls ought to remain in the history books, touching on the margins of adjustment:
When a price ceiling prohibits a desired transaction, the buyer and seller will often evade the price ceiling by transacting in a closely related but unregulated product or by trading illegally in black markets. Similarly, sellers might change a good slightly to prevent it from being subject to the same price limit. The economist Hugh Rockoff notes that the price of clothing has been particularly difficult to control because an article of clothing can be upgraded easily to a higher-priced category by adding inexpensive decoration or reduced in quality by substituting cheaper materials.
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Interestingly, Milton Friedman devoted an entire undergraduate seminar at the University of Chicago in 1972 to price controls—less than a year after Nixon’s 1971 price fixing. Irwin Collier documents Friedman’s reading list here.
I disagree with Friedman that the classical gold standard was an example of international monetary price fixing. The list might profitably include Murray Rothbard’s discussion of “triangular intervention” in Man, Economy, and State.
But the first section of Friedman’s list is a great place to start for contemporary policymakers who ceaselessly gravitate toward price controls.