Price control

“ It is very hard to control any individual price in the face of the economic forces of supply and demand, but it is very easy to control the general scale of prices; for the general scale of prices depends, among other things, on the weight of the gold dollar and the weight of the gold dollar is whatever we choose to make it. ”

“ The inflationary pressures on prices and rents, with relatively few exceptions, are now at an all-time peak. Unless the Price Control Act is renewed there will be no limit to which our price levels would soar. Our country would face a national disaster. ”

“ But the number of those who have as yet studied the plan or even considered its basic idea is very limited. Before any control of the price level can be actually undertaken, a larger public, especially in the business world, must learn to realize its necessity. ”

“ Where the means for price-fixing are purchases or sales of the commodity in a market operation or, as here, purchases of a part of the supply of the commodity for the purpose of keeping it from having a depressive effect on the markets, such power may be found to exist though the combination does not control a substantial part of the commodity. ”

“ The reasonableness of prices has no constancy due to the dynamic quality of the business facts underlying price structures. Those who fixed reasonable prices today would perpetuate unreasonable prices tomorrow, since those prices would not be subject to continuous administrative supervision and readjustment in light of changed conditions. Those who controlled the prices would control or effectively dominate the market. ”

“ It does not follow that controlled prices automatically meet the requirements for just compensation in the forcible taking of property simply because they replaced free market prices which could no longer be relied on to reflect the normal play of free economic forces. A system of price controls which is 'generally fair and equitable' may give rise to individual instances of hardship in the requisitioning of property no matter how conscientiously and competently administered. ”

“ I am particularly disturbed at the effect such thinking may have on production and employment. If manufacturers continue to hold back goods and decline to submit bids when invited--as I am informed some are doing--in anticipation of higher prices which would follow the end of price controls, we shall inevitably slow down production and create needless unemployment. On the other hand, there are the vast majority of American businessmen who are not holding back goods, but who need certainty about the Government pricing policy in order to fix their own long-range pricing policies. ”

“ It takes us some distance neither wholly to accept nor wholly to reject price ceilings as just compensation. The complications introduced by the displacement of free market prices by controlled prices serve to intensify the usual wariness against undue generalizations in ascertaining the value of specific property taken for public purposes. ”

“ At any rate then demand and supply are not the sole regulators of price. I should be glad to understand what Lord King and you mean by supply and demand. However abundant the demand it can never permanently raise the price of a commodity above the expense of its production, including in that expense the profits of the producers. It seems natural therefore to seek for the cause of the variation of permanent price in the expenses of production. [Pg 149] Diminish these and the commodity must finally fall, increase them and it must as certainly rise. ”

“ From what has been said, it must be evident that, other things remaining equal, trusts cannot affect the general level of prices through manipulating special commodities except as they change the amounts sold. If prices for one commodity are changed without a change in the number of sales, the effect on the price level will be neutralized by compensatory changes in other prices. ”

“ The jobbers and the retailers, to whom the wholesale dealers and manufacturers sell, are not so likely to take currency insurance into consideration in fixing their selling prices; but to whatever amount the cost price of their goods has been enhanced by the necessity of insurance against currency fluctuations, on that same amount they estimate and add for interest and profits; the total enhancement of prices falling ultimately on the consumer, who, of necessity, can rarely know the elements of the cost of the article he purchases. ”

“ VI.8 But, although international and interlocal trade will never bring about exact uniformity of price levels, it will, to the extent that it exists, produce an adjustment of these levels toward uniformity by regulating in the manner already described the distribution of money. If one commodity enters into international trade, it alone will suffice, though slowly, to act as a regulator of money distribution; for in return for that commodity, money may flow and, as the price level rises or falls, the quantity of that commodity sold may be correspondingly adjusted. ”

“ The best evidence of price is market price,—the price fixed by the joint inquiry and judgment of the world through its free competitive forces. Where that result is thus reached, no other evidence is admissable on the point. On the other hand the best evidence of excessive price is price fixed by monopoly, by private greed. ”

“ If trade unions seek to raise prices of labor while trusts raise prices of commodities, the general level of everything may rise or fall; but it can rise only by a general decrease in the quantities of commodities, labor, etc., sold, or by an increase of currency, or by an increase in velocities of circulation. If there is neither an increase nor decrease in volume of business, and if the quantity and velocity of circulation of money and its substitutes remain unchanged, the price level cannot change. ”

“ If the average thus selected should effect substantial justice — which implies that this recent average price level is not far from the price level at the moment the system is launched, nor far from the price level for any other moment during the past year at least, — nothing more need be done to secure justice on existing contracts. ”

“ So with the price level, while the strong-arm method is not only costly and vexatious but futile, the simple regulation of our instrument for measuring prices, the dollar, will accomplish the same result not only without cost and effort but, what is more to the point, with success. ”

“ The truth is, most explanations of the general rise in prices are mere graspings at the first straw in sight that seems to offer any explanation. People unconsciously pick out some particular cases with which they happen to be familiar and drag them before the public. A middleman or a trust raises prices, a firm announces a rise because of the demands of labor unions, a crop failure raises the price of a cereal,—and immediately some one hails the event as a representative cause of the high cost of living. ”

“ I had been so long steeped in enforced orderliness, that I had forgotten that real orderliness is only born of individual self-control. I forgot that I was back among the free spirits who govern a quarter of the habitable globe and whose descendants are making America; and even if here and there one or more, and they are often recently arrived immigrants, are intoxicated by freedom and shoot or steal like drunken men ”

“ As we have seen, the real evils of changing price levels do not lie in these changes per se, but in the fact that they usually take us unawares. It has been shown that to be forewarned is to be forearmed, and that a foreknown change in price levels might be so taken into account in the rate of interest as to neutralize its evils. ”

“ We have here the problem of bigness. Its lesson should by now have been burned into our memory by Brandeis. The Curse of Bigness shows how size can become a menace-both industrial and social. It can be an industrial menace because it creates gross inequalities against existing or putative competitors. It can be a social menace- because of its control of prices. [2] Control of prices in the steel industry i powerful leverage on our economy. For the price of steel determines the price of hundreds of other articles. ”

“ All prices have been fixed, or have regulated themselves accordingly. Let us now suppose that there has been a sudden exportation of $10,000,000, and under such circumstances as to delay the rapid filling up of the gap thus created. In the long run, the demand of a country for a circulation may be satisfied just as well with $90,000,000 as with $100,000,000; only it is necessary in the first instance that the circulation should be accelerated or that the price of money should rise 10 per cent. ”

“ If, indeed, the supply could not be increased, no diminution in the cost of production would lower the value; but there is by no means any necessity that it should. The mere possibility often suffices; the dealers are aware of what would happen, and their mutual competition makes them anticipate the result by lowering the price. ”

“ Some prices are fixed by law and custom, and some incomes are tied by long time contracts. Thus, it will happen, in many cases, that supply and demand for a given good will be unequally affected by a change in the value of money. This means that certain values are tied to the value of money, rising and falling with it, so that the amount of power which some elements in the economic situation are able to exert through supply-price-offer and demand-price-offer are at the mercy of changes in the value of money. ”

“ IV.13 The first cause of the unhealthy increase in trade lies in the fact that prices, like interest, lag behind their full adjustment and have to be pushed up, so to speak, by increased purchases. This is especially true in cases where the original impetus came from an increase in money. The surplus money is first expended at nearly the old price level, but its continued expenditure gradually raises prices. In the meantime the volume of purchases will be somewhat greater than it would have been had prices risen more promptly. ”

“ To hold the line against inflation, the government implemented strict monitoring of prime commodities, and improvement in the marketing and distribution system to protect consumers from undue price increases and supply shortages. ”

“ There is not a line to be found in these cases under the Act to show the slightest recognition of the definitely established truth, that high prices always have been, and always will be, the forerunner of low prices; that freemen in a free market, with its inducements to gain the higher rewards, strive, invent and compete, so that every temporary rise in price insures not merely a return to the old price, but to a lower one, and finally to the fair and equitable exchange of all commodities, measured by the labor relatively involved. ”

“ If the demand for dollars increases faster than the number of dollars—as it did after 1800—the price of each dollar will rise and prices generally will fall. The relative value of the dollar may be changed by natural causes or by legislation. An increased supply—the demand remaining the same—or a decreased demand—the supply remaining the same—will reduce the exchangeable value of each dollar. Natural causes may act on both supply and demand; as, for instance, by increasing the product from the mines or by increasing the amount consumed in the arts. ”

“ In time of war or other national emergency the demand of the government for an article or commodity often causes the market to be an unfair indication of value. The special needs of the government create a demand that outruns the supply. The market, sensitive to the bullish pressure, responds with a spiraling of prices. The normal market price for the commodity becomes inflated. And so the market value of the commodity is enhanced by the special need which the government has for it. ”

“ This however is but of temporary duration; for either the manufacturer's expectations were well grounded, and the market price of his commodities rises, or he discovers that there is a permanently diminished demand, and he no longer resists the course of affairs: prices fall, and money and interest regain their real value. If by the discovery of a new mine, by the abuses of banking, or by any other cause, the quantity of money be greatly increased, its ultimate effect is to raise the prices of commodities in proportion to the increased quantity of money ”

“ In the first place, the rise of prices at home, unless it should happen by an extraordinary coincidence to be accompanied by a corresponding rise of prices in all the foreign countries with which we trade, must necessarily have the two-fold effect of putting a check to the export of our own commodities to the foreign markets, and of encouraging an increased importation from those foreign markets to our own. And in the second place, the decline in the rate of interest produces a proportionate rise in the price of public securities ”

“ However, the general flexibility of the modern economic organization, with its mobility of capital and labour, free competition, power of choice, inventive genius and intellectual resources of entrepreneurs and merchants, takes care of the normal and temporary fluctuations of prices. But when a change in the price-level is general and persistent in one direction the case is otherwise. Arrangements based on the expectation that the price movement is only temporary, and that there will be a return to the former normal position, constantly come to naught. ”

“ On the other hand, if once we deliberately choose a price level after reference to an expert and impartial commission and then keep that level unchanged we shall give it a right to exist. The verdict will soon be generally accepted. Any unadjusted factors will gradually make the needed changes. Business will be rid of the handicap of uncertainty as to what the dollar is. In particular, wages will rise to recover the purchasing power lost in the losing race with the high cost of living. ”