For years, price controls were thought to be a hoary relic of the past. Politicians’ recent touting of “price gouging” laws, credit card interest-rate caps, and rent-control regulations, however, prove that they are still with us. Their reemergence warrants another look at what may be the best book on the subject: C. Jackson Grayson’s Confessions of a Price Controller, published 50 years ago.
The “best book on price controls” may not sound like an impressive distinction, but for would-be economic planners, Confessions of a Price Controller should be required reading. Grayson himself led the federal price-control campaign in the early 1970s, and he learned the hard way that successfully implementing such a program is impossible.
The story begins on Sunday, August 15, 1971, when President Richard Nixon announced to the nation that the dollar would no longer be convertible to gold and that the federal government was temporarily and completely freezing prices and wages. Nixon tapped Grayson, then dean of the business school at Southern Methodist University, to lead a new Price Commission to manage prices after the temporary freeze was over. It was an odd choice, since, as Grayson admitted, “my knowledge of economics and past price control programs was abysmal.”
The futility of the price-control effort is palpable throughout the book. How could a 600-person bureaucracy control millions of constantly changing prices? It couldn’t, of course, and Grayson found himself wrestling with everything from the price of cattle hides to shortages of molasses with almost no guidance.
Grayson admits that the Price Commission flew by the seat of its pants. Just hours before its first big public announcement, the commissioners were still debating if they should set a maximum price increase per manufacturing firm of 2.5 percent or impose an economy-wide goal of no more than 2.5 percent price increases—a near-biblical distinction. (They went with the national goal.) At one point, the commission approved a rule allowing companies to include cost increases from inputs in their final prices, only for the commissioners to realize weeks later that they disagreed among themselves whether that concession included the typical markups on those costs.
Even collecting information about their policies proved an insurmountable task. Grayson said that “[n]o matter how quickly the theoretical debate is running along, sooner or later it comes to a skidding halt when it has to be spelled out in a form” that is sent to private citizens. He pitied the poor “forms designers” who were “going through the same unmitigated hell as our lawyers” in trying to create something legal and comprehensive. The commission printed 100,000 copies of its first price-request form only to change a single line and consign the old papers to the trash.
Everything about price controls seemed simple in theory but proved impossible in practice. The commission, for example, allowed price increases if they were justified by cost increases but also permitted retailers and wholesalers to add a “customary initial percentage markup.” As Grayson said, “Simple? It wasn’t. Does the regulation apply on a firm-wide basis (such as, for all Kroger stores or for individual stores)? Does it apply to departments or to individual items within departments (the entire meat section or sirloins, rib eyes, T-bones, and so on)? Does it apply to all products by general categories or by brand (all peas sold, or Del Monte peas, Libby’s peas, and others)?”
The confusion in company pricing practices created obvious problems. Some firms marked up prices together in groups (such as all canned vegetables), some on an item-by-item basis, and some didn’t even try to set fixed prices, instead allowing individual managers to set them. In an attempt to impose some order, the government pushed firms to standardize their pricing, but Grayson realized the danger. With price controls, “[s]lowly the economy shapes itself around the convenience of the government rather than the influences of the market. Innovation is naturally suppressed because of its inherent ‘difference.’”
Grayson wrote his book when the free-market economy’s survival was threatened, not just by an expanding Soviet Union but by political forces at home. “[C]entral economic planning,” he wrote, “holds a great deal of logical appeal for many economists, intellectuals, and businessmen.” Inflation galvanized public and elite demands for state control of the economy, which was why it was “the number one problem facing this nation and the world,” Grayson wrote. “Inflation will lead to further and faster regulation of the market system and, eventually, its transformation.”
Ironically, Nixon became interested in politics in part because of his experience working in the tire-rationing section the Office of Price Administration during World War II, which left him disgusted with the government’s fumbling and failures. Not long before imposing his own price controls as president, he told a press gathering that they “cannot work in peacetime.”
Grayson also recalled World War II price controls with some horror, including their huge number of bureaucratic enforcers (about 60,000 at the peak) and the morass of attendant regulations, included six pages of fine legal print on the control of fruitcake prices. When controls continued after the end of the war, reports circulated of food shortages and of “steakleggers” sneaking meat across the Canadian border.
Voter frustration with price controls helped drive a young Nixon and the Republican Party to victory in the 1946 congressional elections. Yet as president, Nixon folded to political demands to fight inflation through top-down mandates, forgetting the lessons he had learned earlier. If the United States forgets those lessons again, it can expect a replay of the chaos that Grayson chronicled half a century ago.
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