The New England states experimented with price controls starting in 1777, and the results were very much what an introductory economic textbook would predict. (Indeed, I offer a much-shortened version of this example in my own Principles of Economics textbook. A fourth edition will be out next fall, and of course I encourage anyone teaching the intro course to take a look.)
The story is told by William R. Staples in the Annals of the Town of Providence, From its First Settlement to the Organization of the City Government in June 1832, published in 1843, and available via the magic of Google Books (for example, here). The passages quoted here run from pp. 271-277, Staples describes the background of the price control legislation in this way.
\”In January 1777, a convention of deputies from the New-England States met in Providence, to state the prices of goods and labor. … Congress and the states too, had thus carried on the war by issuing bills of credit, The issues of these were regulated by the wants of army and navy. They constituted the currency the country. Every successive issue of them, tended to depreciate their value, as it necessarily increased the amount, and consequently rendered day of payment more distant and less certain. This depreciation of the currency produced an increase in the prices of all the necessaries of life, and this convention was called to regulate these prices.
\”They met, and after some deliberation, agreed upon certain prices to be paid and received for labor and almost every necessary article. The General Assembly of this state being in session, at same time, the convention reported to them immediately passed an act with the following popular title. \”An act to prevent monopolies and oppression, by excessive and unreasonable prices, for many of the necessaries and conveniences of life, and for preventing engrossers, and for the better supply of our troops in the army, with such necessaries may be wanted. This act embodied and adopted the report of the convention, and added other articles to it, so that it included almost every article, called necessary or convenient, from a bushel of wheat down to a quart of milk. He who bought or for a higher rate, was to \”be accounted oppressive, an enemy to his country, and guilty of a breach of this act,\” and to be subject to a fine.\”
\”The General Assembly were not unanimously in favor of this act There were some who saw how futile must be every attempt to fix the prices of articles, when the currency in which they were to be paid for was constantly depreciating in value, or in fact had no fixed value.\”
What effects did these price controls have? The following June, the town of Providence was sending representatives to the Rhode Island General Assembly. The town adopted a report with instructions for what its representatives should do and say. Staples reproduces these instructions, which started by telling the representatives to try to get better payment and support for the troops and their families. They argued that the costs of these supplies should be paid for by a \”general tax\” on the citizens, and once that tax was in effect, it would then be possible to repeal of the price control laws. Here is part of their description of the problems caused by the price controls:
As soon as adequate provision shall be made for supplying our troops, in the abovesaid, or any other equitable mode, you are instructed and directed to move for and exert your best endeavors to obtain, an immediate and total repeal of the late act of this state regulating prices, &c. …
Because, we find by experience, that the subject of said act is so intricate, variable, and complicated, that it cannot be and remain any term of time equitable, and hath a tendency to frustrate and defeat its own purposes. It was made to cheapen the articles of life, but it has in fact raised their prices, by producing an artificial, and in some articles a real, scarcity. It was made to unite us in good agreement respecting prices, but hath produced animosity and ill will between town and country and between buyers and sellers, in general. It was made to bring us to some equitable standard of honesty, and make fair dealers; but hath produced a sharping set of mushroom pedlers, who adulterate their commodities, and take every advantage to evade the force of the act, by the most pitiful evasions, quibbles and lies. It was made to give credit to our currency; but hath done it much injury; it tends to introduce bartering, and makes a currency of almost every thing, but money, and;
Because, by experience, we, as well as the inhabitants of the other states, find it almost impossible to execute such acts, at least without a degree of rigor and severity heretofore unknown in these free states; and, while it remains in its present situation, it tends only to weaken government, and bring all laws into contempt, and even if it could be executed, it would operate as a very heavy and unreasonable tax upon the sellers, who are generally the enterprising and the industrious: It would prevent foreigners from shipping goods to our coasts, and cause our own merchants to order theirs to the southern states, and, in general, discourage foreign trade, in carrying on which, the risk is great and very uncertain and variable, according to circumstances, from time to time, and therefore not accurately computable three years before hand. It would also tend to discourage agriculture and manufactures among ourselves, as the prospect of some extraordinary gain generally excites men to extraordinary exertions in all the different branches of business.
It hath a tendency to exclude from our markets every thing extraordinary in its kind, and of course, to prevent all improvement; to discourage industrious laborers, by allowing the indolent the same wages; for the scarcity of laborers will find employment for all, as the scarcity of goods will bring nearly all qualities up to the prices of the first rate, by which means, articles of inferior quality will be sold dearer to the poor, than what they would be afforded at if those of the first rate quality should be sold higher.
It would multiply oaths and lawsuits, otherwise needless, and prove a strong temptation to perjury and knavery of every kind, and in some cases put a man to needless expense in the disposal of his own property. It would render a man\’s house and stores liable to be opened and searched in a manner most ignominious and unworthy of a freeman, and deprive him of the privilege of complaining of it, under the penalty of ten pounds. It would promote suspicion and jealousies in neighborhoods, and a meddling with other folks\’ goods and business, ruinous to the peace and good order of society. …
This has been our case, and if the whole money only measure the whole property a proportionable part of the money ought to measure the same proportionable part of the property, and neither more or less, for either would be injustice. Therefore, stipulating prices below this proportion, is as real injustice, as raising them above it, and this proportion is so nice a point, that nothing but the wants of mankind, can accurately hit upon it. Trade, when left free from fetters and embarrassments, will of itself settle down nicely to this proportion, and keep to it closer, than any force whatever can bring it.