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Rhode Island’s wage and price controls

Summary:
On December 31st, 1776, Rhode Island introduced wage and price controls. They limited the wages of carpenters to 70 cents a day, and those of tailors to 42 cents a day. These were price ceilings, and it was illegal to set wages or prices higher than the government stipulated levels. The law fixed maximum prices for items “necessary for existence.” 7s 6d was the maximum for a bushel of wheat, and fourpence-halfpenny a pound for “fresh port, well-fatted, and of a good quality.” A gallon of New England rum could be sold for no more than 3s 10d, 10d a pound for butter, 8s for a pair of shoes, and 30s for a barrel of blubber. Other states joined in the “Providence Convention” that sought relief from “the exorbitant prices of goods.” Delegates from Massachusetts, New Hampshire, and Connecticut

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On December 31st, 1776, Rhode Island introduced wage and price controls. They limited the wages of carpenters to 70 cents a day, and those of tailors to 42 cents a day. These were price ceilings, and it was illegal to set wages or prices higher than the government stipulated levels.

The law fixed maximum prices for items “necessary for existence.” 7s 6d was the maximum for a bushel of wheat, and fourpence-halfpenny a pound for “fresh port, well-fatted, and of a good quality.” A gallon of New England rum could be sold for no more than 3s 10d, 10d a pound for butter, 8s for a pair of shoes, and 30s for a barrel of blubber.

Other states joined in the “Providence Convention” that sought relief from “the exorbitant prices of goods.” Delegates from Massachusetts, New Hampshire, and Connecticut joined those from Rhode Island in recommending maximum wages and prices that were then enacted by state legislatures.

It didn’t work, of course; it never does. Nor did it last; it never does. Within months the ceiling prices were raised, then abandoned. It never works because wages and prices are signals of supply and demand. To fix them by law at arbitrary chosen levels is to deny the ability of supply and demand to determine the levels of wages and prices. It is roughly akin to bunging up a thermometer in an attempt to control temperature.

My colleague, Eamonn Butler, co-authored a book entitled “Forty Centuries of Wage and Price Controls,” detailing every instance in the 4,000 years since Hammurabi of ancient Babylon in which rulers have tried to set wages and prices by law. Many were governed by the false notion that there could be a just price” for things.

Yet even in Eamonn’s lifetime (and mine), the Heath government in the UK, and the Nixon administration in the US, introduced wage and price controls. They never work, and they didn’t work then, either. They commonly set prices too low to make it worthwhile for producers to bring goods to the market, or set wages too low to make the activity worthwhile. They do not deliver stability, and never have. What they deliver in spades is shortages, and it is the shortages that cause the suffering that eventually makes people rebel against them.

Present day advocates of rent controls should note that they will cause the supply of rental accommodation to disappear, and make it not worthwhile to maintain existing rentals to a high standard. The answer to “exorbitant” prices is to let those prices lure other suppliers into the market in order to profit from them. The increased supply lowers the price more effectively than government laws can.

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