Economic advice from Hermann Göring
"Will it be as it always has been that countries will not learn from the mistakes of others and will continue to make the mistakes of others all over again and again?"
For many years, Hermann Göring was Hitler’s designated successor and in charge of economic planning. In 1946, awaiting execution, he said the following to the war correspondent Henry J. Taylor:
“Your America is doing many things in the economic field which we found out caused us so much trouble. You are trying to control people’s wages and prices – people’s work. If you do that you must control people’s lives. And no country can do that part way. I tried it and failed. Nor can any country do it all the way either. I tried that too and it failed. You are no better planners than we. I should think your economists would read what happened here. […] Will it be as it always has been that countries will not learn from the mistakes of others and will continue to make the mistakes of others all over again and again?”
The answer to Göring’s final question appears to be “yes” – even in the postwar era democratic nations have tried to control prices and wages, despite constant proof that it does not work. The most common examples are rent control and minimum wages. Today, the newly elected mayor of New York, Zohran Mamdani, is leading the ancient fight of Man vs. Prices. There is still a chance that he will win. But if so he – or at least the people of New York – will bitterly regret that victory.
I found the above Göring-quote in a book called Forty Centuries of Wage and Price Controls: How Not to Fight Inflation, by Robert L. Schuettinger and David I. Meiselman. The title says it all. The book is short and well-written, but it still feels repetitive by the end. It also came out in 1979, but is just as relevant today as then. The reason for this is, in Göring’s words, that “countries will not learn from the mistakes of others and will continue to make the mistakes of others all over again and again”.
Why is this? Well, wages and price controls are somewhat complicated things. Which is also why I won’t go into it here in any detail. But this can’t be the whole story. People are quite capable of understanding complicated things. Or at least trust other people to do it. This is why our bridges do not collapse, why our smartphones don’t burst into flames, and our nuclear power plants do not blow up.
SE ALSO: Why it profits us to pay - by Jakob Sjölander - Ignorance
All of these things are much more complicated than basic price theory. Why can’t we just accept that if we want something, we must pay for it, and that if we don’t pay for it, we won’t get it?
Let us note just how reality-resistant this is. Again and again since ancient history, empires and regimes have impoverished and sometimes destroyed themselves trying to control prices. It was tried in Egypt, Babylon and Rome. In the winter of 1777-8, the American revolutionaries almost starved their own army to death at Valley Forge. Two centuries earlier, the city of Antwerp used price controls to blockade itself far more effectively than the besieging Spaniards, forcing itself to surrender.
The problem is clearly psychological rather than logical. Wrong is often very complicated, while right is often as simple as 2+2=4. There are many reasons why we struggle to understand prices. But the most important is the failure of tiny human minds to understand something as complicated as the vast million-headed human economies. The ant does not understand the anthill.
This makes us short-sighted. At any given moment, forcing prices down is attractive. The benefits are immediate and obvious, the problems far less so. If only a few people buy cheaper than the seller would normally accept, it is even sustainable. But this is still stealing, and while stealing may make a few people rich, it can never make everybody rich. Even if the people who are being robbed are the “evil rich” or “the greedy capitalists”, we will eventually run out of other people’s money. And then our economies – networks of trust and trade – will break down.
Maybe we will learn our lesson. But even if we do, it will be forgotten in a few generations. When it comes to price controls, history really does repeat itself.
Jakob Sjölander
Hmm aren't you conflating different things here? When prices reflect genuine scarcity (too little grain, too few goods) then yes, capping them would likely produce shortages, black markets, and misery.
But not all prices signal scarcity. Prices also signal power. When a landlord charges market rents in a city with fixed land supply and massive switching costs, the "price" isn't transmitting information about production costs, it's rather extracting rent from a captive buyer. And when a monopsonistic employer pays below the competitive wage because workers have nowhere else to go, the "free" wage isn't an equilibrium but rather a consequence of bargaining asymmetry. Card and Krueger's minimum wage research (replicated extensively) shows that moderate minimum wages in monopsonistic labor markets don't reduce employment (it can in fact increase it).
The real question is not "controls or no controls", it's which price signal are you overriding, and why? Override scarcity signals and you get shortages. Constrain monopoly rents and you get better-functioning markets.
Describing price regulation as "stealing" assumes that the pre-regulation price distribution was earned. But markets and pseudo-markets don't exist in a state of nature and they don't reflect divine justice. They are human institutional constructs maintained by political decisions about property rights, contract law, monetary policy, and labor regulation. Calling regulation "theft" smuggles in the premise that one particular set of political arrangements is natural and all others are interference. That's ideology, not economics.