The Failure of Wage and Price Control in the Massachusetts Theocracy

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This article
is excerpted from An
Austrian Perspective on the History of Economic Thought
(1995).

From the first,
the Massachusetts oligarchy, seeing that in the New World land was
peculiarly abundant in relation to labor, tried by law to push down
the wage rates that they had to pay as merchants or landowners.
Maximum-wage controls were persistently imposed. John Winthrop set
the tone in 1633, complaining that "the scarcity of workmen
had caused them to raise their wages to an excessive rate.…"
What else was supposed to happen with a scarce product?

As in the South,
there were at the base of New England’s economic structure indentured
servants and Negro slaves, who sometimes were farm labor but mostly
were artisans, helpers, and domestic servants. After the servants’
terms expired, they received small grants of land and became farmer-settlers.
The Massachusetts gentry also supplemented this system of labor
with general compulsory service in harvesting neighboring farms
– a neat way of exploiting the local citizenry at wage rates
far below the market.

Maximum-wage
control always aggravates a shortage of labor, as employers will
not be able to obtain needed workers at the statutory price. In
trying to force labor to be cheaper than its price on the free market,
the gentry only made it more difficult for employers to obtain that
labor. By 1640 Winthrop was admitting that Massachusetts had "found
by experience that it would not avail by any law to redress the
excessive rates of laborers’ and workmen’s wages, etc. (for being
restrained, they would either remove to other places where they
might have more or else being able to live by planting or other
employments of their own, they would not be hired at all).…"

Of course,
one method of alleviating this induced shortage was by using the
forced labor of slavery, servitude, and compulsory harvest service.
Thus, one intervention by violence in the market created conditions
impelling a further and stronger intervention. But apart from forced
labor, the Massachusetts authorities, as we have noted, found it
extremely difficult to enforce maximum-wage control.

The first maximum-wage
law was enacted by Massachusetts as early as 1630. Due to the high
wages commanded by the scarcity of construction craftsmen, the law
concentrated on maximum-wage rates in the building trades. Carpenters,
bricklayers, etc., were limited to two shillings a day and any payment
above this rate would subject both the employer and the worker to
punishment (for instance, a buying-cartel of employers established
by the law punished the recalcitrant employer who decided to break
ranks). Almost immediately, the magistrates decided to imbibe more
of the magic medicine, and legal wage rates were pushed down to
sixteen pence a day for master carpenters and bricklayers, and correspondingly
lower for other laborers.

But the economic
laws of the market made enforcement hopeless, and after only six
months, the General Court repealed the laws, and ordered all wages
to be "left free and at liberty as men shall reasonably agree."
But Massachusetts Bay was not to remain wise for long. By 1633 the
General Court became horrified again at higher wage rates in construction
and other trades and at the propensity of the working classes to
rise above their supposedly appointed station in life by relaxing
more and by spending their wages on luxuries. Denouncing "the
great extortion … by divers persons of little conscience"
and the "vain and idle waste of precious time," the court
enacted a comprehensive and detailed wage-control program.

The law of
1633 decreed a maximum of two shillings a day without board and
fourteen pence with board, for the wages of sawyers, carpenters,
masons, bricklayers, etc. Top-rate laborers were limited to eighteen
pence without. These rates were approximately double those of England
for skilled craftsmen and treble for unskilled laborers. Constables
were to set the wages of lesser laborers. Penalties were levied
on the employers and the wage earners who violated the law. Sensing
that maximum controls below the market wage led to a shortage of
labor, the General Court decreed that no idleness was to be permitted.
In effect, minimum hours were decreed in order to bolster
the maximum-wage law – another form of compulsory labor. Workmen
were ordered to work "the whole day, allowing convenient time
for food and rest."

Interestingly,
the General Court soon decided to make an exception for the government
itself, which was naturally having difficulty finding men willing
to work on its public-works projects. A combination of the carrot
and the stick was used: government officials were allowed to award
"such extraordinary wages as they shall judge the work to deserve."
On the other hand, they were empowered to send town constables to
conscript laborers as the need arose.

Although
merchants were happy to join the landed oligarchy and the Puritan
zealots in forcing down the wage rates of laborers, they were scarcely
as happy about maximum controls on selling prices. The gentry were
eager, however, to force downward the prices of products they needed
to buy. A blend of mercantilist fallacies and Puritan suspicion
of commerce, the result was persistent attempts to force commodities
below their market prices. Having little conception of the function
of the price system on the free market, the Massachusetts authorities
also felt that maximum-price control would bolster the maximum-wage-rate
program. There was no understanding that general movements in prices
and wages are governed by the supply of and demand for money, and
that this too can best work itself out on the free market.

Corn was the
major monetary medium of the North, and in 1630 Massachusetts set
the sterling price of corn at six shillings per bushel. Failing
to work, this control was repealed along with the wage laws of 1631,
and corn was "left at liberty to be sold as men can agree."
In 1633, however, maximum-price controls were reimposed as an auxiliary
to the wage controls.

The massive
wage laws of 1633 were quickly discovered to be a failure; once
again the quiet but powerful economic laws of the market had triumphed
over the dramatic decrees of the coercive state. After one year
the actual wage rates were fifty percent higher than the statutory
levels. At that point, the General Court repealed the penalties
against paying, but retained those against receiving,
wages above the fixed legal rate. While, in fact, no employer
had ever been tried or penalized under the old act, the wage law
was now an open and flagrant piece of class legislation. This was
nothing new, however, as there were ample precedents in English
maximum-wage laws since the early fifteenth century.

Another change
made in 1634 allowed a little flexibility in decreed prices and
wages by permitting each town to alter the legal rate in case of
disputes. Only a year later the General Court, despairing of the
continued failure of the law to take hold, repealed the comprehensive
wage controls and the auxiliary price controls. Just before this
comprehensive repeal, the courts had apparently been driven by the
failure to inflict ever harsher penalties; fines had been so heavy
that two workers were imprisoned for failure to pay. The authorities
were at the crossroads: should they begin to impose on workers violating
clearly unworkable economic decrees the sort of punishment meted
out to heretics or to critics of the government? Happily, common
sense, in this case, finally prevailed.

Made wary by
its thundering failure, the theocracy no longer attempted a comprehensive
planned economy in Massachusetts Bay. From then on, it was content
to engage in annoying, but not fatal, hit-and-run harrassments of
the market. Penalties were made discretionary, and in 1636 wage
and price regulations were transferred by the provincial government
to the individual towns, as suggested by the leading Puritan divine,
Rev. John Cotton. The General Court was supposed to exercise overall
supervision, but exerted no systematic control. Control by each
town, as had been anticipated, was even more ineffective than an
overall plan, because each town, bidding against the others for
laborers, competitively bid wages up to their market levels. The
General Court wailed that all this was "to get the great dishonor
of God, the scandal of the Gospel, and the grief of divers of God’s
people." A committee of the most eminent oligarchs of the Bay
colony was appointed to suggest remedies, but could think of no
solution.

Of the towns,
Dorchester was perhaps the most eager to impose wage controls. During
the Pequot War, and again in 1642, it combined maximum wages with
conscription of any laborer unwilling to work and to work long enough
at the low rates. Hingham also enacted a maximum-wage program in
1641, and Salem was active in prosecuting wage offenders.

In 1635, the
year of the repeal of the wage and price plan, the Massachusetts
authorities tried a new angle: under the cloak of a desire to "combat
monopolizing," the Massachusetts government created a legal
monopoly of nine men – one from each of the existing towns
– for purchasing any goods from incoming ships. This import
monopoly was to board all the ships before anyone else, decide on
the prices it would pay, and then buy the goods and limit itself
to resale at a fixed five percent profit. But this attempt to combine
monopoly with maximum-price control failed also. The outlawing of
competing buyers could not be enforced and the import monopoly had
to be repealed within four months. What ensued was far better but
was still not pure freedom of entry. Instead, licensing was required
of all importers, with preference usually given to friends of the
government.

Generally,
the merchants were the most progressive, wordly, and cosmopolitan
element in Massachusetts life. The merchants were able to gain political
control of the growing commercial hub of Boston by the mid-1630s.
But the rest of Massachusetts remained in the hands of a right alliance
of Puritan zealots and landed gentry who dominated the magistrates’
council and the governorship. During the decade of the 1630s only
two out of twenty-two magistrates were merchants, one of these being
the Hutchinsonian leader William Coddington. This reflected the
occupational differences of their native England. The gentry had,
by and large, been minor gentry in rural England, while the merchants
usually hailed from London or other urban centers. In contrast to
the authoritarian and theocratic gentry, the merchants had a far
more individualist and independent spirit and often opposed the
Massachusetts oligarchy. It was no accident that almost all the
merchants championed the Hutchinsonian movement – including
Coddington, John Coggeshall, and the Hutchinson family itself. In
spite of the earlier failures, Massachusetts tried to resume its
harassment and regulation of the merchants, but even more sporadically
than in the case of wages. Millers were fined for charging what
were arbitrarily termed "excessive" prices for their flour.
A woodmaker was fined in 1639 for charging the Boston government
"excessive" prices for making Boston’s stocks, and, as
Professor Richard Morris notes
in Government
and Labor in Early America
, the General Court "with
great Puritan humor sentenced him, in addition, to sit in the stocks
he himself had made." Heavy fines and Puritan denunciations
were also the lot of merchants supposedly overcharging for nails,
gold buttons, and other commodities. The Puritan church was quick
to condemn these merchants, and insisted on penitence for this "dishonor
of God’s name" in order to regain membership in the church.

The most notable
case of persecution of a merchant occurred in 1639. Robert Keayne,
a leading Boston importer and large investor in the Massachusetts
Bay Company, and the devout brother-in-law of Rev. John Wilson,
was found guilty in General Court of gaining "excess"
profit, including a markup of over one hundred fifty percent on
some items. The authorities displayed once more their profound ignorance
of the functions of profit and loss in the market economy. Keayne
was especially aggrieved because there was no law on the books regulating
profits. In contrast, the Maine court, in the case of Cleve v.
Winter (1640), dismissed charges against a merchant for setting
excessive prices, on the grounds that it was not legitimate to regulate
a man’s profit in trade. So a sounder strain of thought did exist
despite the official view.

Massachusetts’
sister colonies also tried to impose a theocratic planned economy.
As we might have expected, the effort of New Haven Colony, founded
in distaste for the alleged laxity of Massachusetts Puritanism,
was the most comprehensive. New Haven’s Act of 1640 established
fixed profit markups of varying grades for different types of trade:
three pence in the shilling, for example, for retail of English
imports, and less for wholesale. Prices were supposed to be proportionate
to risk for colonial products. Above all, a highly detailed list
of maximum-wage rates for each occupation was issued. A year later,
an ambitious new schedule was decreed, pushing down wage rates even
further.

But even fanatical
New Haven could not conquer economic law, and only nine months later
the authorities were forced to admit defeat, and the entire program
was repealed. After that resounding failure, no further comprehensive
controls were attempted at New Haven, although there were a few
sporadic attempts to regulate specific occupations.

Comprehensive
wage control was also attempted in Connecticut. An abortive regulation
of wages was imposed in early 1640, but repealed later the same
year. The following year Connecticut, again alarmed about "excessive"
and rising wages (with men "a law unto themselves"), enacted
a maximum-wage scale for each occupation. However, instead of the
heavy fines imposed by Massachusetts, the only prescribed penalty
was censure by the colony’s General Court.

Because the
monetary medium of Connecticut was corn, wheat, or rye, maximum-wage
legislation, to be effective, depended on minimum rates of
exchange of these commodities in terms of shillings – otherwise,
maximum wages in shillings would be effectively negated by declines
in the shilling prices of corn. Minimum corn, wheat, and rye prices
were, accordingly, fixed at legal tender for wage and other contracts.
A slight reduction of wheat and corn prices, however, was allowed
in 1644, and, finally, in 1650 Connecticut also abandoned the foolhardy
attempt to plan the price and wage structure of the colony’s economy.

Murray
N. Rothbard
(1926–1995) was dean of the Austrian School,
founder of modern libertarianism, and chief academic officer of
the Mises Institute. He was
also editor — with Lew Rockwell — of The
Rothbard-Rockwell Report
, and appointed Lew as his literary
executor. See
his books.

The
Best of Murray Rothbard

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