Wage and Price Controls in the Ancient World

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This article
is excerpted from the book Forty
Centuries of Wage and Price Controls: How Not to Fight Inflation
.

From the earliest
times, from the very inception of organized government, rulers and
their officials have attempted, with varying degrees of success,
to “control” their economies. The notion that there is a “just”
or “fair” price for a certain commodity, a price which can and ought
to be enforced by government, is apparently coterminous with civilization.

For the past
forty-six centuries (at least) governments all over the
world have tried to fix wages and prices from time to time. When
their efforts failed, as they usually did, governments then put
the blame on the wickedness and dishonesty of their subjects, rather
than upon the ineffectiveness of the official policy. The same tendencies
remain today.

The passion
for economic planning, as Professor John Jewkes has cogently pointed
out,[1] is perennial. Centralized
planning regularly appears in every generation, and is just as readily
discarded after several years of fruitless experimentation, only
to rise again on a subsequent occasion. Grandiose plans for regulating
investment, wages, prices, and production are usually unveiled with
great fanfare and high hopes. As reality forces its way in, however,
the plans are modified in the initial stages, then modified a little
more, then drastically altered, then finally allowed to vanish quietly
and unmourned. Human nature being what it is, every other decade
or so the same old plans are dusted off, perhaps given a new name,
and the process is begun anew.

In
the Land of the Nile

In the ancient
world, of course, authority over the most important economic commodity,
foodstuffs, was power indeed. “The man, or class of men, who controls
the supply of essential foods is in possession of the supreme power.
The safeguarding of the food supply has therefore been the concern
of governments since they have been in existence,” wrote Mary Lacy
in 1922.[2] And as far back
as the fifth dynasty in Egypt, generally dated about 2830 BC or
earlier, the nomarch Henku had inscribed on his tomb, “I was lord
and overseer of southern grain in this nome.”

For centuries
the Egyptian government strived to maintain control of the grain
crop, knowing that control of food is control of lives. Using the
pretext of preventing famine, the government gradually regulated
more and more of the granaries; regulation led to direction and
finally to outright ownership; land became the property of the monarch
and was rented from him by the agricultural class.[3]

Under the Lagid
dynasty (founded by Ptolemy I Soter in 306 BC) “there was a real
omnipresence of the state…. The state … intervened by employing
widely all its public law prerogatives … all prices were fixed
by fiat at all levels.”[4]

According to
the French historian, Jean-Philippe Levy,

Control took
on frightening proportions. There was a whole army of inspectors.
There was nothing but inventories, censuses of men and animals
… estimations of harvests to come…. In villages, when farmers
who were disgusted with all these vexations ran away, those who
remained were responsible for absentees’ production… [one of
the first effects of harsh price controls on farm goods is the
abandonment of farms and the consequent fall in the supplies of
food]. The pressure [the inspectors] applied extended, in case
of need, to cruelty and torture.[5]

Egyptian workers
during this period suffered badly from the abuses of the state intervention
of the economy, especially from the “bronze law,” an economic theory
which maintained that wages could never go above the bare necessities
for keeping workers alive.[6]
The controls on wages set by the government reflected the prevailing
economic doctrine.

“After a period
of brilliance,” Levy concludes,

Egyptian
economy collapsed at the end of the third century BC, as did her
political stability. The financial crisis was a permanency. Money
was devalued. Alexandria’s commerce declined. Workers, disgusted
by the conditions imposed on them, left their lands and disappeared
into the country.[7]

Sumeria

In his very
instructive work, Must
History Repeat Itself?
Antony Fisher[8]
calls our attention to a king of Sumeria,[9]
Urukagina of
Lagash, whose reign began about 2350 BC. Urukagina, from the scanty
records that have come down to us, was apparently a precursor of
Ludwig Erhard, who began his rule by ending the burdens of excessive
government regulations over the economy, including controls on wages
and prices.

A historian
of this period tells us that from Urukagina

we have one
of the most precious and revealing documents in the history of
man and his perennial and unrelenting struggle for freedom from
tyranny and oppression.

This document
records a sweeping reform of a whole series of prevalent abuses,
most of which could be traced to a ubiquitous and obnoxious
bureaucracy … it is in this document that we find the word
“freedom” used for the first time in man’s recorded history;
the word is amargi, which … means literally “return
to the mother” … we still do not know why this figure of speech
came to be used for “freedom.”[10]

Babylon

In Babylon,
some forty centuries ago, the Code of Hammurabi, the first of the
great written law codes, imposed a rigid system of controls over
wages and prices. Remembering the somewhat limited nature of the
ancient economies (particularly those as ancient as the Babylonian),
it is interesting to note the extent of wage controls imposed by
the Hammurabi Code and the explicit way in which they are recorded.
A few of the Articles of the Code (the complete statutes on wages
and prices will be found in Appendix A) will suffice to illustrate
this:[11]

  1. If a
    man hire a field-laborer, he shall give him eight gur of corn
    per annum.

  2. If a
    man hire a herdsman, he shall give him six gur of corn per
    annum.

  1. If a
    man hire a pasturer for cattle and sheep, he shall give him
    eight gur of corn per annum.

  1. If a
    man has hired an ox for threshing, twenty qa of corn is its
    hire.

  2. If an
    ass has been hired for threshing, ten qa of corn is its hire.

  3. If a
    young animal has been hired for threshing, one qa of corn
    is its hire.

  4. If a
    man hire cattle, wagon, and driver, he shall give 180 qa of
    corn per diem.

  5. If a
    man has hired a wagon by itself, he shall give forty qa of
    corn per diem.

  6. If a
    man hire a workman, then from the beginning of the year until
    the fifth month he shall give six grains of silver per diem.
    From the sixth month until the end of the year he shall give
    five grains of silver per diem.

  7. If a
    man hire a son of the people,

    Pay
    of a potter

    five
    grains of silver,

    Pay
    of a tailor

    five
    grains of silver,

    Pay
    of a carpenter

    four
    grains of silver,

    Pay
    of a rope maker

    four
    grains of silver,

    he shall
    give per diem.

  8. If a
    man hire a [illegible], her hire is three grains of silver
    per diem.

  9. If a
    man hire a makhirtu, he shall give two and a half grains of
    silver per diem for her hire.

  10. If a
    man hire a sixty-ton boat, he shall give a sixth part of a
    shekel of silver per diem for her hire.[12]

It is arguable
that these controls blanketed Babylonian production and distribution,
and smothered economic progress in the empire, possibly for many
centuries.[13]

Certainly the
historical records show a decline in trade in the reign of Hammurabi
and his successors. This was partly due to wage and price controls
and partly due to the influence of a strong central government,
which intervened in most economic affairs in general. W.F. Leemans
describes the recession as follows:

Prominent
and wealthy tamkaru (merchants) were no longer found
in Hammurabi’s reign. Moreover, only a few tamkaru
are known from Hammurabi’s time and afterwards … all … evidently
minor tradesmen and money-lenders.[14]

In other words,
it appears that the very people who were supposed to benefit from
the Hammurabi wage and price restrictions were driven out of the
market by those and other statutes.

The trade restrictions
laid down by “Hammurabi, the protecting king … the monarch who
towers above the kings of the cities…” as he called himself, were,
to some extent, built upon the foundations of the social system
developed under his predecessor, Rim-Sin. There was a remarkable
change in the fortunes of the people of Nippur and Isin and the
other ancient towns that he ruled, which came in the middle of Rim-Sin’s
reign. The beginning of the economic decline corresponds exactly
with a series of “reforms” inaugurated by him. It appears that the
noble monarch, after a series of impressive military victories,
succeeded in having himself worshipped as a god, and henceforth
took more political and economic power for his own administration
and broke the influence of wealthy and influential traders. Thence,
the number of timkaru and wealthy men mentioned in the
extant documents declines markedly. The number of property transactions
for which records exist also diminishes. The number of administrative
documents, which today we would call bureaucratic paperwork, simultaneously
increases at a precipitous rate.[15]

The
Other Side Of The World

On the other
side of the world, the rulers of ancient China shared the same paternalistic
philosophy that was found among the Egyptians and Babylonians and
would later be shared by the Greeks and Romans. In his study, The
Economic Principles of Confucius and His School
, the Chinese
scholar, Dr. Huan-chang Chen, states that the economic doctrines
of Confucius held that “government interference is necessary for
economic life and competition should be reduced to a minimum.”[16]

The Official
System of Chou, for instance, was a handbook of government
regulations for the use of mandarins of the Chou dynasty under which
Confucius (born 552 BC) lived. According to Dr. Chen, there was
detailed regulation of commercial life and prices were “controlled
by the government.” There was a large bureaucracy entrusted with
this task; Dr. Chen relates that there was a master of merchants
for every twenty shops and his duty was to establish the price of
each item sold according to the cost. “When there is any natural
calamity,” he writes, “the merchants are not allowed to raise their
price; for example, during a famine grain should be sold at the
natural price [that is, at the price believed to be "natural" by
the government] and during a great epidemic coffins should be sold
in the same way. “[17]

The officials
of the ancient Chinese empire expected to do what members of their
class have perennially attempted before and since: replace the natural
laws of supply and demand with their own judgment, allegedly superior,
of what the proper supply and demand ought to be. According
to the official system of Chou (about 1122 BC), a superintendent
of grain was appointed whose job was to survey the fields and determine
the amount of grain to be collected or issued, in accordance with
the condition of the crop, fulfilling the deficit of the demand
and adjusting the supply. Indeed, lengthy economic “textbooks” on
the subject of sensible grain management still exist from that time.

Dr. Chen comments
laconically on this system in a footnote: “In modern times this
policy has been changed to the opposite. During a famine, the price
of grain is raised to induce merchants to bring in more grain.”[18]

The regulations
cited above, according to Dr. Chen, “were the actual rules under
the Chou dynasty. In fact, in the classical time, the government
did interfere with the commercial life very minutely.”[19]

However, the
results were not very favorable. “According to history,” Dr. Chen
notes, “whenever the government adopted any minute measure, it failed,
with few exceptions … since the Ch’in dynasty (221–206 BC), the
government of modern China has not controlled the economic life
of the people as did the government of ancient China.”[20]
Apparently, the Chinese mandarins did learn from experience.

Even in the
classical period of Chinese history, however, there were a number
of perceptive economists who saw the futility of government regulation
of prices as a means of controlling inflation. In fact, they placed
the blame for high prices squarely on the shoulders of the government
itself. The economist Yeh Shih (AD 1150–1223), for instance, anticipated
by several centuries the principle known as Gresham’s law in the
West.

“The men who
do not inquire into the fundamental cause,” he wrote, “simply think
that paper should be used when money is scarce. But as soon as paper
is employed, money becomes still less. Therefore, it is not only
that the sufficiency of goods cannot be seen, but also that the
sufficiency of money cannot be seen.”[21]

Another economist
of about the same time, Yuan Hsieh (AD 1223), saw the principle
even more clearly:

Now, the
officials are anxious to increase wealth, and want to put both
iron money and copper money in circulation. If money were suddenly
made abundant during a period of scarcity, it should be very good.
But the fact never can be so. Formerly, because the paper money
was too much, the copper money became less. If we now add the
iron money to it, should not the copper money but become still
less? Formerly, because the paper money was too much, the price
of commodities was dear. If we now add the iron money to the market,
would the price not become still dearer? … When we look over
the different provinces, the general facts are these. Where paper
and money are both employed, paper is super-abundant, but money
is always insufficient. Where the copper money is the only currency
without any other money, money is usually abundant. Therefore,
we know that the paper can only injure the copper money, but not
help its insufficiency.[22]

Looking back
at what we know to be the ineffectual history of government attempts
to control inflation by regulating prices and wages, it is clear
that these two Chinese economists of eight centuries ago were fully
aware then of a law of economics that many political leaders have
not learned to this day.

Ancient
India

A renowned
Indian political philosopher known as Kautilya
and sometimes as Vishnugupta was an influential kingmaker who put
the great Maurya Chandragupta on the throne in 321 BC He wrote the
Arthasastra, the most famous of the ancient Indian “handbooks
for princes” as a guide to Chandragupta and other rulers; this collection
of essays on the art of statesmanship contains much wise and perceptive
advice.[23] However, like most
government officials of his time and since, Kautilya could not forbear
the practice of trying to regulate the economy on the lines he thought
best.

In a chapter
entitled “Protection Against Merchants,” Kautilya outlined in some
detail how the grain trade should be regulated and the levels of
prices that merchants should be allowed to charge:

[A]uthorized
persons alone … shall collect grains and other merchandise.
Collections of such things without permission shall be confiscated
by the superintendent of commerce.

Hence shall
merchants be favorably disposed towards the people in selling
grains and other commodities.

The superintendent
of commerce shall fix a profit of five percent over and above
the fixed price of local commodities, and ten per cent on foreign
produce. Merchants who enhance the price or realize profit even
to the extent of half a pana more than the above in the sale or
purchase of commodities shall be punished with a fine of from
five panas in case of realizing 100 panas up to 200 panas.

Fines for
greater enhancement shall be proportionally increased.[24]

In a chapter
entitled “Protection Against Artisans,” Kautilya explains the “just”
wages for a number of occupations, ranging from musicians to scavengers
and concludes by saying, “Wages for the works of other kinds of
artisans shall be similarly determined.”[25]

Kautilya also
recommends the appointment of government superintendents for a wide
variety of economic activities, such as slaughterhouses, liquor
supplies, agriculture and even ladies of the evening. For instance,
there is a provision that states that “[t]he superintendent shall
determine the earnings … expenditure, and future earnings of every
prostitute.” There is a footnote for guidance which states very
clearly that “[b]eauty and accomplishments must be the sole consideration
in the selection of a prostitute.”[26]

It is not known
exactly how these price and wage regulations worked out in practice,
but it would not be unreasonable to suppose that the end results
were similar to what happened in Egypt, Babylon, Sumeria, China,
Greece and other civilizations.

Ancient
Greece

Moving across
another continent, we find that the Greeks behaved in just the same
way. Xenophon tells us that in Athens, a knowledge of the grain
business was considered one of the qualities of a statesman.[27]
As a populous city-state with a small hinterland, Athens was constantly
short of grain, at least half of which had to be imported from overseas.
There was, needless to say, a natural tendency for the price of
grain to rise when it was in short supply and to fall when there
was an abundance. An army of grain inspectors, who were called Sitophylakes,
was appointed for the purpose of setting the price of grain at a
level the Athenian government thought to be just. It was a Golden
Age consumer-protection agency (of unusually large size for the
period) whose duties were defined by Aristotle as

to see to
it first that the grain was sold in the market at a just price,
that the millers sold meal in proportion to the price of barley,
that the bakers sold bread in proportion to the price of wheat,
that the bread had the weight they had fixed.[28]

The professor
of ancient history at the University of Cambridge, M.I. Finley,
comments in his recent study, The
Ancient Economy,
that

[j]ust price
was a medieval concept, not an ancient one, and this interference
by the state, altogether exceptional in its permanence, is a sufficient
measure of the urgency of the food problem. And when this and
all the other legislative measures I have mentioned on other occasions
failed, the state, as a last recourse, appointed officials called
sitonai, corn-buyers, who sought supplies wherever they
could find them, raised public subscriptions for the necessary
funds, introduced price reductions and rationing.[29]

The result
was as might be expected: failure. Despite the penalty of death,
which the harassed government did not hesitate to inflict, the laws
controlling the grain trade were almost impossible to enforce. We
have a surviving oration from at least one of the frustrated Athenian
politicians who implored a jury to put the offending merchants to
death:

But it is
necessary, gentlemen of the Jury, to chastise them not only for
the sake of the past, but also as an example for the future; for
as things now are, they will hardly be endurable in the future.
And consider that in consequence of this vocation, very many have
already stood trial for their lives; and so great are the emoluments
which they are able to derive from it that they prefer to risk
their life every day, rather than cease to draw from you, the
public, their improper profits…. If then, you shall condemn
them, you shall act justly and you will buy grain cheaper; otherwise,
the price will be much more.[30]

But Lysias
was not the first and he was hardly the last politician to court
popularity by promising the people lower prices in times of scarcity
if only they would put an occasional merchant to the sword. The
Athenian government, in fact, went so far as to execute its own
inspectors when their price-enforcing zeal flagged. Despite the
high mortality rates for merchants and bureaucrats alike, the price
of grain continued to rise when supplies were short and continued
to fall when supply was plentiful.

Regulatory
agencies have had the same problems from time immemorial.

T.F. Carney,
in his informative book The Economics of Antiquity, has
described the rise and the economic effect of ancient regulatory
agencies in the following terms:

If a government
and its key bureaucratic institutions can create a favourable
environment for business, by the same token they can also do the
reverse. Historically, economic development has been associated
with public instrumentalities….

Bureaucrats
[in the ancient world] were officials, with a punishment orientation
towards their subject populations…. The government bureaucracy
was regulative and extractive, not developmental. Originating
in a scribal culture, it always tended to favour a mandarinate
of literary generalists. There were no forces to countervail against
it. Neither corporations, legislatures, nor political parties
were yet in existence. In most cases, most of any society’s tiny
elite went into the apparatus of government. This government served
an autocrat whose word was law. So there could be no constitutional
safeguards for businessmen or against that apparatus….[31]

And there is
another way in which such ancient regulatory efforts show great
parallels with contemporary ones. The sitonai were originally
intended to be temporary, but as shortages arose from time to time
(in no way abated by their work) there was a growing desire to keep
them as permanent officials.

If all else
failed, Athenian colonial policy made it convenient enough to get
rid of surplus citizens whom the regulated economy could not sustain.
Some cynics might ask why some present-day economists have not thought
of this solution to the commodity scarcities which inevitably follow
upon price controls.[32]

Notes

[1]
John Jewkes, The New Ordeal By Planning (London:
MacMillan, 1948) passim.

[2]
Mary G. Lacy, Food Control During Forty-Six Centuries (Address
before the Agricultural History Society, Washington, DC, March 16,
1922) reprinted (Irvington-on-Hudson, New York: Foundation for Economic
Education, Inc.) p. 2.

[3]
Ibid., pp. 3–4.

[4]
Jean-Philippe Levy, The Economic Life of the Ancient World
(Chicago: University of Chicago, 1967) pp. 40–41.

[5]
Ibid., pp. 41–42.

[6]
Ibid., pp. 42–43.

[7]
Ibid., p. 43. For more information on the ancient Egyptian
economy, see also M.I. Finley, The Ancient Economy (London:
Chatto & Windus, 1973).

[8]
For more very useful information on the sorry history of government
interventions of all sorts in the economy (not only of wage and
price controls) consult Antony Fisher’s Must History Repeat
Itself? (London: Churchill Press, 1974). (Published in the
United States in 1978 by Caroline House, Ottawa, Ill.)

[9]
Congressman Edward J. Derwinski of Illinois, who opposed the “Economic
Stabilization Act” of 1971, inserted an interesting column by Jenkin
Lloyd Jones (Washington Star-News, November 10, 1973) in
the Congressional Record for November 12, 1973 (E7245).
Mr. Jones pointed out some historical failures of controls, noting
that “Efforts to fix prices for everything go back 41 centuries
to the kings of ancient Sumer.”

[10]
S.N. Kramer, The Sumerians (Chicago: University of Chicago,
1963) p. 79.

[11]
Partially legible provisions have been omitted.

[12]
Chilperic Edwards, The Hammurabi Code and the Sinaitic Legislation
(Port Washington, N.Y.: Kennikat Press, 1904) pp. 69–72. For the
complete statutes on wages and prices from the Code, see
Appendix A.

[13]
Irving S. Old, The Price of Price Controls (Irvington-on-Hudson,
New York: Foundation for Economic Education, 1952) p. 4.

[14]
W.F. Leemans, The Old Babylonian Merchant, Studia et Documenta
(Leiden: E. F. Brill, 1950) p. 122.

[15]
Ibid., pp. 114–115. See also James Wellard, Babylon
(New York: Saturday Review Press, 1972).

[16]
Huan-ehang Chen, The Economic Principles of Confucius
and His School (New York: Longmans, 1911) p. 168.

[17]
Ibid., p. 448.

[18]
Ibid.

[19]
Ibid., p. 449.

[20]
Ibid., p. 174.

[21]
Ibid., p. 444.

[22]
Ibid., pp. 444–445.

[23]
Kautilya’s Arthasastra (Mysore: Wesleyan Mission Press,
1923) p. v.

[24]
Ibid., p. 252.

[25]
Ibid., p. 249.

[26]
Ibid., p. 148.

[27]
August Boeckh, The Public Economy of the Athenians, translated
by Anthony Lamb (Boston: Little Brown & Co., 1857) Book 1, chapter
15.

[28]
Aristotle, The Constitution of Athens, 51.3.

[29]
Finley, op. cit., p. 170.

[30]
Lysias, “Against the Grain Dealers” in Morris Morgan (ed.), Eight
Orations of Lysias (Boston: Ginn & Co., 1895) pp. 89–103.

[31]
T. F. Carney, The Economies of Antiquity (Lawrence, Kansas:
Coronado Press, 1973) pp. 35–36.

[32]
On regulation in the Hellenic economy, see Finley, op.
cit., chapter VI.

Robert L.
Scheuttinger and Eamonn Butler began working on Forty
Centuries of Wage and Price Controls
in 1974, just after
the termination of President Nixon’s controls in the United States.
They examined over one hundred cases of wage and price controls
in thirty different nations from 2000 BC to AD 1978. By special
arrangement with the authors, the Mises Institute is thrilled to
bring back this popular guide to ridiculous economic policy from
the ancient world to modern times.

February
28, 2009

Robert Schuettinger
was educated in a one-room schoolhouse in Charlotte, Vermont. He
later studied under Nobel Laureate and Mises Institute founding
board member F.A. Hayek at the Committee on Social Thought of the
University of Chicago, where he also edited the New Individualist
Review with Ralph Raico. Eamonn Butler is director of the Adam
Smith Institute
. See his website.

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