The Theory of Price Controls: John Kenneth Galbraith's Contribution

Abstract

Price controls have always aroused controversy. Before the Second World War, most economists saw them as either impossible to implement or unwise. Even during wartime it was widely believed that prices should remain as free as possible. Many economists saw benefits to price controls during the war, but also identified numerous costs to these controls. They also tended to favor limited price controls, applying to only those goods needed to fight the war. John Kenneth Galbraith was generally sympathetic to price controls during the war. He too supported limited controls, but then changed his mind and supported more extensive price controls during the Second World War. After the war, inflation tended to reappear long before full-employment was reached, even when production and employment were falling. From his wartime experiences, Galbraith tried to draw lessons for peacetime inflation. He proposed price and wage monitoring for a few hundred big companies and the unions with whom they negotiate.

Should the State Control Tariffs?

“…The main issue in pricing activity is when the government intervenes by setting and controlling prices and creating its limitations. At first, the basic idea of price controls is that if specific free movements (unregulated) of prices result in dire consequences, or if it makes some essential national goals challenging to be achieved, it is legal to keep an eye on these prices and ultimately to make the situation better (Laguerodie & Vergara, 2008). However, as time goes by, the price control regulation has been controversial and created pros and cons in many arguments and discussions due to the positive (advantages) and negative (disadvantages) impacts of the regulation (Vernon et al, 2006).…”

Housing price control: is it a way forward?

“…Controlling the housing price may have an effect on its equilibrium. However, Laguerodie and Vergara [20] state that price control does not necessarily mean that the government is imposing a policy or regulation that a product must be bought and sold at a precise price. They suggest that the fundamental idea of price control is that if the free movement of certain prices produces "very bad consequences" or it makes it impossible or highly difficult to attain something, taking several actions that make the situation better is legitimate.…”

“…They suggest that the fundamental idea of price control is that if the free movement of certain prices produces "very bad consequences" or it makes it impossible or highly difficult to attain something, taking several actions that make the situation better is legitimate. Moreover, Laguerodie and Vergara [20] suggest that price control can be in the form of a wide variety of measures, in which the market prices causing the problem can be modified or influenced.…”