Saturday, September 11, 2010

An Historical Example

This WSJ article does a nice job of looking at the issue of price controls using a specific historical example, viz. West Germany after WWII. A few excerpts:
Unfortunately, occupation policy makers actually perpetuated the shortages by retaining the price controls the Nazi government had imposed before and during the war. Consumers and businessmen battled against the bureaucratic regime of controls and rationing in what the German economist Ludwig Erhard described as Der Papierkrieg—the paper war. Black markets were pervasive.

Germany's new Social Democratic Party wanted to continue the controls and rationing, and some American advisers agreed, particularly John Kenneth Galbraith. Galbraith, an official of the U.S. State Department overseeing economic policy for occupied Germany and Japan, had been the U.S. price-control czar from 1941-1943; he completely dismissed the idea of reviving the German economy through decontrol.

...

It was not a big mistake. In the following weeks Erhard removed most of the Bizone's remaining price controls, wage controls, allocation edicts and rationing directives. The effects of decontrol were dramatic.

The shortages ended, black markets disappeared, and Germany's recovery began. Buying and selling with Deutsche marks replaced barter. Observers remarked that almost overnight the factories began to belch smoke, delivery trucks crowded the streets, and the noise of construction crews clattered throughout the cities.

The remarkable success of the reforms made them irreversible. A few months later the French zone followed suit. The Allied authorities went on to lower tax rates substantially.

1 Comments:

Blogger Galileo Blogs said...

The "Erhard Miracle." It was a remarkable laboratory experiment on the virtue of freedom versus controls. One of many, such as the ensuing difference in the standard of living of West versus East Germany. There are so many "teachable" examples of capitalism's efficacy, such as these.

7:23 AM  

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