Friday, February 09, 2007

Price Controls and the Great Depression

Arnold Kling and Brad DeLong have been debating the merits of the New Deal. One of the aspects that I dislike the most was the price fixing, some of which still remains today in agriculture. In the book How Capitalism Saved America, Thomas DiLorenzo quoted John Flynn on the price fixing behaviors. There were code enforcement police in the New York garment industry who

roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axe looking for men who were committing the crime of sewing together a pair of pants at night.

A tailor from New Jersey was arrested, convicted, fined, and imprisoned for pressing a suit of clothes for 35 cents when the legally mandated price was 40 cents.

I’m not the sort of neo-Keynesian who believes that sticky prices cause recessions, but when prices are this sticky and with such a brutal enforcement mechanism (especially when going through massive deflation) I would argue that sticky prices, or price controls in this case, did contribute to the depth of the depression. (Not that they caused it, but were another factor.)


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Interesting post I think that the depression is very difficult to everybody because many people suffer of this problem we need to control this problem

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