From Price Control to Valley Forge: 1777-78
FEBRUARY 01, 1972 by PERCY L. GREAVES JR.
Professor Greaves is now a freelance economist and lecturer. This article first appeared in Christian Economics, May 20, ¹952.
Price control has been often tried. It has been strongly enforced. Yet, it has consistently failed to produce the desired results. Our ancestors learned the follies of paper money and price control the hard way. They learned a lesson which many present-day Americans seem to have forgotten. Price controls almost wiped out our independence in the first years of our existence.
Our Continental Congress first authorized the printing of Continental notes in 1775. The Congress was warned against printing more and more of them. In a 1776 pamphlet, Pelatiah Webster, America’s first economist, told his fellow men that Continental currency might soon become worthless unless something was done to curb the further printing and issuance of this paper money.
The people and the Congress refused to listen to his wise advice. With more and more paper money in circulation, consumers kept bidding up prices. Pork rose from 4¢ to 8¢ a pound. Beef soared from about 4¢ to 100 a pound. As one historian tells us, "By November, 1777, commodity prices were 480% above the prewar average."
The situation became so bad in Pennsylvania that the people and legislature of this state decided to try "a period of price control, limited to domestic commodities essential for the use of the army." It was thought that this would reduce the cost of feeding and supplying our Continental Army. It was expected to reduce the burden of war.
The prices of uncontrolled, imported goods then went sky high, and it was almost impossible to buy any of the domestic commodities needed for the Army. The controls were quite arbitrary. Many farmers refused to sell their goods at the prescribed prices. Few would take the paper Continentals. Some, with large families to feed and clothe, sold their farm products stealthily to the British in return for gold. For it was only with gold that they could buy the necessities of life which they could not produce for themselves.
On December 5, 1777, the Army’s Quartermaster-General, refusing to pay more than the government-set prices, issued a statement from his Reading, Pennsylvania headquarters saying, "If the farmers do not like the prices allowed them for this produce let them choose men of more learning and understanding the next election."
This was the winter of Valley Forge, the very nadir of American history. On December 23, 1777, George Washington wrote to the President of the Congress, "that, notwithstanding it is a standing order, and often repeated, that the troops shall always have two days’ provisions by them, that they might be ready at any sudden call; yet an opportunity has scarcely ever offered, of taking an advantage of the enemy, that has not been either totally obstructed, or greatly impeded, on this account…. we have no less than two thousand eight hundred and ninety-eight men now in camp unfit for duty, because they are barefoot and otherwise naked…. I am now convinced beyond a doubt, that, unless some great and capital change suddenly takes place, this army must inevitably be reduced to one or other of these three things: starve, dissolve, or disperse in order to obtain subsistence in the best manner they can."
The severity of the situation increased. Our ragged regimentals were dispersing. In February, 1778, the Pennsylvania Assembly "passed a law appointing commissioners in every city of the state with full power to purchase or to seize, at stated prices, all provisions necessary for the army." But, appeals to patriotism, accompanied by force and threats of more force, failed to bring out the necessary provisions. The farmers just would not trade the fruit of their hard labors for paper money which bought less and less as the weeks passed by.
On April 21, 1778, George Washington wrote a delegate in Congress, "Men may speculate as they will; they may talk of patriotism; they may draw a few examples from ancient history, of great achievements performed by its influence; but whoever builds upon them, as a sufficient basis for conducting a long and bloody war, will find themselves deceived in the end. We must take the passions of men as nature has given them, and those principles as a guide, which are generally the rule of action. I do not mean to exclude altogether the idea of patriotism. I know it exists, and, I know it has done much in the present contest. But I will venture to assert, that a great and lasting war can never be supported on this principle alone. It must be aided by a prospect of interest, or some reward. For a time it may, of itself, push men to action, to bear much, to encounter difficulties; but it will not endure unassisted by interest."
Valley Forge taught George Washington and the Pennsylvania advocates of price control a very costly lesson. They had hoped for plenty at low prices. Instead they got scarcity and indescribable misery. Anne Bezanson’s valuable book, Prices and Inflation during the American Revolution, tells us, "By June 1, 1778, the act of regulating the several articles on the price lists was wholly suspended." Price control had failed.
Army Better Fed
This same book informs us that after this date the commissary agents were instructed, "to give the current price… let it be what it may, rather than the army should suffer which you have to supply and the intended expedition be retarded for want of it." As a result the Army was better provided for in the fall of 1778, than had previously been the case. In the words of Miss Bezanson, "the flexibility in offering prices and successful purchasing in the country in 1778 procured needed winter supplies wanting in the previous year."
In January, 1780, Pelatiah Webster wrote, "As experiment is the surest proof of the natural effects of all speculations of this kind… it is strange, it is marvelous to me, that any person of common discernment, who has been acquainted with all the above-mentioned trials and effects, should entertain any idea of the expediency of trying any such methods again…. Trade, if let alone, will ever make its own way best, and like an irresistible river, will ever run safest, do least mischief and most good, suffered to run without obstruction in its own natural channel."
Price control is an attempt to alter God’s law of supply and demand. Those who endorse it frequently believe that the supply of goods and human satisfactions can be maintained at prices which are legally set below the free market price. They are ever doomed to disappointment. When a price is set below the free market price, marginal producers will always cease to produce. The available supply is thus reduced. On the other hand, prices held below the free market rates always attract more prospective buyers than the higher market prices. The result will ever be, other things being equal, a decreased supply and an increased demand.
Free prices allocate scarce goods to the highest bidder. In consumers goods, the highest bidder is the person who has best served society. In producers goods, the highest bidder is usually the person who can make the best use of the scarce labor and materials available. He can pay the highest price because he expects society to pay him more for his final product than it will pay for the product of any lower bidder. When the state, or some bureaucratic agent of the state, sets prices, he must also decide who shall have and who shall have not.
The power of allocating the necessities of life is the power of life and death. Under price control that power is given to the political powers that be. Consumers are entirely at their mercy. Price control is, therefore, the very antithesis of freedom. Price control is economic slavery.