For 4000 years, humanity plans prices and has not learned that this is not working. The government has just capped for another 6 months to the commercial addition to food.

“We made the decision to continue the ceiling of the commercial addition of the food products 6 months. For 4000 years, humanity plans prices and still learned that it doesn't work, writes The Daily Economy

In 1892, the French archaeologist Henri Pognon made a historical discovery a few tens of miles northeast of Baghdad: the ruins of the ancient city-state Eshnunna.

Although he was excavated only for decades later by another archaeological team led by Dutch Egyptologist Henri Frankfort, he was one of the great discoveries of the century, revealing the secrets of a Mesopotamian city that had been hidden for millennia.

Among the secrets discovered on the cuneiform tablets were the fact that Eshnungena used pricing, being the oldest historical recording of pricing:

1 Kor of barley [she’um] is (cherished) at [ana] 1 silver Șakel;

3 qa of “best oil” are (evaluated) at 1 silver Șakel;

1 Seah (and) 2 Susan oil qa are (evaluated) at 1 silver siclu … the rent for a car with the oxen and its visit is 1 Massiktum (and) 4 Seah barley. If it is (paid in) silver, the rent is one third of a siclu. He has to lead him all day.

The price control imposed by Eshnunna exceeds by several centuries Hammurabi's code (1755-1750 BC), a more famous registration in the ancient Babylon, which was a “pricing control maze”, as historian Thomas Dilorenzo said.

This could explain why the first Babylonian empire failed almost a thousand years before the Greek poet Homer would tell about the Trojan War. Price control It doesn't work

A brief history of price control

The ancient Greeks perhaps given us Homer and his wonderful stories, but they suffered the same economic ignorance as the leaders in Eshnnungena when it came to fixing prices.

In the year 388 BC, the prices for cereals in Athens were out of control – largely because the Athenian leaders had an incredible set of regulations on agricultural production and trade, which included “an army of cereal inspectors appointed to establish the price of cereals at a level considered fair”. The punishment for circumventing these prices controls was death, and many cereal traders soon woke up and faced such a punishment when they were discovered that they “accumulated” cereals during a shortage (caused by man).

The Athenian Empire was already history when Rome tried its own price control scheme, seven hundred years later, on a much larger scale. In the year 301 AD, Emperor Diocletian issued his edict on maximum prices, which set a fixed rate for all kinds of products, from eggs and cereals to beef and clothing and not only, as well as the salaries of workers producing these articles. The punishment for anyone who was caught violating these edicts was – you guessed – death. The traders reacted exactly as expected to these regulations.

“People did not bring supplies to the market, because they could not get a reasonable price for them,” wrote a historian. It is not a coincidence that the Empire of Rome soon took the same way as that of the Athenians (although the eastern half would survive another thousand years).

Price control has turned a shortage of food into hunger in full

And then there is the British colony Bengal, located in the northeast of India. Few people are remembering the famine in Bengal today, which is amazing given that about 10 million people died, about one third of its population. Even more amazing it is how little attention has attracted the event at that time, at least in the London press.

While many attributed to the hunger of the monsoons and drought that affected the region in 1768 and 1769, Adam Smith, writing in “The wealth of nations” he noticed correctly that just the control of the prices that came later was the one who probably turned a shortage of food into a full-fledged hunger.

“The drought in Bengal, a few years ago, could probably cause a very big lack. Some inappropriate regulations, some reckless restrictions, imposed by the officials of the Oriental India Company on the trade with rice, may have contributed to the transformation of this lack into a hunger.”

When the government, to remedy the inconveniences of a shortcoming, orders all merchants to sell their wheat to what a reasonable price implies, or prevent them to bring it to the market, which can cause hunger at the beginning of the season; Either, if I bring it there, it helps people and therefore encourages them to consume it so quickly as to necessarily produce a hunger before the end of the season.

And let's not forget the French Revolution, where, in 1793, the leaders adopted the law of the general maximum, a set of prices controls adopted to limit the “exaggeration of prices”. (Henry Hazlitt was right when he called the law “a desperate attempt to compensate for the consequences of reckless overpaths”).

American historian Andrew Dickson White (1832-1918), co-founder of Cornell University, explained the consequences of this policy.

“The first result of the law [prețurilor] The maximum was that all the measures were taken to avoid the fixed price, and the farmers brought as few products as possible, “wrote White.” This just increased the shortage “

Important market signals

Fortunately, today we have the advantage not only of history, but also of the economic science that shows us that the price control does not work.

The fundamental economy teaches us that prices are important signals of the market. High prices can be upsetting for consumers, but they signal the profit opportunity, which leads to more production and investments. They also signal to consumers that the good is rare, which encourages people to use it less.

Let's take the gasoline. If the price were 20 lei/liter, the world would probably lead less than now, when it is below 8 lei. The high price also signals to the producers a profit opportunity, which encourages investments and production, which eventually leads to lower gasoline prices. As economists sometimes say, “the solution at high prices are high prices”

Establishing a low artificial price for gasoline would transmit wrong signals to consumers and producers. The low price discourages producers to bring fuel to the market and also encourages consumers to use more fuel, because it is artificially cheap – which is a recipe for a gasoline shortage.

This is exactly what happened in the 1970s, after President Nixon announced gasoline prices, which led to a sustained national shortage and massive gas pipelines. (As a diverse fact, Nixon knew that his pricing controls would be a disaster, but he adopted them anyway because he reported to the voters that he “spoke seriously”.)