Price Control: Why Economy Cannot Survive in a Cage?
n our search for the right methods and perfect formulas, we always look into the past; however, it won’t work with the economy, its history only lasted for two centuries. We don’t take the times before the industrial revolution: those centuries can be called the Golden Age, like when people in Ancient Greece were dreaming of the lost epoch of the union between people and nature.
In the case of the economy, none of the past methods is applicable to the current problems; if they didn’t work back then, they most likely wouldn’t work now. However, we keep hearing in the news about different prehistoric measures of regulating the economy, like price control to keep inflation down.
In this cycle of articles, we keep studying the topic of money and trying to see why it is so ineffective. These studies help us develop a protocol for an effective currency which, as we believe, will one day change the world into a better place.
When prices growth spirals out of control, the authorities start making dangerous and costly experiments that you may have read about in economics textbooks. One of the possible measures is price control; and even though there are many sad episodes when this measure was applied, some governments still find it luring.
The Roman Empire
In the III century AD, Emperor Diocletian tried setting the upper border for wages and major consumer products of the time. We have no idea why would someone try to limit the wages, did people overpay much in the Roman Empire? But the consumer goods restrictions were necessary to fight the money devaluation caused by a lower percentage of silver in coins.
Of course, when people are trying to find an exit so far away from where they entered, it leads nowhere. Still, the country leaders of the time wanted to influence the politics more than the economic situation which was tied to the total control and taxes, so the result of such economic measures was positive: they managed to stabilise the prices for a whole century, and it became much easier to collect taxes with a fixed income.
Today, such an intrusion into the economy would go against the very basics of a democratic society so it is only possible in countries ruled by dictators.
France in the Times of the Revolution
This period of French history was filled with harsh measures, both political and economic. For instance, the law that limited the prices of bread — the Price Maximum, — became one of the worst and most catastrophic restrictions on farmers and tradespeople.
The legal system of the time was focused on the needs of the poor; and though the goals were humanistic and nice, the measures to reach them were very despotic. This is how the bread market fell under total control, with a maximum selling price set by the government, special places for buying it, and even a fixed profit rate — 5% for wholesale sellers and 10% for retail ones; there was also a pension for impoverished tradespeople. Both fines and the death penalty were used as a punishment for breaking these laws.
From grain and flour, the price control gradually spread to other goods too. All of that resulted not in better lives for the poor but in the impoverishment of farmers and tradespeople. And when there was no one who could produce food in France, the country fell into deficit and famine.
The USA — the same mistakes to our day
Who would ever think that such a clear indication of socialism would make its way to the world’s biggest capitalistic economy? Yet, however strange it is, price control was a thing even in the XXI century USA. For instance, at the beginning of the new century, California had limitations on electricity prices. It made energy providers sell their electricity for less than the price they paid themselves. This made several major energy companies go bankrupt, and others had to flee the state to other locations in the USA with better conditions.
In the USA, the government regularly messes with the economy and makes people’s lives harder. We have a number of interesting articles on that topic, the one we would highly recommend is Structural Inflation or Why Does Petrol Grow in Price in the USA.
Taming the economy with power measures simply can’t work because the economy is a living organism that depends on numerous intertwining factors. Maintaining low prices leads to a deficit and lower product quality because producers try to save on expenses to make a profit and sellers keep their goods for longer waiting for the price to rise again. With low prices, there is no healthy competition for improving the quality and product uniqueness. The black market where smuggled high-quality products are sold for very high prices also grows.
Speaking of long-term consequences, add social problems to the economic ones. Lower product quality worsens people’s health and working capacity, and leads to higher mortality and lower birth rates. Lower life quality results in a total decline — in education, science, culture, and business.
Such measures as price control are dealing with the symptoms but are not curing the disease itself. When the government, on the one hand, focuses the economy on centralised fiat money, and on the other, tries to manually control this defected mechanism, the results are what we see right now — inflation, low wages, shadow economy, etc.
Only a fair currency can solve all the problems of the economy as long as the whole system is centred on the algorithm of such a currency. Such an algorithm should control the production volumes based on the needs of all the system participants and their personal input into the economy; the prices on goods have to be set judging by the balance of supply and demand.
Our team is working on such a protocol and we have reached certain results already. The project is called Reserveum and it includes creating a decentralised stablecoin that would be managed only by a smart contract. The algorithm of our token includes price fluctuations and helps maintain a stable rate; that’s why we view our stablecoin as a potentially effective currency that could form and manage not only an ecosystem but a whole economy.
According to the analysis group findings: reserveum.org
