The Theory of Price Controls: John Kenneth Galbraith's Contribution

Abstract

Price controls have always aroused controversy. Before the Second World War, most economists saw them as either impossible to implement or unwise. Even during wartime it was widely believed that prices should remain as free as possible. Many economists saw benefits to price controls during the war, but also identified numerous costs to these controls. They also tended to favor limited price controls, applying to only those goods needed to fight the war. John Kenneth Galbraith was generally sympathetic to price controls during the war. He too supported limited controls, but then changed his mind and supported more extensive price controls during the Second World War. After the war, inflation tended to reappear long before full-employment was reached, even when production and employment were falling. From his wartime experiences, Galbraith tried to draw lessons for peacetime inflation. He proposed price and wage monitoring for a few hundred big companies and the unions with whom they negotiate.