On my bookshelves I have a copy of a book called The Delusion of Incomes Policy. It was written by Peter Lilley, now Lord Lilley, and Samuel Brittan, who was a long-standing and distinguished Financial Times journalist. It was published in 1977 and has an ironic dedication to Edward Heath and Dennis Healy – “without whom this book would not have been possible”.
Both men were deluded by incomes policy, and this book was a powerful response to their folly. Its arguments are so well known that I did not expect to need to consult it, believing it could sit happily undisturbed as a reminder of human folly that would never recur. Surely everyone knows that incomes policies and the price controls that go with them always fail, regardless of the penalties to people who disobey. Unfortunately, this was a naive view, as a fear of inflation has led politicians back to the old follies, as if they were mediaeval peasants asking for the church bells to be rung to ward off a thunderstorm.
The history of attempts at price control is fascinating. The Roman Emperor Diocletian is believed to be the first to have attempted a systematic control when he issued the Edictum de Pretiis in AD 301. Interestingly, this followed what could be called a failed monetarist experiment, by which he had tried to deal with inflation through rebasing the currency, but had got the conversion rates wrong and so had failed.
The Edict set out reasons for controlling prices which have been heard to echo down the centuries. They included the greed of merchants and the avarice of speculators. It set prices for 900 goods, 130 grades of labour and 41 freight rates. The penalty for infringing the rules was death. Yet it did not work and ancient authorities recorded the failure of goods to come to market, and massive price rises combined with corruption in the ensuing decades.
Regrettably, Diocletian’s failures were forgotten and powerful rulers repeated his mistake. Charlemagne, who became the first Holy Roman Emperor in 800, tried to stop price rises by edict in 806. In England, another powerful ruler, Edward III, responded to the Black Death by the 1351 Statute of Labourers, which tried to fix maximum wages.
