A Theory of Price Control

Abstract

PRICE or rent control is but one of many forms of legislative action which interfere with private contracting in the market place. To delimit the scope of my analysis, I shall use the term "price control" to refer only to any set of regulations which satisfies the following three conditions. First, the control must fix the price (or income)' terms of private contracts; this categorically excludes any laws which regulate the distribution of income among the contracting parties on a share or percentage basis.2 Second, the control must involve no appropriation of proceeds to or from the government; taxation and subsidization are thus excluded. Finally, the fixing of price must not be associated with direct government sales, purchases, or manipulation of resources so as to maintain the regulated price;3 by this stipulation, price "support" is also excluded. Even on such terms, legal regulations to control price are still many and varied. To evaluate our understanding of the class of phenomena which we seek to explain it is essential that we discover implications refutable by facts. By this criterion the available body of economic theory pertaining to price control is deficient indeed: the massive literature on the subject offers few such implications.4 An alternative approach to analyzing the observable effects of price control is presented here.