New School Politics

A Little Price Fixing Over Breakfast

Ryan | 11 07 2007

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From a recent George Will article:

Some mornings during the autumn of 1933, when the unemployment rate was 22 percent, the president, before getting into his wheelchair, sat in bed, surrounded by economic advisers, setting the price of gold. One morning he said he might raise it 21 cents: “It’s a lucky number because it’s three times seven.” His treasury secretary wrote that if anybody knew how gold was priced “they would be frightened.”

The president that Will is speaking of is of course Franklin Roosevelt. And keep in mind that this is the president who so many (too many) believe to be our greatest president.

Its not like anyone should be surprised at how trivial FDR behaved when fixing the price of gold–its not like he ever demonstrated restraint with economic intervention. But consider for a moment how the price of gold is determined today, in the free market: day to day, hour by hour, millions of investors buy and sell the commodity on their own volition, by their own intelligent judgment, risking their own savings that they earned because they estimate that their endeavor will in the end reap them the greatest reward. In economics people talk about “supply and demand” and “the invisible hand” as if they were vast and mysterious concepts removed from individual, day to day activity just like government price controls. But the reality is that is completely incorrect. Supply and demand is the manifestation of the sum of the day to day decisions of all individuals.

Now compare that alternative to the reality under Roosevelt. If the free market is a sort of economic democracy–where all people can vote (and ultimate have the freedom to choose whether or not to buy or sell at a given price) with their wallets on what the price should be–then an economy where prices are controlled by the government is economic tyranny where the price is determined for all on the whim of an autocrat. During the 1930s FDR served as economic dictator over breakfast in bed.