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Compliance with Price Controls in the United States and the United Kingdom During World War II
Published online by Cambridge University Press: 03 March 2009
Abstract
We are concerned here with the evasion of price controls in the United States and the United Kingdom in World War II. The evidence suggests that controls produced less evasive activity in the United Kingdom. After considering several explanations we conclude that the key was the degree of regimentation. The British controlled all stages of production, limited the range of products available at each stage, and allocated relatively more resources to managing and enforcing controls.
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- Copyright © The Economic History Association 1987
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Geofrey Mills is Assistant Professor of Economics at the University of Northern Iowa, 335 Seerley Hall, Cedar Falls, Iowa 50613; Hugh Rockoff is Professor of Economics, Rutgers University, Department of Economics, New Brunswick, New Jersey 08903. We must thank Jeremy Mack, Michael Bordo, Louis Cain, Robert Higgs, Richard Keehn, Larry Neal, Elyce Rotella, Anna Schwartz, Eugene White, Geoffrey Wood, G.D.N. Worswick, and the referees for many useful suggestions. We would also like to thank John Downey, Dean of the Graduate College, and Richard Newell, Director of International Studies, both of the University of Northern Iowa for their generous financial support of this project. We also received a number of useful comments from people who spoke to us at the 1985 meetings of the Cliometric Society, at the 1985 meetings of the Western Economic Association, and at seminars at the universities of Indiana and Illinois, but our inefficient memories prevent us from thanking them by name.Google Scholar
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24 In his study of controls in the United States Paul Evans did not explore the distinction between reported and actual prices, so his results are not directly applicable. His money demand equations like our price equations reveal considerable suppression of the price level during the war. Evans, Paul, “The Effects of General Price Controls in the United States during World War II,” Journal of Political-Economy, 90 (10 1982), p. 966.CrossRefGoogle ScholarFor a wide ranging exploration of controls in Britain which also concludes that they were effective in supressing inflation see Capie, Forrest H. and Wood, Geoffrey E., “The Anatomy of a Wartime Inflation: Britain from 1939 to 1945” (Paper presented at the Ninth International Economic History Congress). The numbers in the text were calculated from equations similar to those reported in footnote 33, except that CONTROL was omitted.Google Scholar
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33 The violations data can be used to construct a variable that should have an independent effect in a price equation. The variable we used was the ratio of cases per million dollars of NNP at 1929 prices, converting at the prevailing exchange rate. The following equations estimated over the period 1915 to 1960 were typical. For the United States:
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20151017060117890-0894:S0022050700047471_eqnU1.gif?pub-status=live)
For the United Kingdom:
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20151017060117890-0894:S0022050700047471_eqnU2.gif?pub-status=live)
where P is the NNP deflator, TIME is the year, M is the nominal stock of money, i is the short-term interest rate, y is real NNP, m –1 is the real stock of money lagged one period, and CONTROL is the caseload variable. The sources for money (United States), income and prices, are given in Tables I to 3. Friedman and Schwartz's Monetary Trends, estimates of the money stock United Kingdom, table 4.9, col. 1, pp. 131–33Google Scholar, and both interest rates, table 4.8 col. 6, pp. 122–25 and table 4.9, col. 6, pp. 131–33 were used. The numbers in parentheses are t–statistics. Two–stage least squares was used with the instruments consisting of all of the independent variables CONTROL, and the share of expenditures (the narrow definition) in NNP in order to control reverse causality. For the most part, the economic variables are signed as expected, CONTROL is negative, statistically significant, and economically meaningful. We experimented with various ways of adjusting for autocorrelation, and found the results reasonably robust. many questions about these results remain, and all that we claim is that the coefficients CONTROL are consistent with the argument.
34 This is also the view of Murphy, The British War Economy, p. 262, who studied British controls at first hand.Google Scholar
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