WAGE-PRICE CONTROLS

Wage and price controls were initiated by the U.S. government in 1942, in order to help win World War II (1939–1945), and maintain the general quality of life on the home front. In 1941 the Office of Price Administration (OPA) began a stormy career as an inflation fighter and food rationer. The mission of the OPA was to prevent profiteering and inflation as durable goods became scarcer in the United States because of the war. The Emergency Price Control Act of 1942 gave the OPA the ability to regulate prices in the marketplace, and brought 60 percent of all civilian food items under a form of control which froze prices at their store-by-store March 1942 levels. In a short time, 90 percent of the goods sold in more than 600 thousand retail stores in the United States were being price controlled and rationed by the federal government.

Wage-price controls disappeared with the end of World War II, as the domestic economy grew. Yet, it was only a few years later, after the outbreak of the Korean War in 1950, when President Harry Truman (1945–1953) obtained from Congress the authority to impose wage and price controls once again to deal with the inflationary domestic economy. Automobile prices were frozen, as were wages in the auto industry (until March 1951). Easy credit for new homes was restricted. The end of the Korean War ended wage-price controls, but did not end the government power to intervene during economic crises involving high inflation and scarcity of commodities. In 1962, a voluntary system of wage and price controls was adopted in order to avoid inflation. Known as "Wage and Price Guideposts," as recommended by the Council of Economic Advisers to President John F. Kennedy (1961–1963), the price-wage controls would apply throughout the business sector and not aimed at single industries. The general guide for non-inflationary wage behavior was that the rate of increase in wages in each industry be equal to the trend rate of overall productivity increase. By contrast to the mandatory controls of World War II and Korea, this plan emphasized the voluntary compliance of business with the federal "guideposts."

The most extraordinary example of wage and price controls, the first attempted under peacetime conditions, was imposed by the Richard Nixon administration (1969–1974), beginning with the wage and price freeze of 1971, in an effort to deal with peacetime inflation. President Nixon designated his wage-price freeze policy as the Economic Stabilization Program of 1971–1974. The Council of Economic Advisers reviewed this policy and its usefulness after 1974, and concluded that the price and wage controls imposed by President Nixon in a peacetime economy "will be long debated and may never be resolved." During periods of high inflation in the U.S. economy, it is likely that the debate will re-emerge regarding the need for a period of wage-price controls.

See also: Richard Nixon, Office of Price Administration, Harry S. Truman