The beatings will continue until morale improves.

In her book Milton Friedman, The Last Conservative, Jennifer Burns notes that Arthur Burns, one of Milton’s mentors and friends, had signed a letter to the New York Times in April 1946 that called for extending wartime price controls for another year. I was familiar with the letter because Hugh Rockoff, in “Price Controls,” in David R. Henderson, ed. The Concise Encyclopedia of Economics, mentions it. One of the other signers, disappointingly, was Frank Knight.

The letter has to be read to be believed or, should I say, to be disbelieved. It reads as if it wasn’t written by economists. Consider this reason for retaining controls:

As soon as supply and demand of any important commodity are once more in balance at ceiling prices, price control should be suspended and then removed.

See the problem? What is keeping supply and demand (more correctly, quantity supplied and quantity demanded) from being in balance? Price controls. I’m reminded of the sign in the old workplace joke, “The beatings will continue until morale improves.”

Four years later, though, in his December 1950 presidential address to the American Economics Association, titled “The Role of Principles in Economics and Politics,” Knight went back to actually sounding like an economist. He stated, in one of my favorite passages:

Can there be any use in explaining, if it is needful to explain, that fixing a price below the free-market level will create a shortage and one above it a surplus? But the public oh’s and ah’s and yips and yaps at the shortage of residential housing and surpluses of eggs and potatoes as if these things presented problems–any more than getting one’s footgear soiled by deliberately walking in the mud.

By the way, one of my senior colleagues at the University of Rochester in the late 1970s, Martin Weingartner, was a young economist at the time and attended the talk. He told me that Knight got a standing ovation.