Politicians advocating for price controls often promise consumers relief from inflation. However, historical evidence repeatedly demonstrates that government interference in market dynamics exacerbates shortages. The inclination to suppress price rises is frequently an extension of prior monetary policies involving cheap credit and currency devaluation.

Historical parallels

A pertinent historical parallel can be drawn from the Roman Empire, which, beset by wars and mismanagement, grappled with severe economic challenges. Escalating public expenditures, notably salaries for soldiers and civil servants, led to ballooning budget deficits. The rulers of the Empire devised an ostensibly “ingenious” solution to patch the budget holes. They started collecting coins from the population for “repairs”, whereby silver in the coins was replaced with cheaper alloys. Crucially, the face value of the coin remained unchanged, allowing more coins to be put into circulation on a regular basis, which facilitated a continual increase in the money supply.

Between the reigns of Emperor Nero (AD 54–68) and Emperor Diocletian (AD 284–305), the value of the denarius, the standard silver coin of the era, declined to just one-tenth of its original worth. This precipitous depreciation fuelled rampant inflation, rendering basic goods increasingly unaffordable for the average Roman citizen. Predictably, public outrage targeted merchants, whom the populace perceived as exploitative. In response, the government introduced stringent price controls, culminating in the infamous “Edict on Maximum Prices” (AD 301) under Emperor Diocletian.

The Edict sought to cap prices and wages for over 1,000 goods and services, from staple commodities like bread and wine to specialized labour. For example, mashed beans were priced at a maximum of 100 denarii, while unmashed beans were set at 60 denarii. A hoof trim for a single animal could cost no more than 6 denarii, and the most skilled writer was limited to earning 25 denarii for 100 lines, while a mediocre writer received no more than 20 denarii for the same task. Harsh penalties, including the death sentence, were imposed to enforce compliance, and the document vilified greed as the root of economic instability.

The Consequences of Roman Price Controls

The economic repercussions were both immediate and severe. Unrealistically low-price ceilings rendered numerous goods and services unprofitable, leading to widespread shortages. Essential commodities disappeared from markets, unemployment soared, and economic activity stagnated. A thriving black market emerged, where goods were sold at exorbitant prices, far exceeding the Edict’s prescribed limits. Corruption became rampant as individuals sought to circumvent the regulation. Consequently, the market was depleted of both essential, non-essential, and even unlisted goods, plunging the economy into further disarray.

Despite Diocletian’s intentions to stabilize the economy and shield Roman citizens from inflation, the assumption that price controls could mitigate inflation proved catastrophically flawed. Inflationary pressures only subsided in AD 307 when the government ceased expanding the money supply.

Modern parallels

If this lesson from antiquity appears insufficient, modern history provides numerous analogous cases. These episodes uniformly follow a familiar trajectory: an increase in the money supply devalues the currency, leading to inflation; governments respond with price controls, which then precipitate shortages. Notable examples include the French Revolution’s maximum price laws (1793), the hyperinflation of the Weimar Republic when paper money was transported in wheelbarrows, Hugo Chávez’s price control policies in Venezuela (2003), and Zimbabwe’s issuance of billion-dollar bills (2008). In every instance, inflation was fundamentally driven by monetary expansion, while price controls exacerbated the economic turmoil.

Lessons for Lithuania and Immutability of Economic Laws

Lithuania, too, appears to have its own “Diocletians.” Proposals to establish a Food Council within the government and a parliamentary commission to monitor price components reflect a tendency to intervene in market mechanisms. Unfortunately, such measures disregard both the lessons of history and the more recent experiences of the Soviet Union’s failed price capping practices. Although the inflationary surge following the COVID-19 pandemic was enabled by the loose monetary policies of central banks, blame is frequently directed at purportedly greedy business owners.

As in ancient times when the Emperor Diocletian’s edict was issued, economic laws remain immune to political decrees. Price controls do not enhance the affordability or availability of goods but instead disrupt the balance between supply and demand. Inflation, whether in the Roman Empire or the eurozone, is invariably tied to currency depreciation. Expanding the money supply inevitably drives up prices. Targeting merchants as scapegoats fails to address the root causes of inflation. As the Roman experience starkly illustrates, governmental interference in price mechanisms tends to do more harm than good.