A Modest Member of Parliament [Bert Kelly], The Australian Financial Review, October 12, 1973, p. 3. Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 156-58, as “Wages and Income Policy.”

Mavis has been very quiet lately. There have been so many bandwaggons rushing past that she has got confused and she can’t make up her mind which one I should board.

But she has now got the price control referendum clearly in her sites and is determined that here is my chance.

“You are always moaning about inflation, dear,” she says. “Show your people you are in earnest. And everyone is concerned about rising prices, so it is sure to be a popular bandwaggon.”

I guess it will be too, until people start to think it through. But although the idea of price control may be popular, it wouldn’t work.

There have been many attempts in other countries to hold prices and incomes down and they have all failed in the long term.

They work well for a few months and there is a surge forward in both prices and incomes which generally takes you further than ever down the road to inflation.

It’s a bit like a pressure cooker. You can put an extra weight on the escape valve and it holds things down for a while.

But you then get a build-up of pressure that blows the lid off and makes an awful mess of the ceiling.

There are many reasons why prices and incomes control doesn’t work in the long term.

First, when it becomes known that such a policy is imminent there is a rush to raise prices and wages before the policy is enforced.

In our case, with many months elapsing before the controls could be put into operation, this would be particularly dangerous.

Second, the only way producers can become aware of the changing demand is to receive the prices signals loud and clear. The economy is like a bucket of worms — it is continually changing.

The only way to become aware of changes in demand is to allow changes in price to tell us.

If we are not going to let the price mechanism tell us when to increase or decrease production, the Government must do it and this is a prospect that horrifies me.

Again, to make price control work, you must have an army of civil servants, many of whom would have the right to make detailed and intimate inquiries into the business affairs of almost everyone. I wouldn’t like this.

And there is a lot of extra bookwork necessary by the controlled industry which increases costs and prices.

And many people forget the black markets associated with price controls during the war.

If you hold the price lower than the demand would indicate, you have an unsatisfied demand and this gives the opportunity for all kinds of shady dealing.

Remember the two doctors during the war talking in the lounge bar about their practices. One said to the other, “I have five cases of meningitis in my district.”

A chap sitting fairly close who wasn’t supposed to be listening, leant over and tapped him on the shoulder and whispered, “I’ll take the lot!”

Then we had the flame of patriotism to reinforce the law. What kind of goings-on would there be in this permissive society when people are advised, even by a Premier, to break laws they don’t like.

The Government says its first objective in price control is to hold down the price of land. What would happen then?

Surely the chap with the money would find a way to pay something under the desk, while the poor person would miss out.

The Government wants us to vote for two referendums, one on price control and one on wage control. There will be overwhelming union pressure against wage control so that will be defeated.

If the price control referendum is carried, we will have a system which cannot work, because price control without wage control has never worked, even in the short term.

It is a pity we are going to rush after these two referendum hares. If we catch one without the other we won’t know what to do with it.

And in the meantime the Government will be encouraged to put off doing the unpopular but proven things that limit inflation, like increasing taxation and restricting credit.

But there are no votes in doing these things and the Government seems to be more interested in votes than solutions at the moment.

Like Mavis!