Inflation, Price Controls and Compliance during the Korean War

Abstract

Price controls are generally regarded unfavorably by economists, who argue that they will lead to disruptions in production and the emergence of black markets. Using the archives of the Office of Price Stabilization, set up in the United States during the Korean War to enforce price controls, I test this hypothesis. Three results emerge. First, price controls did lead to a curtailment of the production of meat and widespread disruptions in 1951. Second, these regulations incentivized rent-seeking behavior and lobbying from meatpackers, bureaucrats and consumers. Third, most violations were benign, and arose from the widening scope of illegality consequent to the detailed regulation of prices. Overall, the perspective on price controls given by administrative archives is much more negative than what is generally recognized about the Korean experience.

Keywords: price controls, Korean War, Office of Price Stabilization, black markets, inflation, informal economy

JEL Classification: N12, N42, K23, L11, L51, M48