WEBVTT NOTE 31. Economics Begins to Dissolve the Theocracy: The Failure of Wage and Price Controls 1 00:00:00.000 --> 00:00:07.840 Volume 1, Chapter 31, Economics Begins to Dissolve the Theocracy, The Failure of Wage 2 00:00:07.840 --> 00:00:16.300 and Price Control. From the first, the Massachusetts oligarchy, seeing that in the New World land 3 00:00:16.300 --> 00:00:23.720 was peculiarly abundant in relation to labor, tried by law to push down the wage rates that 4 00:00:23.720 --> 00:00:30.720 that they had to pay as merchants or landowners. Maximum wage controls were persistently imposed. 5 00:00:31.360 --> 00:00:38.040 John Winthrop set the tone in 1633, complaining that the scarcity of workmen has caused them 6 00:00:38.040 --> 00:00:43.600 to raise their wages to an excessive rate. What else was supposed to happen with the 7 00:00:43.600 --> 00:00:49.960 scarce product? As in the South, there were at the base of New England's economic structure 8 00:00:49.960 --> 00:00:56.660 indentured servants and negro slaves who sometimes were farm labor but mostly were artisans, 9 00:00:56.660 --> 00:01:03.080 helpers and domestic servants. After the servants' terms expired, they received small grants 10 00:01:03.080 --> 00:01:09.620 of land and became farmer-settlers. The Massachusetts gentry also supplemented this system of labor 11 00:01:09.620 --> 00:01:15.100 with general compulsory service in harvesting neighboring farms, a neat way of exploiting 12 00:01:15.100 --> 00:01:20.300 and the local citizenry at wage rates far below the market. 13 00:01:20.300 --> 00:01:26.740 Maximum wage control always aggravates a shortage of labor, as employers will not be able to 14 00:01:26.740 --> 00:01:31.140 obtain needed workers at the statutory price. 15 00:01:31.140 --> 00:01:37.420 In trying to force labor to be cheaper than its price on the free market, the gentry only 16 00:01:37.420 --> 00:01:42.420 made it more difficult for employers to obtain that labor. 17 00:01:42.420 --> 00:01:48.940 By 1640, Winthrop was admitting that Massachusetts had found by experience that it would not 18 00:01:48.940 --> 00:01:55.620 avail by any law to redress the excessive rates of laborers and workmen's wages and 19 00:01:55.620 --> 00:02:01.660 so forth. For being restrained, they would either remove to other places where they might 20 00:02:01.660 --> 00:02:08.360 have more, or else, being able to live by planting or other employments of their own, 21 00:02:08.360 --> 00:02:22.360 Of course, one method of alleviating this induced shortage was by using the forced labor of slavery, servitude and compulsory harvest service. 22 00:02:22.360 --> 00:02:31.360 Thus, one intervention by violence in the market created conditions impelling a further and stronger intervention. 23 00:02:31.360 --> 00:02:38.180 But apart from forced labor, the Massachusetts authorities, as we have noted, found it extremely 24 00:02:38.180 --> 00:02:43.020 difficult to enforce maximum wage control. 25 00:02:43.020 --> 00:02:49.440 The first maximum wage law was enacted by Massachusetts as early as 1630. 26 00:02:49.440 --> 00:02:55.740 Due to the high wages commanded by the scarcity of construction craftsmen, the law concentrated 27 00:02:55.740 --> 00:03:02.780 on Maximum Wage Rates in the Building Trades, Carpenters, Bricklayers, and so forth, were 28 00:03:02.780 --> 00:03:09.860 limited to two shillings a day and any payment above this rate would subject both the employer 29 00:03:09.860 --> 00:03:12.540 and the worker to punishment. 30 00:03:12.540 --> 00:03:18.380 For instance, a buying cartel of employers established by the law punished the recalcitrant 31 00:03:18.380 --> 00:03:21.940 employer who decided to break ranks. 32 00:03:21.940 --> 00:03:26.940 Almost immediately the magistrates decided to imbibe more of the magic medicine and legal 33 00:03:26.940 --> 00:03:32.880 wage rates were pushed down to 16 pence a day for master carpenters and bricklayers 34 00:03:32.880 --> 00:03:37.200 and correspondingly lower for other laborers. 35 00:03:37.200 --> 00:03:44.260 But the economic laws of the market made enforcement hopeless and after only six months the General 36 00:03:44.260 --> 00:03:50.980 Court repealed the laws and ordered all wages to be left free and at liberty as men shall 37 00:03:50.980 --> 00:04:20.980 But Massachusetts Bay was not to remain wise for long. By 1633, the general court became horrified again at higher wage rates in construction and other trades, and at the propensity of the working classes to rise above their supposedly unpointed station in life by relaxing more and by spending their wages on luxuries, denouncing the great extortion by diverse, 38 00:04:20.980 --> 00:04:47.980 The Law of 1633 decreed a maximum of 2 shillings a day without board and 14 pence with board for the wages of sawers, carpenters, masons, bricklayers, and so forth. 39 00:04:47.980 --> 00:04:52.980 Top-rate laborers were limited to 18 pence without. 40 00:04:52.980 --> 00:05:00.980 These rates were approximately double those of England for skilled craftsmen and treble for unskilled laborers. 41 00:05:00.980 --> 00:05:04.980 Constables were to set the wages of lesser laborers. 42 00:05:04.980 --> 00:05:09.980 Penalties were levied on the employers and the wage earners who violated the law. 43 00:05:09.980 --> 00:05:15.980 Sensing that maximum controls below the market wage led to a shortage of labor, 44 00:05:15.980 --> 00:05:19.980 The General Court decreed that no idleness was to be permitted. 45 00:05:19.980 --> 00:05:29.980 In effect, minimum hours were decreed in order to bolster the maximum wage law, another form of compulsory labor. 46 00:05:29.980 --> 00:05:36.980 Workmen were ordered to work the whole day, allowing convenient time for food and rest. 47 00:05:36.980 --> 00:05:44.980 Interestingly, the General Court soon decided to make an exception for the government itself, 48 00:05:44.980 --> 00:06:11.980 A combination of the carrot and the stick was used. Government officials were allowed to award such extraordinary wages as they shall judge the work to deserve. On the other hand, they were empowered to send town constables to conscript laborers as the need arose. 49 00:06:11.980 --> 00:06:25.980 Although merchants were happy to join the landed oligarchy and the Puritan zealots in forcing down the wage rates of laborers, they were scarcely as happy about maximum controls on selling prices. 50 00:06:25.980 --> 00:06:31.980 The gentry were eager, however, to force down the prices of products they needed to buy. 51 00:06:31.980 --> 00:06:40.380 A blend of mercantilist fallacies and Puritan suspicion of commerce, the result was persistent 52 00:06:40.380 --> 00:06:45.500 attempts to force commodities below their market prices. 53 00:06:45.500 --> 00:06:51.660 Having little conception of the function of the price system on the free market, the Massachusetts 54 00:06:51.660 --> 00:06:59.940 authorities also felt that maximum price control would bolster the maximum wage rate program. 55 00:06:59.940 --> 00:07:05.380 There is no understanding that general movements in prices and wages are governed by the supply 56 00:07:05.380 --> 00:07:13.720 of and demand for money, and that this too can best work itself out on the free market. 57 00:07:13.720 --> 00:07:19.960 Corn was the major monetary medium of the North, and in 1630 Massachusetts set the sterling 58 00:07:19.960 --> 00:07:27.020 price of corn at six shillings per bushel. Failing to work, this control was repealed 59 00:07:27.020 --> 00:07:43.460 In 1633, however, maximum price controls were reimposed as an auxiliary to the wage controls. 60 00:07:43.460 --> 00:07:49.340 The massive wage laws of 1633 were quickly discovered to be a failure. 61 00:07:49.340 --> 00:07:56.020 Once again, the quiet but powerful economic laws of the market had triumphed over the 62 00:07:56.020 --> 00:08:02.120 with dramatic decrees of the coercive state. After one year, the actual wage rates were 63 00:08:02.120 --> 00:08:08.200 fifty percent higher than the statutory levels. At that point, the general court repealed 64 00:08:08.200 --> 00:08:15.100 the penalties against paying, but retained those against receiving wages above the fixed 65 00:08:15.100 --> 00:08:21.500 legal rate. While, in fact, no employer had ever been tried or penalized under the old 66 00:08:21.500 --> 00:08:28.620 Act, the wage law was now an open and flagrant piece of class legislation. This was nothing 67 00:08:28.620 --> 00:08:35.000 new, however, as there were ample precedents in English maximum wage laws since the early 68 00:08:35.000 --> 00:08:44.420 15th century. Another change made in 1634 allowed a little flexibility in decreed prices 69 00:08:44.420 --> 00:08:51.380 and wages by permitting each town to alter the legal rate in case of disputes. Only a 70 00:08:51.380 --> 00:08:56.000 A year later, the general court, despairing of the continued failure of the law to take 71 00:08:56.000 --> 00:09:03.000 hold, repealed the comprehensive wage controls and the auxiliary price controls. Just before 72 00:09:03.020 --> 00:09:08.100 this comprehensive repeal, the courts had apparently been driven by the failure to inflict 73 00:09:08.100 --> 00:09:13.580 even harsher penalties. Fines had been so heavy that two workers were imprisoned for 74 00:09:13.580 --> 00:09:19.320 failure to pay. The authorities were at the crossroads. Should they begin to impose on 75 00:09:19.320 --> 00:09:25.720 and Workers Violating Clearly Unworkable Economic Decrees, the Sort of Punishment Meted Out 76 00:09:25.720 --> 00:09:32.220 to Heretics or to Critics of the Government, Happily, Common Sense, in this case, finally 77 00:09:32.220 --> 00:09:41.220 prevailed. Made wary by its thundering failure, the theocracy no longer attempted a comprehensive 78 00:09:41.220 --> 00:09:48.760 planned economy in Massachusetts Bay. From then on, it was content to engage in annoying 79 00:09:48.760 --> 00:09:55.840 but not fatal hit-and-run harassments of the market. Penalties were made discretionary 80 00:09:55.840 --> 00:10:01.760 and in 1636 wage and price regulations were transferred by the provincial government to 81 00:10:01.760 --> 00:10:08.240 the individual towns as suggested by the leading Puritan divine, Reverend John Cotton. The 82 00:10:08.240 --> 00:10:16.040 general court was supposed to exercise overall supervision but exerted no systematic control. 83 00:10:16.040 --> 00:10:20.640 All by each town, as had been anticipated, was even more ineffective than an overall 84 00:10:20.640 --> 00:10:26.880 plan because each town, bidding against the others for laborers, competitively bid wages 85 00:10:26.880 --> 00:10:29.040 up to their market levels. 86 00:10:29.040 --> 00:10:34.680 The general court wailed that all this was to get the great dishonor of God, the scandal 87 00:10:34.680 --> 00:10:39.440 of the gospel, and the grief of diverse of God's people. 88 00:10:39.440 --> 00:10:44.320 A committee of the most eminent oligarchs of the Bay Colony was appointed to suggest 89 00:10:44.320 --> 00:10:49.080 Most Remedies but Could Think of No Solution 90 00:10:49.080 --> 00:10:55.200 Of the towns, Dorchester was perhaps the most eager to impose wage controls. 91 00:10:55.200 --> 00:11:01.960 During the Pequot War, and again in 1642, it combined maximum wages with conscription 92 00:11:01.960 --> 00:11:07.800 of any laborer unwilling to work and to work long enough at the low rates. 93 00:11:07.800 --> 00:11:14.800 Bingham also enacted a maximum wage program in 1641, and Salem was active in prosecuting 94 00:11:15.000 --> 00:11:22.000 wage offenders. In 1635, the year of the repeal of the Wage and Price Plan, the Massachusetts 95 00:11:22.820 --> 00:11:29.820 authorities tried a new angle. Under the cloak of a desire to combat monopolizing, the Massachusetts 96 00:11:30.080 --> 00:11:36.180 government created a legal monopoly of nine men, one from each of the existing towns, for 97 00:11:36.180 --> 00:11:44.180 for Purchasing Any Goods from Incoming Ships. This import monopoly was to board all the 98 00:11:44.180 --> 00:11:51.380 ships before anyone else, decide on the prices it would pay, and then buy the goods and limit 99 00:11:51.380 --> 00:12:01.540 itself to resale at a fixed 5% profit. But this attempt to combine monopoly with maximum 100 00:12:01.540 --> 00:12:09.380 and Price Control, failed also. The outlawing of competing buyers could not be enforced, 101 00:12:09.380 --> 00:12:15.860 and the import monopoly had to be repealed within four months. What ensued was far better 102 00:12:15.860 --> 00:12:23.300 but was still not pure freedom of entry. Instead, licensing was required of all importers with 103 00:12:23.300 --> 00:12:29.180 preference usually given to friends of the government. Generally, the merchants were 104 00:12:29.180 --> 00:12:35.620 were the most progressive, worldly, and cosmopolitan element in Massachusetts life. The merchants 105 00:12:35.620 --> 00:12:42.420 were able to gain political control of the growing commercial hub of Boston by the mid-1630s. 106 00:12:42.420 --> 00:12:47.740 But the rest of Massachusetts remained in the hands of a right alliance of Puritan zealots 107 00:12:47.740 --> 00:12:54.860 and landed gentry who dominated the magistrate's council and the governorship. During the decade 108 00:12:54.860 --> 00:13:02.720 of the 1630s, only two out of 22 magistrates were merchants, one of these being the Hutchinsonian 109 00:13:02.720 --> 00:13:08.860 leader, William Coddington. This reflected the occupational differences of their native 110 00:13:08.860 --> 00:13:15.580 England. The gentry had, by and large, been minor gentry in rural England, while the merchants 111 00:13:15.580 --> 00:13:21.740 usually hailed from London or other urban centers. In contrast to the authoritarian 112 00:13:21.740 --> 00:13:28.220 and Theocratic Gentry, the merchants had a far more individualist and independent spirit 113 00:13:28.220 --> 00:13:35.620 and often opposed to the Massachusetts oligarchy. It was no accident that almost all the merchants 114 00:13:35.620 --> 00:13:42.340 championed the Hutchinsonian movement, including Coddington, John Cogshill and the Hutchinson 115 00:13:42.340 --> 00:13:48.860 family itself. In spite of the earlier failures, Massachusetts tried to resume its harassment 116 00:13:48.860 --> 00:13:55.380 and Regulation of the Merchants, but even more sporadically than in the case of wages. 117 00:13:55.380 --> 00:14:00.260 Millers were fined for charging what were arbitrarily termed excessive prices for their 118 00:14:00.260 --> 00:14:07.380 flour. A woodmaker was fined in 1639 for charging the Boston government excessive prices for 119 00:14:07.380 --> 00:14:14.500 making Boston's stocks. And, as Professor Richard Morris notes, the General Court, with 120 00:14:14.500 --> 00:14:20.700 with great Puritan humor sentenced him, in addition, to sit in the stocks he himself 121 00:14:20.700 --> 00:14:27.360 had made. Heavy fines and Puritan denunciations were also the lot of merchants supposedly 122 00:14:27.360 --> 00:14:33.620 overcharging for nails, gold buttons and other commodities. The Puritan Church was quick 123 00:14:33.620 --> 00:14:39.060 to condemn these merchants and insisted on penitence for this dishonor of God's name 124 00:14:39.060 --> 00:14:43.540 in order to regain membership in the Church. 125 00:14:43.540 --> 00:14:50.140 The most notable case of persecution of a merchant occurred in 1639. Robert Kane, a 126 00:14:50.140 --> 00:14:55.080 leading Boston importer and large investor in the Massachusetts Bay Company, and the 127 00:14:55.080 --> 00:15:01.100 devout brother-in-law of Reverend John Wilson, was found guilty in general court of gaining 128 00:15:01.100 --> 00:15:08.280 excess profit, including a markup of over 150 percent on some items. The authorities 129 00:15:08.280 --> 00:15:13.960 This displayed once more their profound ignorance of the functions of profit and loss in the 130 00:15:13.960 --> 00:15:15.920 market economy. 131 00:15:15.920 --> 00:15:22.320 Kane was especially aggrieved because there was no law on the books regulating profits. 132 00:15:22.320 --> 00:15:29.440 In contrast, the main court, in the case of Cleve v. Winter, 1640, dismissed charges 133 00:15:29.440 --> 00:15:35.040 against a merchant for setting excessive prices on the grounds that it was not legitimate 134 00:15:35.040 --> 00:15:38.640 to regulate a man's profit in trade. 135 00:15:38.640 --> 00:15:44.680 So a sounder strain of thought did exist, despite the official view. 136 00:15:44.680 --> 00:15:51.560 Massachusetts' sister colonies also tried to impose a theocratic planned economy. 137 00:15:51.560 --> 00:15:56.400 As we might have expected, the effort of New Haven Colony, founded in distaste for the 138 00:15:56.400 --> 00:16:02.360 alleged laxity of Massachusetts Puritanism, was the most comprehensive. 139 00:16:02.360 --> 00:16:17.360 The New Haven Act of 1640 established fixed profit markups for varying grades for differing types of trade, three pence in the shilling, for example, for retail of English imports, and less for wholesale. 140 00:16:17.360 --> 00:16:28.360 Prices were supposed to be proportionate to risk for colonial products. Above all, a highly detailed list of maximum wage rates for each occupation was issued. 141 00:16:28.360 --> 00:16:35.260 A year later an ambitious new schedule was decreed, pushing down wage rates even further. 142 00:16:35.260 --> 00:16:41.400 But even fanatical New Haven could not conquer economic law, and only nine months later the 143 00:16:41.400 --> 00:16:47.360 authorities were forced to admit defeat and the entire program was repealed. 144 00:16:47.360 --> 00:16:51.920 After that resounding failure, no further comprehensive controls were attempted at New 145 00:16:51.920 --> 00:17:21.920 Comprehensive wage control was also attempted in Connecticut. An abortive regulation of wages was imposed in early 1640, but repealed later the same year. The following year, Connecticut, again alarmed about excessive and rising wages, with men a law unto themselves, enacted a maximum wage scale for the United States. 146 00:17:21.920 --> 00:17:28.120 for each occupation. However, instead of the heavy fines imposed by Massachusetts, the 147 00:17:28.120 --> 00:17:34.840 only prescribed penalty was censure by the colony's general court. Because the monetary 148 00:17:34.840 --> 00:17:42.500 medium of Connecticut was corn, wheat or rye, maximum wage legislation to be effective depended 149 00:17:42.500 --> 00:17:49.640 on minimum rates of exchange of these commodities in terms of shillings. Otherwise, maximum 150 00:17:49.640 --> 00:17:54.920 Minimum wages and shillings would be effectively negated by declines in the shilling prices 151 00:17:54.920 --> 00:18:02.080 of corn. Minimum corn, wheat and rye prices were, accordingly, fixed at legal tender for 152 00:18:02.080 --> 00:18:08.040 wage and other contracts. A slight reduction of wheat and corn prices, however, was allowed 153 00:18:08.040 --> 00:18:17.640 in 1644. And finally, in 1650, Connecticut also abandoned the foolhardy attempt to plan 154 00:18:17.640 --> 00:18:21.800 the Price and Wage Structure of the Colonies' Economy.