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Recently Belarus simply decided to ban inflation. the president quoted

"From today, any price increase is prohibited. Prohibited!,"

This is easy to do for a dictatorship but how economy is affected if countries simply ban prices rise !!!

source: Belarus bans consumer price rises in bid to tame inflation

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  • $\begingroup$ It may be worthwhile to clarify that you meant "banning" price inflation, not monetary inflation. Basically, total price controls with the usual consequences. $\endgroup$ Oct 29, 2022 at 0:18
  • $\begingroup$ Maybe this guy should consider the story of King Canute $\endgroup$ Oct 29, 2022 at 12:58
  • $\begingroup$ Ask Diocletian. $\endgroup$
    – chepner
    Oct 29, 2022 at 13:53

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That would lead to shortages, loss of output and deadweight loss as people would waste time in getting ahead in zero-sum rationing game so it would lead to deadweight loss. When inflation occurs all prices increase including input prices.

Every firm has to in long run earn at least zero economic profit (e.g. accounting profit - opportunity cost). If in industry $x$ firms supply their own capital and opportunity cost of capital is 10% then without 10% accounting profit margin firms would shut down (or depending on cost function scale down production).

Fixing input prices (not allowing wage increases etc), would also not solve the issue since government can't fix value of free time and people might simply refuse to work or supply other factors of production at prices that do not reflect the opportunity cost of using those factors for leisure or in other alternative ways. Not even mentioning that if not done internationally it would simply lead to outflow of factors out of the economy, unless ban on international travel and capital movement is also implemented (this is one of the various reasons why economies such as USSR became more or less open air prisons for most people living in them as allowing free movement of people would lead to too much outflow of labor).

Shortages will lead to rationing where people will have to pay extra for goods and services in form of paying by sacrificing free time (queuing), expending resources on engineering social networks (nepotism) and so on. This takes time away from productive activities that people can be doing and hence leads to even less production.

It is not even clear if it would solve the inflation issues, as in such cases often parallel economy develops where prices are allowed to float. This can be best seen in countries on fixed exchange rate regime where central bank refuses to support the fixed rate and hence nobody is willing to exchange currency at official rate and you have to make transactions at market prices on black markets.

Historically, broad economy-wide price controls virtually always ended up in shortages and large drop in output and consequently material living standards (e.g. see Schuettinger & Butler, 1979 or Carr 1976). There is also wide consensus the policy is generally not helpful (see here).

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    $\begingroup$ Has it been empirically demonstrated that with all prices fixed, people will take more free time? As I understand it, the wage-labour curve can actually be very complex and counter-intuitive. People may prefer more free time but they find that taking more free time leads to starvation and homelessness, so they still don't. The Soviet economy had everyone working. $\endgroup$
    – user253751
    Oct 28, 2022 at 17:54
  • $\begingroup$ General inverse relationship between factors of production and their prices is well established, there are always income and substitution effects but all other things equal lower price leads to less factors being brought to the market. In soviet economy had everyone working because being unemployed was criminal offence punishable by 2 years of jail or 1 year of work camp which could be death sentence as some work camps required people to work with hazardous substances without appropriate PPE. $\endgroup$
    – 1muflon1
    Oct 28, 2022 at 18:17
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    $\begingroup$ Does the same not apply if unemployed is "economic offence" punishable by good-old-fashioned homelessness and starvation? $\endgroup$
    – user253751
    Oct 28, 2022 at 18:35
  • $\begingroup$ Nowadays in most countries people do not become homeless or starve just for being unemployed, at least definitely not in EU where I live, but even if we pretended that we somehow live without any social safety net then not everybody faces starvation and homelessness even without social safety net. People have family and social networks as well as past saving. Nobody is claiming that if wage does not keep with inflation everyone at once resigns some people do others dont overall production is reduced. Inverse relationship is not the same as having on/off switch $\endgroup$
    – 1muflon1
    Oct 28, 2022 at 18:42
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    $\begingroup$ @user253751 If the thing you are producing is no longer profitable, because the (imported?) materials now cost more than the (price-fixed) final product, it is unlikely you will keep making it. Threat of starvation won't motivate you to do work if the work doesn't pay; it will motivate you to become a criminal or to flee the country. $\endgroup$ Oct 29, 2022 at 14:24

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