Capping wage increases, which governments resort to in times of high monetary inflation, does not control inflation. Monetary inflation is caused by the rapid expansion of the amount of money in circulation. Preventing people from protecting themselves from the consequences of monetary expansion attacks the symptoms, not the cause, of monetary inflation. If there is too much money in the system, prices, including the price of labor, must be allowed to adjust. All the government achieves by preventing wage increases is to make paid employment unviable. Either the employee will quit rather than be paid barrow-loads of worthless paper, or the law will be circumvented, making criminals out of both an employer and an employee simply for agreeing to mutually beneficial terms between themselves.

This article is an extract from the book ‘Principles of Good Government’ by Matthew Bransgrove