Milton Friedman on Price Controls and Barter

This clip is taken from the 1992 discussion "Money" featuring Dr. Friedman, Dr. Daniel Gressel and Dr. Robert Hall. Source: Free To Choose Network YouTube channel.

Transcript:

In the moment, in the case of Germany, not after World War I, after World War II, it was a slightly different case, and it shows different facts than others. Because Germany was then occupied by the Americans, the British, and the French, they were able to enforce price controls much more effectively than a domestic government could have enforced it. And they had price controls. Widespread price controls. As the result you didn't have inflation. You just simply had money not being used. You had barter. It's funny, they used cigarettes as money, they used liquor as money. Cognac. I've always said it's the most liquid money you've ever had.

Have I ever told you of my story of my experience with cigarettes in Germany at that time? In 1950, I was in Paris as an advisor to the Marshall Plan Agency. And my wife and I and our two small children in a small car drove from Paris to Frankfurt where I was going to attend a meeting over there, and we started to run out of gas along the way. And there were no gas stations around. So I went off the Autobahn and went onto a small station and got my car filled up with gas and I wanted to pay the woman. As it happened ,I had French francs, US dollars, British pounds, but no German marks. Because I was supposed to get German marks from the US agency in Frankfurt when I got there. And she wouldn't take any of those because she said it wasn't legal.

And she said to me: “Haben sie keine ware?” Haven't you got any goods? I said: What kind of goods? And she said coffee? And I said no, I have no coffee. Cigarettes? So we finally made a deal. I gave her a carton of cigarettes, which I had bought in Paris for a dollar, and got the amount of gasoline, which when I got to Frankfurt, I would be able to get from the US store for a dollar. So I gave her dollar's worth of cigarettes and got back a dollar's worth of gas. The gas at the official value of the mark was worth four dollars, and she regarded the cigarettes as worth four dollars. So she got four dollars worth of cigarettes for four dollars of gas. It was good for her, good for me. I always used to ask my students where did the three dollars go?