Last week, Venezuela introduced a new bank note denomination: the 100,000 bolivar note. It’s worth about USD 2.50 (or, at least, it was worth about USD 2.50 when it was issued). Which is normally what happens in this stage of a hyperinflation: the speed of the inflation has outstripped the ability of the Venezuelan government to print bank notes (in both sufficient quantity and in sufficiently-large denominations). Even President Maduro acknowledges it. During the announcement, he said:

“The use of the physical currency is being replaced.”

That is: his solution to the current cash shortages in Venezuela is to abandon the use of cash altogether. But in the meantime, there’s this BsF 100,000 note as a stop-gap.

Unfortunately, cash is not the only thing that is running short in Venezuela. Venezuela has the largest proven oil reserves in the world: but it has a shortage of fuel. It also has severe shortages of food, thanks to its price controls. Some notes:

A Brief History of Venezuela’s Price Controls

Four years ago, President Nicolás Maduro of Venezuela signed decrees to control the prices of new and secondhand cars. He accused criminal gangs and those pesky Western-imperialist economic saboteurs of creating artificially high prices for automobiles. According to Mr Maduro, anyone caught breaking the decree/law would face jail sentences of between 6 and 12 years.

This was but one of many price controls that he imposed. They led to long queues, empty supermarkets, a nation that only produces sugar-free Coke, and a flourishing black market.

That said, there were some pyrrhic opportunities to be found as well. Here’s an extract from a Guardian article:

On the country’s border with Colombia at San Antonio, engineer Jesús Arias, 33, has given up on his profession and smuggles petrol across the border. One of the country’s most costly price controls means that filling an entire tank costs just a couple of cents, converted at black market rates. Over the border, petrol sells for hundreds of times more. “Here petrol is practically a free gift,” Arias said. “A litre of mineral water costs more than a litre of gas.”


Arias fills his 50-litre tank for just a few pence; a few hundred metres across the bridge in Cúcuta, Colombia, he can sell that for around £15. “Doctors, lawyers, architects, engineers we’re all doing it,” he said. “Here on the border, I can earn in three or four days what I earn as a professional in a month.” Children walk across the bridge with Coca-Cola bottles filled with petrol.

Which is almost certainly why there are now gasoline shortages in the country with the largest proven oil reserves.

But as a practical observation, these kinds of economic policies mean one of two things:

  1. Nicolás Maduro is clinically insane; or
  2. Nicolás Maduro is evil.

But even here, I think we have an answer to that question. An extract from the Financial Times:

Ever since he became Venezuelan president, Nicolás Maduro has gone to ridiculous lengths to eulogise the memory of Hugo Chávez. The burly 53-year-old has claimed to speak with his predecessor’s spirit manifested as a “little bird”. At cabinet meetings he waves a book of his mentor’s sayings as if they are holy script. He has even argued that Chávez should be sanctified: a rare trespass into Christianity by the gaffe-prone Mr Maduro, who once compared Venezuelan socialism to “when Christ multiplied the penises” — a confusion of peces, the Spanish for fish, and penes that must rank as one of the worst malapropisms in history.

But let’s focus instead on the craziness of price controls.

On Price Controls

The theory goes something like this:

  • Ignore economics
  • Impose a price
  • Punish anyone that disagrees

I’m not saying that the occasional government intervention isn’t warranted. I think it can be, especially when the market is being abused by a monopoly or a cartel. But in practice, price controls are rarely a response to market inefficiencies. Instead, price controls are a response to a market that is being altogether too efficient in its response to an economic crisis.

It looks like this in the textbooks:

As Milton Friedman has said:

“We economists don’t know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can’t sell tomatoes for more than two cents per pound. Instantly, you’ll have a tomato shortage.”

And before you know it, you have instances like motorcyclists being killed for spare parts, because the spare parts were subject to price controls, and no one would import them at that kind of price (because why would you go to all that trouble to make a loss?).

Prison sentences? Please. 

I realise that some people might be thinking that a prison sentence would be a good deterrent to stop the black market from happening, and to force people to abide by the price controls.

I have two responses to that:

  1. Has the threat of imprisonment stopped the black market for drugs?
  2. Also, most of history begs to differ.
Venezuela is not the first to try it…

Price controls have been tried many many times. Some examples:


In his infamous Edict of 301 AD, Diocletian blamed the rapid rise in prices in the Roman empire on the “avarice” of merchants. Even though he was busy debasing roman coinage to pay for all the new troops he was hiring.

A line from that edict (which could easily have been written by Mr Maduro):

“To be sure, if any spirit of self-restraint were holding in check those practices by which the raging and boundless avarice is inflamed…perhaps then there would be room left for shutting our eyes and holding our peace…[but since it is unlikely that this greed will restrain itself]…it suits us, who are the watchful parents of the whole human race, that justice step in as an arbiter in the case”

He then imposed the death penalty on anyone that tried to sell at prices higher than the prices that he’d set on beef, grain, eggs, clothing, and everything else.

The death penalty was also in place for anyone that tried to hoard goods, as well as for anyone that even tried to buy something at a higher price.

So many people died under that law that it was eventually set aside. And Diocletian abdicated with it.

The key point: there are times when people would rather die than comply.


In the aftermath of the French Revolution, the new assembly passed the “Law of the Maximum”: price controls to try and slow the inflation in the new french currency, the assignat.

The penalty for violation was also death. The French public largely ignored it.

And as Robespierre was dragged to the guillotine, the historical record is that the mob jeered “There goes the dirty Maximum!”


The Soviet price controls are perhaps the most famous of all. And despite the threat of heavy penalties, black markets flourished.

You can go back through history and look at price controls enforced in every era in almost every place, and you’ll find a story of overreach followed by a lesson in humility.

But I guess it’s an experiment that we need to keep repeating?

Unless, perhaps, you’re the kind of man that believes your predecessor appears to you as a little bird. Because then you’re just plain crazy.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at Also, check out the RA podcast on iTunes: The Story of Money.