If The Cap Fits

Actually, price-fixing is never a good solution.

Dateline: London, 25th February 2026.

Thinking about the Roman Empire, which contrary to popular opinion most men do not think about every day, my mind wanders to Diocletian’s Edict on Maximum Prices (Edictum de Pretiis Rerum Venalium, the “Edict Concerning the Sale Price of Goods”, also known as the Edict on Prices or the Edict of Diocletian), which was issued in 301 CE by the Emperor Diocletian in his campaign for affordability. The document denounced greed and set maximum prices and wages for all important goods and services across the Roman Empire.

Fix-ing

Professor Glyn Davies wrote about this in his magnificent “A History of Money From Ancient Times to the Present Day” (University of Wales Press: 1994) saying that

Public finances, crumbing under the mounting weight of welfare payments and subsidies appear to have been the Achilles’ heel of ancient, as perhaps of modern, civilisations

Well, indeed. And even without cryptocurrency, rich Romans could easily avoid high taxation so the state had to resort to a variety of tactics to keep spending up with the obvious consequence of rampant inflation. Diocletian decided to tackle the affordability problem head on and issued his edict to set the maximum prices for more than a thousand items, including food, clothing, transport and wages for different kinds of labor, with robust penalties (eg, death) for sellers who charged more than the maximum or for buyers and sellers who tried to evade the rules via back door deals.

Economics hadn’t been invented yet, so the Emperor and his advisors did not realise that because the set prices were generally below what sellers needed to cover their costs and make a profit, they would stop selling things. This is precisely what happened. Legal trade collapsed and was replaced by a combination of shortages and black markets as merchants withheld goods from official markets or sold secretly at higher prices, while inflation continued unabated. Instead of cheap goods people got no goods.

The Edict was patchily enforced and of limited success in ending inflation. By the end of Diocletian’s reign in 305, it was mostly ignored and may have been formally abrogated. The Roman economy as a whole was not substantively stabilised until Constantine’s coinage reforms in the 310s.

(So the lesson from history, then, is that price-fixing doesn’t work, but reforming money does. Interesting, at a time when digital assets and stablecoins are on the march.)

Fast forward a thousand years to the reign of King Edward III. Economics was making slow progress across Europe but it hadn’t yet reached our sceptr’d isle when in 1349 Edward, now largely remembered for starting the 100 Years War with France, issued the Ordinance of Labourers in response to labour shortages caused by the Black Death. The Ordinance was a set of wage and price controls which amongst other things made it an offence to refuse to accept work at pre-Black Death wages.

Parliament subsequently passed the Statute of Labourers (1351) which in addition to setting wage levels attempted to control the prices of goods. Neither of these edicts worked and employers secretly paid over the set levels via perks (they had no choice, because workers were migrating for better-paid jobs). The price and wage controls were ineffective in practice and the markets won, undermining Royal authority in the process.

with kind permission of Helen Holmes (CC-BY-ND 4.0)

There were of course some people who understood economics at the time, many of them in what is now Italy. In Peter Spufford’s glorious book “Power and Profit: The Merchant in Medieval Europe” (Thames & Hudson:2002) he points out that people who were bad credit risks had to pay much more interest that those who were good credit risks. King Edward I was borrowing from Lombards at around 18% but two generations later King Edward III was paying around double that, a reflection of uncertain times following the plague.

Interest-ing

Talking about price controls and interest rates, and leaving Diocletian’s Edict and Edward III’s Ordinance to one side, leads me to think about credit card interest rates and the role they played in the evolution of the payment system. I wrote about this in detail in my book “Before Babylon, Beyond Bitcoin” (LPP: 2017), noting that it was interest rate deregulation combined with technology that allowed the credit card business to explode after its near death at the beginning of the 1970s. In the United States, the banks had expanded the infrastructure for a nationwide credit card payment system through the precursors to Visa (created in 1976) and MasterCard (created in 1979) but State usury laws prevented card issuers from reaping the benefits of a nationwide system.

Issuers did not always find it profitable to extend credit lending in states where usury ceilings were low. At that time, the United States limited bank lending to 10 per cent, but South Dakota took steps to deregulate, prompting the Supreme Court to rule in 1978 (in its famous ‘Marquette decision’) that interest rates could be exported across state borders via credit cards, whereupon Citi (and other banks) shifted their credit cards operations away from New York to take advantage.

After the low-profit late 1970s and the loss-making early 1980s, credit cards became profitable and the business exploded. Credit cards became a mass-market phenomenon, leading to increased competition, which in turn drove financial innovations and additional products and services ranging from frequent flyer miles and cash rebates to credit towards future purchases and a wide variety of ‘cobranding’ in all sorts of industries.

(There are many people, me included, who think it may not be optimal for society to punish poor people with high interest rates and use some of their money to give rich people frequent flier miles and, frankly, they have a point. Klarna CEO Sebastian Siemiatkowski said the same thing to CNN, criticising credit card rewards programs saying they mainly benefit wealthier consumers while lower-income borrowers bear more of the costs. In fact, as he went on to point out, even people who do not use credit cards pay more for everyday goods because merchants raise prices to cover card fees.)

Now it seems that the US may go back to the future and cap rates again. US credit card debt is about $1.1 trillion, with an average interest rate of roughly 20 per cent, according to data from the St Louis Federal Reserve. The President has called for a maximum 10 per cent interest rate on credit cards for the coming year. I have to say that it is not at all clear to me whether this will boost affordability, whatever that means in this context. Credit card interest rates are set based on a combination of risk, cost of funds and profit (including costs of defaults). This means higher risk borrowers are charged higher rates. If card issuers are not allowed to charge these rates, they will simply stop offering credit to those customers and instead compete more vigorously for the lower risk customers (and cut the rewards such as airline miles that are paid for in part by interest).

If subprime borrowers lose access to these products, their need for credit will not vanish and hence they may well turn to payday lenders (or pawn shops) instead so I have to say it is not immediately obvious that they will be better off. I tend to side with the American Bankers Association and others who predict that such a cap might lead consumers to gravitate to alternatives that can have high interest rates (for example, longer-term BNPL loans can carry annual percentage rates similar to those paid by King Edward III) or possibly even to loan sharks.

Rethink-ing

Maybe it’s time to rethink credit cards and use all the options provided by new technology to decouple the payment system from credit. Make it safe and convenient for people to obtain lines of credit (by using digital identity, for example) and then allow them to attach this line of credit to payment instruments in their wallets. Around the world open banking, and real-time payments (eg, PIX and UPI) can move funds cheaply and safely. Lines of credit can be managed separately or via embedded finance models where credit decisions are made outside the payment layer. Rethinking the “bundle” could yield a more efficient system with lower transaction costs (competition via payment utilities or tokenized money) and more transparent credit pricing (interest separately from payment services).

I think this could be relatively easy to pull together with the spread of digital wallets, the obvious front end to a richer set of payment and credit services. One might imagine credit providers plugging in via API to respond to credit auctions on a per transaction basis: “hello credit institutions, I’ve got a customer here who wants $900 for a huge TV, they’ve got a FICO score of XXX and existing outstanding loans of YYY, who wants it?” or something similar.

Given the recent news about Apple Card shifting it’s credit portfolio from one bank to another bank, I really do wonder just how many U.S. Apple Card users really care whether their account is provided by Goldman Sachs, JP Morgan or the First State Bank of Wherever. The brand of my payment card might matter to me but the brand of the credit provider really doesn’t.