As the Sunshine State endures the worst hurricane season in a century, some Florida merchants are also weathering a manmade gale: charges of so-called “price gouging.” There are thousands of such accusations, and, egged on by media everywhere, Florida’s political leaders promise to punish anyone soaking consumers. But that idea’s all wet. It’s the criminalization […]

The Good in Price Gouging

by | Oct 4, 2004

As the Sunshine State endures the worst hurricane season in a century, some Florida merchants are also weathering a manmade gale: charges of so-called “price gouging.”

There are thousands of such accusations, and, egged on by media everywhere, Florida’s political leaders promise to punish anyone soaking
consumers.

But that idea’s all wet. It’s the criminalization of price hikes — not the hikes themselves — that’s immoral.

The moral premise behind price-gouging laws is summed up in the altruistic injunction, “People before profits” — as if merchants aren’t people.

What this “ethical” position really boils down to, then, is that the needs and desires of some people (consumers) trump the needs and desires of other people (businessmen) and that in a pinch government should sacrifice the latter to the former.

Little, however, could be more inimical to American’s founding premise — that each of us owns his own life, liberty, and property. That moral ideal doesn’t just fly out the window when the wind picks up. Hurricane or not, it’s wrong for the government to tell someone what he can and can’t charge for goods he owns or services he provides.

Notice that while no one condemns a buyer wanting more for his money, not so a seller wanting more for his goods. He’s “greedy” and “just out to
make a buck.”

But since money’s simply a medium of exchange, it makes no sense to regard one who trades consumer goods for money as somehow less virtuous than one who trades money for consumer goods.

Perhaps some of this prejudice against businessmen stems from the misconception that prices are arbitrary. Not so. As the great economist Carl Menger showed in his classic “Principles of Economics,” “[T]he price of a good is a consequence of its value to economizing men, and the magnitude of its price is always determined by the magnitude of its value.”

Since prices result from traders’ value-judgments, doesn’t it stand to reason that if relevant facts change – such as a hurricane coming to town — that evaluations of a good’s worth might change too?

Laws impeding price-increases, then, prevent individuals from acting on their reality-based appraisals. Therefore it’s such laws — and not market prices — that wear the mantle “arbitrary.”

Forbidding merchants from raising prices is also counterproductive in a very down-to-earth way.

Those living in a hurricane’s path or wake, for example, suddenly need, or need more, bottled water, ice, flashlight batteries, plywood, gasoline, and the like. And as demand outstrips on-hand supply, prices — if government doesn’t intervene — rise.

The high prices oblige consumers to economize. Artificially low prices, by contrast, invite hoarding and frivolous buying, emptying shelves sooner. For instance, someone able or willing to purchase only 10 jugs of water at a “gouged” price might’ve bought 30 if the price were “normal,” leaving less for others customers.

A price jump serves another vital role. It sends a signal shooting through the economic system that instantly captures businessmen’s attention. It screams to them of profit opportunities. It motivates them to step-up production of the relevant goods and/or to divert existing supplies from less-profitable locales (where demand’s lower).

The result is exactly what every humanitarian ought to cheer: more goods where most needed — and consequential price drops as demand is met.

Interventionist policies dampen this process.

There are two possible motives for getting goods into high-demand areas: charity or profit. By thwarting the latter, more people are left at the mercy of the former. Why stymie one of the two reasons for getting supplies into the hands of those who need them?

Any way you slice it, there’s no rational basis for price-gouging laws.

Wayne Dunn writes about political and cultural events from an Objectivist perspective.

THE CAPITALIST ADVISOR

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