Economics Dictionary of ArgumentsHome
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| Price control: Price control in economics refers to government-imposed limits on the prices of goods and services to ensure affordability or stabilize markets. It includes price ceilings (maximum prices) to prevent overcharging and price floors (minimum prices) to protect producers. While addressing equity, price controls can lead to shortages or surpluses. See also Price, Market, Interventions._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Price Control - Dictionary of Arguments
Rothbard III 891 Price control/Rothbard: A triangular intervention occurs when an intervener either compels a pair ofpeople to make an exchange or prohibits them from making an exchange. The coercion may be imposed on the terms of the exchange or on the nature of one or both of the products being exchanged or on the people doing the exchanging. The former type of triangular intervention is called a price control, because it deals specifically with the terms, i.e., the price, at which the exchange is made; Product control: the latter may be called product control, as dealing specifically with the nature of the product or of the producer. Rothbard III 892 Price control: An example of price control is a decree by the government that no one may buy or sell a certain product at more (or, alternatively, less) than X gold ounces per pound; Product control: an example of product control is the prohibition of the sale of this product or prohibition of the sale by any but certain persons selected by the government. Rothbard: Clearly both forms of control have various repercussions on both the price and the nature of the product. Efficiency: A price control may be effective or ineffective. It will be ineffective ifthe regulation has no influence on the market price.(1) (…) should a customer wish to order an unusual custom-built automobile for which the seller would charge over [the normal price], then the regulation now becomes effective and changes transactions from what they would have been on the free market. There are two types of effective price control: a maximum price control that prohibits all exchanges of a good above a certain price, with the controlled price being below the market equilibrium price; and a minimum price control prohibiting exchanges below a certain price, this fixed price being above market equilibrium. Rothbard III 892 Maximum price/Rothbard: In any shortage, consumers rush to buy goods which are not available at the price. Some must do without, others must patronize the market, revived as illegal or "black," paying a premium for the risk of punishment that sellers now undergo. The chief charac- teristic of a price maximum is the queue, the endless "lining up" for goods that are not suffcient to supply the People at the rear of the line. All sorts of subterfuges are invented by People desperately seeking to arrive at the clearance of supply and demand once provided by the market. "Under-the-table" deals, bribes, favoritism for older customers, etc., are inevitable features of a market shackled by the price maximum.(2) >Interventions/Rothbard. Elasticity: (…) even if the stock of a good is frozen for the foreseeable future and the supply line is vertical, this artificial shortage will still develop and all these consequences ensue. The more "elastic" the supply, i.e., the more resources shift out of production, the more aggravated, ceteris paribus, the shortage will be. The firms that leave production are the ones nearest the margin. Selective price control: If the price control is "selective," i.e., is imposed on one or a few products, the economy will not be as universally dislocated as under general maxima, but the artificial shortage created in the particular line will be even more pronounced, since entrepreneurs and factors can shift to the production and sale of other products (preferably substitutes). Substitutes: The prices of the substitutes will go up as the "excess" demand is channeled off in their direction. RothbardvsPrice control: In the light of this fact, the typical governmental reason for selective price control - "We must impose controls on this necessary product so long as it continues in short supply" - is revealed to be an almost ludicrous error. For the truth is the reverse: price control creates an artificial shortage of the product, which continues as long as the control is in existence - in fact, becomes ever worse as resources have time to shift to other products. Rothbard III 894 Minimum price control: (…) while the effect of a maximum price is to create an artificial shortage, a minimum price creates an artificial unsold surplus (…). The unsold surplus exists (…) but a more elastic supply will, ceteris paribus, aggravate the surplus. Once again, the market is not cleared. The artificially high price at first attracts resources into the field, while, at the same time, discouraging buyer demand. Rothbard III 895 Selective price control: Under selective price control, resources will leave other fields where they benefit themselves and consumers better, and transfer to this field, where they overproduce and suffer losses as a result. >Overproduction. Entrepreneurship: This offers an interesting example of intervention tampering with the market and causing entrepreneurial losses. Entrepreneurs operate on the basis of certain criteria: prices, interest rate, etc., established by the free market. EntrepreneursVsInterventions: Interventionary tampering with these signals destroys the continual market tendency to adjustment and brings about losses and misallocation of resources in satisfying consumer wants. Economy/price maxima: General, overall price maxima dislocate the entire economy and deny consumers the enjoyment of substitutes. Inflation: General price maxima are usually imposed for the announced purpose of "preventing inflation" - invariably while the government is inflating the money supply by a large amount. Overall price maxima are equivalent to imposing a minimum on the PPM (purchasing power of the monetary unit). >Inflation. Rothbard III 896 The principles of maximum and minimum price control apply to any prices, whatever they may be: of consumers' goods, capital goods, land or labor services, or, (…) the "price" of money in terms of other goods. Minimum wage: They apply, for example, to minimum wage laws. When a minimum wage law is effective, i.e., where it imposes a wage above the market value of a grade of labor (above the laborer's discounted marginal value product), the supply of labor services exceeds the demand, and the "unsold surplus" of labor services means involuntary mass unemployment. Selective, as opposed to general, minimum wage rates, create unemployment in particular industries and tend to perpetuate these pockets by attracting labor to the higher rates. Labor is eventually forced to enter less remunerative, less value-productive lines. This analysis applies whether the minimum wage is imposed by the State or by a labor union. >Trade Unions/Rothbard, >Wages/Rothbard, >Minimum wage/Rothbard, >Unemployment/Rothbard. Rothbard III 897 Relative prices: Our analysis of the effects of price control applies also, as Mises has brilliantly shown, to control over the price ("exchange rate") of one money in terms of another.(3) This was partially seen in Gresham's Law, one of the first economic laws to be discovered. Few have realized that this law is merely a specific instance of the general consequences of price controls. Perhaps this failure is due to the misleading formulation of Gresham's Law. >Gresham's Law/Rothbard. Rothbard III 899 Bimetallism: suppose that a country used gold and silver as moneys, and the government set the ratio between them at 16 ounces of silver : 1 ounce of gold. The market price, perhaps 16:1 at the time of the price control, then changes to 15:1. What is the result? Silver is now being arbitrarily undervalued by the government and gold arbitrarily overvalued. In other words, silver is fixed cheaper than it really is in terms of gold on the market, and gold is forced to be more expensive than it really is in terms of silver. The government has imposed a price maximum on silver and a price minimum on gold, in terms of each other. The same consequences now follow as from any effective price control. With a price maximum on silver, the gold demand for silver in exchange now exceeds the silver demand for gold (conversely, With a price minimum on gold, the silver demand for gold is less than the gold demand for silver). Problem: Gresham’s Law: Gold goes begging for silver in unsold surplus, while silver becomes scarce and disappears from circulation. Silver disappears to another country or area where it can be exchanged at the free-market price, and gold, in turn, flows into the country. World: If the bimetallism is worldwide, then silver disappears into the "black market," and offcial or open exchanges are made only with gold. VsBimetallism: No country, therefore, can maintain a bimetallic system in practice, since one money will always be undervalued or overvalued in terms of the other. The overvalued always displaces the other from circulation, the latter being scarce. >Bimetallism. Rothbard III 900 Consequences of price controls: (…) the price controls inevitably distort the production and allocation of resources and factors in the economy, thereby injuring again the bulk of consumers. Bureaucracy: And we must not overlook the army of bureaucrats who must be financed by the binary intervention of taxation and who must administer and enforce the myriad of regulations. This army, in itself, withdraws a mass of workers from productive labor and saddles them onto the remaining producers - thereby benefiting the bureaucrats, but injuring the rest of the people. 1. Of course, even a completely ineffective triangular control is likely to increase the government bureaucracy dealing With the matter and therefore increase the total amount of binary intervention over the taxpayer. 2. A "bribe" is only payment of the market price by a buyer. 3. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. pp. 432 n., 447, 469, 776._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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