Hornberger's Blog

Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
Here's the RSS feed or subscribe to our FFF Email Update to receive Hornberger’s Blog daily.

Praise the Price-Gouger

by

It must be hurricane season because we’re once again being subjecting to complaints about price-gouging. In the finest communist and socialist tradition, some Americans are turning in businesses to the state that significantly raise prices of essential items, such as gasoline, water, or ice, in the midst of a hurricane. As always, state officials are threatening to prosecute the evil, greedy, profit-seeking, bourgeois swine who are taking advantage of consumers in the midst of an emergency.

What nonsense! And the irony is that some of these people — including both the snitches and the government officials — are oftentimes the first to exclaim how proud they are that America has a “free enterprise” economic system.

The price system plays a critically important role in an unhampered market economy. It transmits the important information that people need in determining whether to buy, sell, consume, or produce a certain item.

When the price of an item, say ice, soars in a local market, the following message is sent to suppliers: “Supply this item! It is in short supply. You stand to make very high profits if you do this quickly.” Simultaneously, the following message is sent to consumers: “Conserve this item! It is in short supply. Use it sparingly.”

When the state tampers with the system with such interventions as price-gouging laws, it interferes with this information-transmitting process in the market economy. If prices are maintained artificially low because of such a law, the following message is sent to suppliers: “Supplies of this item are adequate. There is no need to rush to supply this item.” The following message is sent to consumers: “Consume this product as you ordinarily would. Supplies are plentiful.”

The particular amount of ice (or other items) in the hands of owners in an area hit by an emergency is not affected by a price-gouging law. Thus, all that such a law accomplishes is a destruction of the information-transmitting process that is essential to both suppliers and consumers. Entrepreneurs fail to increase supplies, and consumers tend to over-consume. Shortages occur, which last longer than usual.

It is not a coincidence that there were long lines at gasoline service stations during the 1970s. That was when the federal government imposed price controls on gasoline, which were just a variation of a price-gouging law. By interfering with the information-transmitting process of the price system, the government guaranteed shortages of gasoline and long lines at the pump.

The best way to alleviate scarcity of essential items during a hurricane or other emergency is to leave people free to charge as much as they want, without fear of being prosecuted by the state. As the price soars, entrepreneurs see an opportunity to make a quick profit by taking extraordinary steps to get supplies into the area as soon as possible. Those additional supplies then bring about a lowering of prices, which tells consumers that the scarcity of that particular item is being alleviated.

Finally, we also must never forget that private ownership of property is a fundamental, God-given, and natural right. The purpose of government is to protect such a right, not infringe upon it. The ownership rights for ice, gasoline, or any other item do not disappear simply because a crisis occurs and consumers have a “need” for such items. As the owner of the item, the seller has the inalienable right to sell it for any price he chooses or, for that matter, not sell it at all. It belongs to him. That’s what private ownership is all about.

Thus, the moral and economic principles of private property, free markets, and limited government integrate perfectly with each other. If only government officials would leave things alone, everyone would be better off especially during a hurricane or other emergency. Or as the French would put it, “Laissez faire, laissez passer.”

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.