Imprimis and the Danger of Price Controls
50 years ago, Hillsdale College released the first in a series of mailed pamphlets. At the time they could have no idea about how much this publicity arm of the college would grow in the future, or the amount of public discourse it would cause. Imprimis’ has become one of the most widely circulated academic publications in America, and has typically promoted the principles of classical liberalism and free market economics. Roughly 50 years ago, the first imprimis was written by Henry Hazlitt about the dangers of price controls in response to President Nixon attempting to freeze all prices. America had been going through a period of stagflation and Nixon had issued a federal ban on changing prices of any kind. Johnson had greatly increased government spending and he funded it through a vast increase in the amount of paper money printed. Just as that sort of action has created inflation recently, it also damaged citizens back then. While a price freeze itself is immoral and foolish enough, Nixon’s was not actually applied equally to all citizens or companies.
Hazlitt began his common sense critique by discussing the necessary detriments of any sort of price freeze. He began with a bold statement: “The first thing to be said about price and wage fixing is that it is harmful at any time and under any conditions.” He backed up this claim clearly by pointing out that people are no longer free to follow through on their word, whether in paying employees or keeping contracts. Price fixing means the hands of the nations are tied and that all planning for the future must be disregarded until the concept of price controls is disregarded. Additionally, price freezes present a problem of enforceability both for individual goods and cross price relationships of all goods. With even an extremely simplified economy, there are still trillions of cross price relationships that would undoubtedly be utilized by anyone with a sense of entrepreneurship, and inflation would not even be effectively controlled for. The amount of different industries and different means of paying mean that the federal government would have to develop an entirely new branch to fully police this price fixing. Price fixing requires a massive leap in the authority of the government along with necessitating the increase of the surrounding infrastructure. Price fixing is a direct method of tyranny.
The next problem with price freezes is that they destroy the necessary information that the price system gives about the relative value of goods within the economy. In trying to stop inflation through coercion, Nixon was blinding the American producer and consumer from seeing the true state of the world. prices contain vital information about scarcity, production, and countless things that human analytical tools could not possibly trace. Prices take into account both the realities of nature and the realities of changing human whims. Only if the world were to stop moving and humans to stop thinking, would fixed prices reflect the true state of the world. Rather than just being a tool for commerce, they reflect change more efficiently than anything else humans have created. Prices condense information and make it accessible, so price fixing must provide some solution for this problem before it can be considered to be a viable alternative to the free market, under any circumstances.
Merely following prices allows us to reward the most efficient, and thus allow them to continue lowering the cost of living for everyone else. It is not often in life that doing the best thing for oneself is automatically the best for other people, but prices allow the system of mutual beneficence to continue. Prices show what humans value, and let us funnel our energy to what we value the most that others are able to provide. Without prices human interaction and growth on a cosmopolitan scale become muted.
Hazlitt also conjectured another series of concerns for price controls that targeted President Nixon’s clear favoritism. The first problem was the response to lobbying that allowed big companies to be granted permission to raise prices, with no similar avenues for small companies. While the coercive state loves to pretend to destroy inappropriate corporate interests, price controls directly and uniquely benefited only the largest companies. The second problem with Nixon’s enactment of price controls was the way he had divided up the agencies. He had created three agencies to control three different types of prices. Price controls going into effect through a divided system meant that enactment of them was extremely difficult due to a loss of efficiency and increase in coordination time. This inefficiency lays bare the difference between price controls and the free price system. A bureaucratic slow mess compared to fastly reacting informational transmission points out the weaknesses in all coercive pricing behavior.
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