Christian Economics in One Lesson, Chapter 17

Government Price-Fixing

It is naught, it is naught, saith the buyer: but when he is gone his way, then he boasteth (Proverbs 20:14).

Once again, Hazlitt returned to the issue of government price fixing. In Chapters 13, 15, and 16, this price fixing was in the form of price floors. In this chapter, he dealt with price ceilings. But the theoretical issue is the same in all of these chapters: the state’s interference with the price system, a system that rests on two legal principles: (1) private ownership, which includes the right to disown property, and (2) the right to make a bid for ownership. By “right,” I mean an individual’s ability to make a transaction, or to refuse to make a transaction, in a legal system that preserves the right to exclude. So did Hazlitt.

Hazlitt wrote that governments resort to price ceilings during wartime. In early 1946, the United States was just coming out of four years of price and wage ceilings. The transition was not yet complete when he wrote his book.

1. OwnersMembers of one group of owners have legal title to property. This includes their labor, which they can rent. Because these owners have legal title, they have the right to transfer this legal title: to disown something. We call this act of disownership selling.

Members of another group of owners have legal title to money: the most marketable commodity. They also have the right to disown money. We call this act of disownership buying.

2. WindowWe have covered this repeatedly in earlier chapters. Buyers of money (sellers of services) seek out sellers of money (buyers of services). The market is a complex institutional arrangement that is the product of years of exchanges. These exchanges have been based on private ownership. Legal and customary arrangements have established an individual’s legal right to buy and sell without the threat of coercion, including coercion by authorized agents of the state.

Prices have developed over periods of time. These are not fixed by law, but they are familiar to participants. Prices convey valuable information to participants. Prices makes their decision-making more accurate. People can more easily count the costs of their decisions, past, present, and future. Prices fluctuate, but normally they do not fluctuate much. This stability reduces the costs of transactions. Past prices do not guarantee future prices, but they do point to a pattern. They bid down money prices. When prices get comparatively high, sellers enter the market to sell. When prices get comparatively low, buyers enter the market to buy. They bid up money prices.

Final buyers are the sources of market pricing. They possess the most marketable commodity: money. They compete against other buyers. The free market is an auction, both in theory and practice.

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