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.
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.
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.
(For the rest of the chapter, click the link.)