Economics in Three Lessons and One Hundred Economics Laws by Hunter Lewis

Author:Hunter Lewis
Language: eng
Format: epub
Publisher: Axios Press
Published: 2017-08-07T13:51:22+00:00

27. Corollary C of Law of Prices: Honest Prices (If we want prices to do their job effectively, we must refrain from manipulating, controlling, or corrupting them.)

It is not enough to have prices. They must be honest prices. The honesty of prices is critical. In this context, honesty refers to the degree to which prices are determined by the decisions of consumers in the marketplace, or by anticipated changes in those decisions, not by merchants and others seeking to manipulate or control, usually with the help of government officials. Honest prices inform everyone about what consumers want, how much they will pay for it, and how these factors are changing. Dishonest prices convey no useful information and lead to confusion, poor decisions, or worse.

To make matters more confusing, honest prices are sometimes called “unjust” or “unfair” prices either by those sincerely wishing for better outcomes for the poor or by the parties seeking to influence or manipulate markets for their own personal gain. Interference with honest prices, including attempts to limit their ability to move up or down, may have tragic consequences.

In the eighteenth century, the price of bread was rising and peasants were starving. The French government tried to improve the situation by fixing the price of bread. Meanwhile, the cost of growing wheat was still rising, so that farmers faced growing losses. They responded logically by refusing to plant, with the result that bread became ever scarcer. It did not help the peasants to be able to buy it at a lower price when they could not buy it at all except on the black market at higher and higher prices. These kinds of mistakes were ruinous and led to the French Revolution.

Price controls were introduced long before the modern era. King Hammurabi literally carved prices in stone on a monument placed in ancient Babylon about four thousand years ago. These prices no doubt made some merchants rich and others poor. But they certainly did not reflect the underlying economic reality of the time or help provide the people of Babylon with what they most wanted at a given moment.

Dishonest and misleading prices continue to plague the global economic system. In most cases, the interference with honest pricing is disguised, so that very few people understand what is happening. The more dishonest prices are, the more harm there is to the economic system. There is a point at which dishonest prices can lead to economic collapse, as they did in Germany in the 1920s, a collapse that destroyed the German middle class and led to the rise of Hitler.

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