You Can’t Control Prices

Misleading title, Truth is it can be… It causes disaster, but it can be, however, it should not be controlled. Prices act as a mechanism for the transmission of information that allows better coordination of the economy by the spontaneous order of individuals, that is to say, of consumers, so it will always be much better if the market regulates prices, controlling them by force only creates economic problems, problems of productivity and quality, as well as leading to socialism.

State intervention is always negative in any aspect and in the case of price control it is not the exception, despite seeking to protect some consumers the result is the opposite in the long term, when the government with a law defines the prices of a product or service is above the law of supply and demand which is what gives a balance to the market through consumer choice. And as Ludwig Von Mises said, in wanting consumers to have access to some low-priced product, the result is that the producers of that product who were producing it at high costs now have losses.

When they forcibly lower prices in order not to incur losses, producers will either lower the quality and cost of production of their products or stop producing the product and create something that will generate a greater profit using the same or other raw materials. In other words, by forcibly regulating prices the only thing you get is less supply and lower quality of products, in the end you will be forced to either rectify and let the economy be free or continue to regulate and exercise stricter controls and in more fields which will generate economic problems, is the price you pay for using force.

Because you cannot force entrepreneurs to create and sell products at a loss or at a very low profit, what you will achieve is the opposite of what you were looking for, the government sought to provide access to a product, for example orange juice, and it turns out that imposing a lower price by force will generate shortages and low quality of such product, because as I said before, entrepreneurs will not see the incentive to sell or produce a quality juice, therefore there is no benefit of price control taking these factors into account.

Because of this and the “genius” of forcibly imposing controls on a market, where you should not force anyone to do anything, out of simple common sense, the economic situation will always get worse and if you insist on maintaining it will only lead to socialism because it will reach the point where the economy will be “planned” and totally or almost totally manipulated by the state, not by the market and consumers by abstaining or buying, which is what ultimately determines what should be produced and how.

The price ceilings, which are the maximum price that can be applied to a product, generate scaffolds, while price floors, which are the minimum price that can be applied to a product, generate surpluses, at least for a period of time, to better understand the example, imagine that the government fixes a lower maximum price for milk, what will happen with milk is that the supply is going to fall, while demand will rise due to low prices, therefore, this disruption to the natural order of the market will cause scaz├ęs, and having such shortages your “Good Samaritan” plan went completely wrong, since now only the lucky ones who manage to buy milk after hours of standing in line like in Venezuela, for example, will have milk while the others will not.

Controlling prices is unnecessary and always causes long-term economic problems, a free market does not need strength to function properly or more efficiently, consumers must determine prices by buying and abstaining, not the politician who will only apply controls to win votes leaving us with evils such as black markets, lower quality products, shortages, lack of innovation and an economy damaged by market disruption. As a famous Argentine economist, Javier Milei, says: “You can mess with my mother, but not with the prices”, Thanks for reading… Peace.

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