The Destructive Evil of Price Controls

By Anthony Gregory
Aug. 08, 2011

Interventionists insist that “free market absolutism” is naive, runs counter to reality, puts ideology above empirical facts. Yet I am amazed by how often government policies with a clear historical record of failure are enacted and defended. This is the most baffling and frustrating as it concerns policies that the most elementary of economic understanding will inform us are doomed to create negative effects supposedly unwelcome by those pushing the policies.

There is a shortage of cancer drugs, due to the federal government’s price controls. Being a matter of life and death, this is a tragedy of considerable proportions. At the same time, it is completely predictable. There is no reason an intelligent person who has read even the most basic level of economics should not forever grasp the inevitability of such a result. Yet the Obama administration seeks to extend this destructive program to more drugs via Medicare D.

Surely health care subsidies, the FDA, and other government interventions drive up the price of pharmaceuticals. Instead of favoring a reduction in government intervention to help counteract this tendency--for instance, allowing cheaper drugs to be reimported from Canada, a proposal Obama energetically blocked--the administration favors a coercive solution to this government-caused problem that will predictably make things worse. Ludwig von Mises pointed out that one intervention into the market tends to cause problems that will be presumably addressed by yet another intervention, a horrible cycle of state violence that continues until the economy barely resembles a free market at all. In practice, one step in the interventionist cascade of government destructivism is very frequently that of price controls.

Few economic policies are more offensive to basic morality. To tell a dealer in goods or services what he can charge is presumptuous and extremely invasive, reeking of pretensions of the state’s prior ownership of all of society’s fruits, to be distributed only upon the good graces of the central-planning elite. All who love freedom should hate all price controls with a deep passion. All who understand economic cause and effect in even the simplest terms should recognize that, all else being equal, price ceilings cause shortages and price floors result in gluts. Anyone who is familiar with history should see these results borne out every time government attempts to circumvent the most fundamental of economic laws with these hubristic acts of anti-market violence targeted against the voluntarily and mutually arranged price.

Market prices are not arbitrary. They are the amount at which buyer and seller are able to make a deal and still come away better off than if they hadn’t made it. They are a beautiful, wondrous phenomenon, harmonizing two different interests at a minimum, spreading information about how various goods and services are valued, and allowing for the entire modern economy to exist in the first place by providing entrepreneurs with the most crucial pieces of data essential to economic calculation. Billions of times every day prices are confirmed or adapted to meet the needs of the economy as it actually is, millions of times as quickly as any central planner could ever readjust his regulatory power to compensate for the constantly changing market.

The reason communism doesn’t work, first and foremost, is the absence of market prices. The reason all deviations from market prices are counterproductive to economic flourishing is related: Freely determined prices are essential to the coordination of the peaceful market economy. A clearing price can only be discovered through economic liberty. Thwarting market prices is as destructive to economic prosperity as thwarting free speech is to the maintenance of a civil society and honest debate.

Everyone should hate price controls, and indeed even many left-liberal economists have recognized their destructiveness in many of the most common applications. Rent controls were once very popular. Swedish socialist economist Assar Lindbeck famously observed, "In many cases rent control appears to be the most efficient technique presently known to destroy a city--except for bombing.” Nowadays, rent controls are not as in vogue as they once were.

Yet few have abandoned the idea of price controls altogether. On the modern right, opposition to this intervention is mild at best. It was the Nixon administration that implemented comprehensive price controls, which unleashed horror upon the economy. This along with his many other programs at home and abroad were far greater offenses than that for which he was run out of office. If the conservative movement was serious about economic liberty they would recognize the pure terror of all price controls and adamantly distance themselves from all the Nixonian politicians who have embraced them in one form or another.

Of course, anti-gouging laws, minimum wage laws, and many other price controls exist throughout the economy, defended by all but radical free marketers. The cause for price freedom is of chief importance to those who cherish human liberty and those who oppose economic destruction. In the case of the pharmaceutical controls being pursued by the central planners in DC, they are one more sign either that the US ruling class is too ignorant of basic economics to be trusted with any government power at all, much less its ambitious plans to bring the economy to recovery, or that these bullies understand the devastation for which they are responsible but nevertheless persist in their wicked and calamitous plans out of sheer malice or at least callous disregard for the humanity plowed under by their designs. Either way the whole bunch of them should be rejected as readily as the kookiest of witchdoctors or snake oil peddlers, who, unlike the economic charlatans we are all forced to endure, at least sometimes provide their patrons with a placebo effect to help soften their misery.