Friday, November 2, 2012

In Honor of the Return of 1970s Gas Rationning

Murray Rothbard on the price controls and shortages of the 70s:

Two years ago, in response to the first freeze of Phase I of Nixon’s new economic policy, I wrote that “on August 15, 1971, fascism came to America.” Some critics felt that the label was overblown; but here we are, two years later, well into the next “phase” of the fascist logic upon which the Nixon Administration has embarked: totalitarian controls such as allocations and rationing. He who says A must say B, and the logic of price and wage controls is marching us straight into a totalitarian, collectivist state: in short, fascism.

The crucial point on the energy crisis is that the crisis is not, as the Administration and the Establishment would have us believe, a visitation from on high, the result of the actions of the Arab sheiks, or a consequence of “excessive greed” on the part of the American consumer or of the oil companies. The crisis is, pure and simple, the creature of the American government itself and its statist interventions into the economic system. And while the rest of us are placed into increasing subjection by the government, in the name of aiding or curing the energy crisis, the cause – government policy – continues on its merry way unchecked.

The major evil stems from the government’s policy of price controls below the free market level. There is one and only one possible cause of the phenomenon of a shortage, and that is government price control below the market. There are myriad actions of the government which have made energy fuels artificially scarce: but a shortage can only be caused by price control.

Economists define a “shortage” as a condition where consumers are not able to find the product. Regardless of how scarce the supply of a product may be, there is never any need for a shortage, for a disappearance of the product from the shelves. For on the free market, if a product becomes more scarce, the price rises until the market is “cleared”, i.e. until there is sufficient supply available for those who wish to purchase the product at the market price. And so, if the free price system is permitted to operate, increased scarcity will cause a higher price, but not an outright disappearance, or “shortage”, of the product...

If the price system is allowed to function, then the free market quickly wipes out any shortage as the price rises, to “clear” supply and demand on the market. Shortages under price controls persist and get worse, there being no market mechanism to remove them. If prices are allowed to rise, then the price increase performs two important economic functions: (1) the “rationing” function, as buyers voluntarily restrict their purchases, in accordance with each individual buyer’s needs and abilities; and (2) the incentive function, the higher price stimulating increased production and supply over a period of time. Price control prevents both of these crucial functions from being performed, smoothly and voluntarily; instead, shortages persist and intensify.

In such a shortage situation, there must be some way of “rationing” the short supply. With prices not allowed to perform this task, other, arbitrary methods come into play: e.g. lining up for gas for several hours, or selling to favored purchasers. The next step, which has already occurred, is for the government to step in to ration by coercion, to allocate supplies in ways that it sees fit – ways that are always uneconomic and irrational as well as coercive and despotic. We already have gasoline rationing at earlier than retail levels: pace the government’s arbitrary shutting off of fuel to the private airplane industry. And even at the costlier and more complex retail level, gasoline, for example, is already being “rationed” by arbitrary restrictions, and by official rationing in several states (at this writing Hawaii, Oregon, New York, and New Jersey).

1 comment:

  1. Newsweek claimed in 1973 that we were running out of everything which was obviously caused by unregulated capitalism.