Friday, November 9, 2012

Murray Rothbard on "Greed" and Price "Gouging"


An EPJ reader emails:

Why is it that the general public is so resistant to the arguments against "anti-gouging" laws, when these arguments are not even controversial among economists of different schools and ideological slants (i.e. even left-winger Matt Yglesias has come out against these laws)? One response I've gotten from a number of people is that, if prices were not controlled to some extent, then "greed," rather than supply and demand, would be determining prices. Demonstrably absurd, but appealing to the baser emotions, like so many economic fallacies that refuse to die.

Here is Rothbard on supposed "greed" and prices:

In fact, pricing on the market is not an act of will by sellers. Businessmen do not determine their selling prices on the basis of whether they feel greedy or 'responsible' that morning. The entire apparatus of economic theory, built up over centuries, is devoted to demonstrating a great truth: that prices are set only by the demand of purchasers (how much of a good or service purchasers will buy at any given price), and by the supply or stock of the good...

The general public, media pundits, politicians, and even some businessmen, seem to have a mechanistic, cost-plus model of 'just' pricing in their heads. It is all right, they concede, for each businessman to pay his costs of production and then add on some 'reasonable' markup; but any price beyond that is morally condemned as excessive 'greed.' But cost of production has no direct influence on price; prices are only determined by supply and demand.

Assume, for example, that manna from heaven, an extremely valuable product, falls on some piece of land in New Jersey. The manna (extremely scarce and useful) will command a high price even though its 'cost' to the landowner was zero (or is limited to the costs of advertising and marketing his find). There is no guaranteed profit margin on the free market. A businessman may find that he can only sell his product below his costs, and thereby suffer losses; or that he can sell above costs, and enjoy a profit. The better he forecasts, the more profit he makes.

Here is the full article:

4 comments:

  1. It's just so WRONG for evil businesses to take advantage of those poor people who have been so harmed by a tragedy such as that hurricane. They must be punished.

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  2. Bob - its a good move to use /sarc so people don't confuse sarcasm with seriousness, myself included =)

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  3. Dig into all these arguments about greed and fair price and you will find the labor theory of value rearing its ugly head.

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  4. Whats wrong with price controls based completely on the demand you create for yourself? Knowing your product, knowing what it takes to sustain and growing demand as high as you are willing to create it. Some products are not this good are they? Some with limited resource manipulate the supply to manipulate demand and has nothing to do with demand creation does it?

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