Price, the Peaceful Regulator

MAY 01, 1974 by C.W. ANDERSON

Mr. anderson is President of the Employers Association in Milwaukee.

"Gas truck driver shot and killed on tollway," screamed the headline!

The second line could have been "… as he was delivering goods on a contract made voluntarily and peacefully between two parties." How come the violence and third-party interest here? A good question! But, actually, the killed was the fourth party of this transaction — a third party having previously declared an interest in it. The third party was the Government, which had ruled that prices for certain products and for deliveries must have Government approval. In effect, two parties who would normally work out a free-market price agreement to their mutual advantage were prohibited from doing so… and in the process, many felt their rights were infringed and that violence was required to correct the injustice.

Such actions, which take the law into the aggrieved party’s hands, are never justified, of course, but they dramatize the fact that violence in the exchange of goods and services (the market place) is almost always a result of a third party enforcing its decree or demand.

Normal two-party exchanges are nonviolent because of a wonderful economic tool: price, the peaceful regulator. A free-market price is reached by a very complicated, computer-like weighing of a vast number of factors which include not only costs but personal buyer preferences, other attractions for the buyer’s dollars, anticipated competition, and the like. When we understand how this process works, we will see our own business and personal activities in clearer focus. Also, what is happening in the current energy shortage will be more understandable!

It Takes Two to Trade

An example close to all of us may illustrate how this tool works.

If we will ask ourselves how much our own services and time are really worth, we’ll find that an honest answer is elusive — actually impossible. This is because our judgment is never the only factor in the determination of this price. There is always the value someone else, the buyer (employer), places on our services. As great as we may sometimes think we are, our effective price is not at that high level unless a buyer agrees with us. Only in a system where a dictator or a law sets an arbitrary price is our compensation determined without an agreement between a buyer and ourselves (seller).

Precisely the same is true of all products and materials. Just as you and I try to get "all the traffic will bear" in selling our time and services, so the merchant does this for his goods and the manufacturer for his "widget." And, this is as it should be because all the buyers of our services, or "widgets," try to pay as little as possible for these. The net result of these "conflicting" objectives is a willing, uncoerced exchange by mutual agreement… with no conflict. Even when the buyer and seller don’t agree, no violence occurs — each simply seeks a seller or buyer elsewhere. No headlines; no one else even aware of what has happened.

Today, third-party interference is all about us working both subtly and with open violence; in either instance force, or the threat of it, hovers over voluntary, peaceful exchange arrangements. The danger in this is that we tend to be expedient, to adjust to each new third-party interference, soon accepting it as normal. As evidence, consider only the growing normalcy of teacher strikes and the almost complete acceptance of controlled interest rates and plane fares. But as we embrace each new third-party interference, our vision of a free market blurs and the ideals and the miraculous efficiency of a free, peaceful economy become more remote.

Free-market pricing is, indeed, a kind of miracle when we consider the billions of exchanges made peacefully every day in our economy. Without it, the "energy crisis" will continue! Without it, no economy can survive!  


May 1974

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December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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