“Price Gouging” IS Against the Law

by Don Boudreaux on September 26, 2017

in Complexity & Emergence, Hayek, Law, Prices

Regular readers of Cafe Hayek know that I’m very keen on the distinction between law and legislation.  (It’s a distinction that I learned long ago from F.A. Hayek’s 1973 book, and that Hayek himself learned from Bruno Leoni.)  The distinction is straightforward, but one that is too-little known and appreciated: a law is one among that vast set of undesigned and evolved rules of interpersonal behavior that we follow because members of our community expect us to follow these rules.  A piece of legislation is a command issued by the state.

Recognition of this distinction between law and legislation, as well as of its descriptiveness of reality, does not thereby necessarily create a normative preference for law over legislation or vice-versa.  Any such preference depends upon the evaluation of the merits of one method of governing human interactions compared to the other method of governance.

Those of us who believe that individuals acting on their own initiative are usually quite creative at devising ways to peacefully and productively cooperate with each other tend to see value in evolved law, for law both emerges from these cooperative efforts and, also, helps to guide such efforts.  And this admiration for law becomes an even stronger ‘preference’ for law over legislation the more one distrusts the abilities of some human beings to productively disrupt and alter with conscious commands the law-guided interactions of other human beings.  In contrast, those people who have a dim view of most individuals’ capacities to act for themselves and toward other individuals in productive ways tend to admire legislation, for legislation at least opens up the possibility that the best and the brightest amongst us will be given the authority to ensure that the masses of us behave toward ourselves and toward each other productively rather than destructively.

Yet just as those who ‘prefer’ legislation must admit that legislation sometimes goes awry – I offer Jim Crow legislation as a classic example – those of us who ‘prefer’ law must admit that law sometimes goes awry.  (Hayek, it is worthwhile pointing out, while ‘preferring’ law, explicitly recognized that instances of law will not always be acceptable and, hence, he endorsed the use of legislation to replace law in those instances.)  It recently occurred to me that so-called “price gouging” in most communities is unlawful – or, at the very least, borders on being unlawful – even when it is not prohibited legislatively.

Although I personally believe opponents of “price gouging” to be mired in intellectual error about the cause and consequences of sudden and dramatic hikes in prices, the fact seems to be that in most communities the widespread expectation is that merchants will not raise prices substantially in the wake of natural disasters.  See, for example, this essay by Mike Munger.  In it, Mike documents people’s widespread approval of government intervention to prevent “price gouging” even though that intervention reduced the inflow into the community of much-needed supplies.

“Price gouging” seems to be against the law in most communities – again, even in those communities in which it is not prohibited by legislation.  If there were a community of economists and libertarians, “price gouging” there would be perfectly legal.  But in real communities – in real cities and towns – the current widespread expectation is that merchants will, as they say, “keep the lid” on prices.

I wish the law in these communities were different.  Given my understanding of economics and of my strong normative support for free markets, I wish that “price gouging” were widely accepted and, hence, that it were lawful.  Yet I must admit that “price gouging” is generally unlawful.  This law against “price gouging” is, I’m quite certain, a bad law; it harms most of those people who support and enforce it with their reactions to it.  But changing the law is even more difficult than changing legislation.  After all, legislation is under some individuals’ (and, occasionally, some individual’s) conscious control.  Law is never under any individuals’ (or individual’s) conscious control.  Law exists, spread out, in the hearts and minds of individuals.  To change the law requires the changing of hearts and minds.


In light of the above, is it unlawful in the United States to refuse to stand quietly when the national anthem is played?  (Note that laws are often enforced, not with physical restraints or compulsion, but with social disapproval.)


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