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Quotation of the Day…

… is from page 42 of the late Paul Heyne‘s insightful 1982 lecture “Income and Ethics in the Market System” as it is reprinted in the 2008 collection of Heyne’s writings, “Are Economists Basically Immoral?” and Other Essays on Economics, Ethics, and Religion (Geoffrey Brennan and A.M.C. Waterman, eds.):

[W]e cannot have the benefits of a market system unless we’re willing to accept its impersonal features.  The remarkable productive achievements of the market system are the result of its ability to gather vast amounts of detailed, continually changing information and to disseminate it quickly to precisely those persons who want it.  That won’t happen unless people respond in their actions to the signals that prices emit and those prices are in turn allowed to respond to people’s actions.  The impersonality of the market system that so much disturbs us is an essential feature of that system.  We cannot have the benefits of a market system if we are at the same time determined to prevent that system from operating in an impersonal manner.

DBx: Price controls – such as minimum-wage impositions and prohibitions on so-called “price gouging” – are wildly popular with the general public.  The general public, however, understands neither the role of prices nor how prices are formed.  The general public interprets prices as if the economy were a morality play featuring good guys and bad guys – or the “rich” and the “poor,” or the “strong” and the “weak,” or “oppressors” and “oppressed” – struggling against each other to grab as large as possible a share of a given amount of material wealth.  Prices, in the eyes of the general public, chiefly determine how some given-sized slice of society’s given-sized wealth pie is shared between buyers and sellers.  The higher the price, the more is the wealth taken by sellers and, hence, the less the wealth enjoyed by buyers.  The lower the price – even if it is forced lower by state diktat – the greater the share of society’s fixed quantity of goodies captured by buyers and the less is the share captured by sellers.

Ignored are prices’ role at communicating information about relative scarcities of different consumer goods – prices’ role at communicating information about relative scarcities of different productive inputs – prices’ role at prompting consumers and producers to use relatively less of relatively more-scarce goods and services and to use relatively more of relatively less-scarce goods and services.  Overlooked are all the ways that changes in prices incite consumers and producers to change their consumption and production activities so that the result is the production of as much useful output as is humanely possible from any given quantity of resources, and all the ways that changes in prices incite producers to discover new resources.  Completely missed is the fact that prices today register consumers’ and producers’ expectations of future economic conditions and, thus, prices’ ability to prompt people today to prepare better for tomorrow.

The general public – further confused and misled by the typical pundit, preacher, professor, and politician – is blind to all of the vital roles of prices.  The general public moralizes.  Yet while such moralizing generally is appropriate for judging the actions of individuals acting as members of a small group (such as household or friends on a camping trip), it is inappropriate for judging the actions of individuals acting within an extensive commercial economy.