… is from page 131 of the 11th (2006) edition of one of greatest economics textbooks of all time: Paul Heyne’s, Peter Boettke’s, and David Prychitko’s The Economic Way of Thinking (original emphasis):
We are extremely dependent on changing money prices to secure effective cooperation in our complex, interdependent society and economy. When prices are not permitted to signal a change in relative scarcities, suppliers and demanders receive inappropriate signals. They do not find, because they have no incentive to look for, ways to make accommodations to one another more effectively. It is important that people receive some such incentive, because there are so many little ways and big ways in which people can accommodate – ways that no central planner can possibly anticipate, but which in their combined effect make the difference between chaos and coordination. Changing money prices, continuously responding to changing conditions of demand or supply, provides just such an incentive.
DBx: No principle of economics is more important than the one explained here by Heyne, Boettke, and Prychitko, and few principles are as important. Further, absolutely nothing learned in advanced economic classes should in any way diminish the centrality, power, and practical relevance of this insight. None of the many formal demonstrations that any competently trained assistant professor of economics can scribble on a scratch pad to show conditions under which this government-imposed maximum price and that government-mandated minimum wage might yield “net welfare benefits” has any practical relevance.
Well, perhaps this ability does have the practical trait of allowing assistant professors either to demonstrate their pedantry or to get an audience with politicians seeking academic cover for interventions into markets.
But in the real world, market-set prices and wages are the only practical means to inform as well as to incite producers and consumers to adjust as well as is humanly possible to the realities of resource availabilities, of technical constraints, and of each other’s wants, expectations, and abilities. Government restrictions on prices and wages inevitably spread misinformation and create discoordination and discord. The fact that price controls and minimum wages are often politically popular means only that too many people are ignorant of vital economic principles.