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Quotation of the Day…

… is from page 88 of Matthew Hennessey’s excellent 2022 book, Visible Hand:

Prices coordinate markets. Like buoys on a lake, they help market participants – buyers and sellers – navigate when they can’t see shore. They provide markers on an unmapped route.

DBx: Yes; and it’s an apt analogy (except, of course, that market prices – unlike the positioning of actual buoys – are not determined by anyone; market prices are emergent phenomena).

Among the most important lessons learned by students in a well-taught Econ 101 course is that market prices are not arbitrary. Prices are mutually agreed-to terms of exchange. Prices are not set by sellers; prices are not set by buyers. Prices are the monetary terms of exchange that arise whenever buyers and sellers actually, mutually agree to exchange with each other. (It’s important always to remember that wages are prices.)

Market prices reflect the purchasing (and doing-without) alternatives that buyers believe are available, and prices reflect also the selling (or use) alternatives that sellers believe are available. Each price thus conveys, in a concentrated and ‘objective’ form, the worth of each unit of a good or service to buyers (given what buyers’ believe to be their alternatives) and to sellers (given what sellers’ believe to be their alternatives). Everyone can then observe the prices at which exchanges have recently taken place. Everyone can use this information to peacefully navigate his or her way in the market. These navigations both are guided by prices and contribute to changing the prices whenever the ‘navigators’ – the market participants – discover on their journeys new information, decide they wish to change their destinations, or have hunches about new and better routes.

The notion that navigation on the deep sea of the modern market can be improved by dispensing with market prices and wages is hopelessly wrong. Equally mistaken is the notion that market navigation can be improved by government-imposed controls on prices and wages. Prices and wages that aren’t the results of actual market exchanges are worse than useless; they’re misleading. They give bad directions. They are lies.

Advocates of price controls – including advocates of minimum wages – are advocates of lying; they are advocates of using the government to spread misinformation. These advocates – unhappy, for whatever reason, with the information conveyed by market prices – childishly suppose that the underlying reality can be changed simply by changing the contents of the messages that deliver this information.

I offer the following bit of advice to students who take economics courses: If you’re so unfortunate as to have a teacher who insists that minimum wages and other price controls can be useful devices in the real-world for improving market outcomes, be very suspicious of this teacher. He or she likely is quite a poor economist, regardless of his or her formal credentials. That teacher might well be a superb guide to whiteboard-displayed theoretical curiosa, but he or she is almost certainly an unreliable guide for understanding the operation of real-world economies.

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