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Price Controls Are Government-Mandated False Advertising

Here’s a follow-up letter to my new correspondent from this morning:

Ms. H__:

Thanks for your prompt reply to my note of this morning.

About my opposition to price controls, you write that you can’t understand “many economists’ stubborn and doctrinaire hostility to a common sense policy for keeping consumables more affordable.”

With respect, while price ceilings strike you as a “common sense” means of making goods and services more affordable, they are revealed by economics to be a means of making goods and services less affordable. By encouraging suppliers to reduce the quantities they bring to market, price ceilings make price-ceilinged goods more scarce. This artificial decrease in a good’s abundance perversely raises the market value of – that is, raises the amount that buyers are willing to pay for – the relatively few units of the good that are brought to market. Because buyers can’t legally pay this higher amount with money, they pay it in other ways – for example, by spending time waiting in line, by increased willingness to accept lower quality, by providing in-kind favors (“I’ll serve you, for ‘free,’ a nice meal at my restaurant if you send to me several gallons of your gasoline”), and simply by doing without the good.

Government-mandated low maximum money prices is government-mandated false advertising. By imposing price ceilings, the government prohibits sellers from revealing to buyers the true market values of price-ceilinged goods. Opposition to price-ceilings, then, is no more perverse and doctrinaire than would be opposition to, say, a government mandate that nutrition labels on foods never report a calorie count per serving higher than 100. It looks nice, but it’s a government-enforced lie that makes people worse off.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030