Quotation of the Day…

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… is from pages 180-181 of my friend and former professor Randy Holcombe’s superb 2019 book, Liberty in Peril: Democracy and Power in American History:

Wage and price controls [during WWII] rapidly brought with them shortages because with prices held down, purchasers wanted to buy more of almost everything than sellers wanted to sell. The result was a potentially inequitable allocation of goods as merchants saved items for their friends and allocated them in other ways besides selling them to whomever placed the highest value on them. As a result, the OPA [Office of Price Administration] began rationing a number of necessities and organized the rationing program by establishing thousands of local boards to administer the allocation of artificially scarce items. Despite substantial regulations and red tape, this program merely transferred the authority to sell from the sellers to a board, and the results were generally unsatisfactory. The price controls had eliminated market prices as signals of how to allocate resources, and the economy increasingly became chaotic as a result.

DBx: Prices determined in markets with people spending their own, and only their own, money are the only source of information on the relative scarcity of various outputs and inputs. Interfere a bit with the pricing system, and the result is a bit – perhaps an undetectable bit – of resource misallocation (meaning waste which results in less prosperity). Interfere more with the pricing mechanism, and the result is more misallocation. Every interference with the pricing mechanism replaces with false ‘information’ the most accurate information available about how to best allocate those outputs or inputs whose prices are distorted by the interference.