By Steve Byas

Price controls are a lie, whether it is controlling the price below the market price, or above the market price. They are a form of theft. What right does one person have to tell another person at what price he should offer his goods or services? Is it really a man's property if he cannot offer it for sale at whatever price he desires?

Prices are the language of the marketplace. They communicate to sellers and to buyers. To sellers, if the price goes up, they are being told to produce more of their product or their service. If the price goes down, they are being told to produce less. For a buyer, when the price goes up, they tend to buy less of the product or service; when the price goes down, they tend to buy more.

When government, gangsters, or some other force interferes with the natural workings of the free market, a false message is generated to both buyers and sellers, with bad results.

If sellers are told to sell below the market, they will produce less of the product, and may even exit the market completely. In contrast, buyers will demand more at the lower price. It should not take a genius to then realize what happens next: a shortage exists.

The solution? Well, those who despise liberty will suggest rationing, allowing some government bureaucrat decide who gets what. This produces anger from those who are unable to get what they want, but it doesn't produce any more goods or services. The shortage becomes chronic.

The real solution? Allow the price to rise to its natural market level. When this happens, more suppliers will enter the market, increasing the supply of the good or service which gangsters or government has caused. Some buyers will drop out of the market, and the shortage disappears. The increase in price is followed by a decrease in demand. What is the result of the decrease in demand? A drop in the market price.

Now, if sellers are told to sell above the market, they will gladly increase the supply of their good or service. The problem now is that buyers do not like the increase in the price, and they buy less at the higher price. The sellers are now stuck with products they cannot sell at the above the market price, and there is now a surplus of the product.

How do we resolve this problem? Some suggest that perhaps the government could "buy up" the surplus. Of course, that just exacerbates the problem and it becomes a chronic surplus.

This is basic economics, yet we have demagogues who insist that the market has produced the wrong price. They want to tell a lie and say the price is higher or lower than what it actually is. The lie is repeated by politicians who want votes, by media who want to incite anger to get folks to watch their news broadcast, or whatever.

Let us take some examples.

Some will concede that the above analysis is true, but then argue for "special situations," in which charging "too much" is price-gouging. Oklahoma even has a law that restricts how much a man offers his product or service for sale. In a "disaster," a business cannot raise its price more than 10%, for example. Now, exactly why 9% is OK, but 11% is wrong, is not quite clear, but using our above information as to how the free market works, one would expect that if a shortage has been created by a disaster, what should happen to alleviate that shortage? The price should be allowed to rise. Not allowing it to rise is telling a lie, saying that the market price is below what the "protecting hand" of government says it is.

When the market price has gone up, say 18%, but the "benevolent" government says a person cannot sell their own property for anything higher than 10% more, what happens? A shortage develops, of course. For example, our state has the misfortune of tornadoes, other states earthquakes, and others hurricanes. Let us say that a tornado has knocked out power, so you rush to the store to buy a generator. The demand for generators is much higher than it was before the tornado, but the stores only have enough generators to meet half that demand. So, what happens to the market price of generators? Why, the price goes up, of course. But, NO! That is price-gouging says the government. So, the stores run out of generators. Just before you get there. After all, it is better not to have a generator than to have to pay more for a generator.

The solution? If the price is allowed to rise, then there will be in influx of generators into the area to meet the increased demand. The shortage will go away.

I have heard some complain about gasoline going up during these times of disaster. The argument goes, "Well, that gasoline was purchased for X amount of dollars, and now he wants to charge more!" Of course, the market has shifted. Interestingly, when the same man who complains about some retailer selling gasoline for more, even though the retailer had not paid any more for it than the gasoline he sold three days ago for a cheaper price, what does he do when he wants to sell his own house?

He bought the house for $80,000 twenty-five years ago, and now it will sell for $150,000. Does he say, "Well, I only paid $80,000 for this house, so selling it for $150,000 would be price-gouging?" Of course not. You know, that's different!

Then there are those who think that, in some cases, the government should not allow you to sell your good or service below the market. Now, I am not surprised when some demagogic liberal politician makes arguments that the free market should not be allowed to work. What shocks and discourages me is when there are those who attend "conservative" meetings and contend that they are conservatives and believers in the free market argue that the government should not allow a business to drop its price. They put their trust in government, not in liberty.

There is a law in Oklahoma that requires a retailer to charge at least 6% above cost. Enacted in 1941, it was intended to protect the "mom and pop" stores from "unfair" competition from the department stores and other "big boys."

The argument of the demagogues is this: without this law, then the big stores will just drop their prices, maybe even below cost, to drive the poor little mom and pop stores out of business. They usually point to Wal-Mart and other giant retailers as examples of this type of business practice. The fact is, however, that folks shop at Wal-Mart for reasons other than the price. Many go to Wal-Mart and get everything they want, so they don't have to shop at five different stores and be told half the time, "We don't carry that product."

But, this type of law really causes problems for the small retailer. When a person owns a business, and a product sits on the shelf for a long time, it is a common business practice to "mark the product down," and clear the shelf for another product that will sell. Wal-Mart, however, and other giant retailers can leave the product on the shelf as long as it takes, if they wish.

Some retailers deliberately sell a product below cost, in order to attract customers into the store. This "loss leader" as it is sometimes called, will draw in some customers who otherwise might just go to Wal-Mart. Once in the store, they may decide that they kind of like shopping at a place where they don't have to go up and down aisles with their elbows out to make progress. They may come back. But, with a law like that in Oklahoma, this is a crime. Can you believe that? Selling your own property below cost is a crime in Oklahoma!

During the dark days of the New Deal, Franklin Roosevelt persuaded the Congress to create the National Recovery Administration (NRA) to establish codes of "fair competition" in an industry. A major purpose of the NRA was to keep prices up, based on the theory that high prices lead to prosperity. Roosevelt got his idea from Fascist Italy, where the dictator Mussolini had been running things that way for a number of years.

The NRA was dominated by large corporate interests, who had more votes, based on their size, than the mom and pop stores. These large businesses created codes to keep prices up, which did not allow the small retailers to compete with lower prices. Small businesses suffered and struggled.

A tailor was thrown in jail for pressing a suit for thirty-five cents, when the NRA-dictated price was forty cents. Yes, this happened in America.

The NRA's military commander, Hugh Johnson, urged consumers to shop only at stores that put the NRA Blue Eagle in the window. He warned that no one should mess with "the bird."

In The Incredible Bread Machine, the authors argue against the scenario that big businesses can simply run the little guys out of business with lower prices: "Although a lower price may succeed in taking customers away from the competing company, this process will take time. The larger company may have to operate at a loss or a reduced margin of profit over a period of time, still paying its normal expenses. Finally, if it did run the other company out of business and then raised its prices, it would be inviting other competitors to come into the market and sell the product at a lower price."

The book concludes with a poem by R.W. Grant, "Tom Smith and His Incredible Bread Machine." I would encourage anyone to buy the book, The Incredible Bread Machine, if only to have a copy of the entire poem.

Perhaps a portion of the poem will illustrate the point.

"You're gouging on your prices if You charge more than the rest. But it's unfair competition If you think you can charge less. A second point that we would make To help avoid confusion: Don't try to charge the same amount: That would be collusion! You must compete. But not too much."

Let me offer another alternative. Let's try letting sellers offer for sale their own property for whatever price they want to, and see if that works better than letting some government power set the price. You know, let's try free enterprise, liberty, that sort of thing.