TGIF: Back to Barbarism

Has Kamala Harris inadvertently done free-market advocates a favor? Let's not get too hopeful, but maybe. How so? By pandering to voters and marketing herself as a consumer watchdog who will stamp out (undefined) supermarket "price gouging." This could create teaching opportunities for champions of the unhampered market economy.

This should be our message:

• Prices emerge from countless transactions through which people seeking mutual benefit trade their money for goods and vice versa.
• Monetary exchange, unlike the barter system that preceded it, permits the widest possible division of labor because if you want to exchange eggs for apples, you need not search for someone who wants to exchange apples for eggs. Money, which arose through the market process, does the trick.
• The division of labor is the epitome of social cooperation, which enables everyone to acquire more and better goods than they could acquire otherwise. It lets masses of people live long and prosperous lives. As Adam Smith wrote, "The division of labor is limited by the extent of the market."
• Thus, an attack on money and prices is an attack on civilization itself, a step back toward barbarism.

This is Ludwig von Mises's open-and-shut case against socialism, the obliteration of the market economy. But it is also relevant to lesser government intervention in the economy. The standard case against government price controls and guidelines applies to what Harris vaguely proposes. That case can be readily found with any search engine. Tampering with prices brings unwanted shortages, gluts, discordination, misaligned investment, and social strife. (Try this for starters.)

Here I want to concentrate on the deeper, though related reason for concern about Harris's pronouncement. (Trump should not be allowed off the hook because many of his proposed interventions, such as tariffs and job-rescue plans, fall to the same objection.)

That deeper reason is this: an attack on market price-setting, whatever the rationale and however modest at first, is an attack on society itself. While most people think a price is just a number on a tag attached to a product on a store shelf, it is much more. It is even more than an informative exchange ratio that emerges from the interactions between countless buyers and sellers pursuing their interests and signaling relative scarcity and demand. Most important, a price is the result of a life-sustaining process. Free pricing is the glue that holds a great society together and makes other kinds of social bonds possible.

Isn't that an exaggeration? It is not. Even if you think the Harris proposal to stamp out "price gouging" is modest, we have no reason to think it would stay modest. Why only groceries? What about clothing, shelter, and other things we need? (The government already has a lot of influence over interest rates.) And if the "modest" measures fail to satisfy the bureaucrats or the most vocal part of the public, we may expect the politicians to try harder to rein in free pricing. They are not likely to give up their politically winning program. Failure will be grounds for expansion because voters are economically illiterate. Intervention may beget more intervention. Think mission creep and slippery slope.

Ludwig von Mises, writing in Human Action, thought that, short of bombs and socialism, there was no more serious way to destroy civilization than by crippling the price system. Price controls, inflation, and antitrust are among the ways to accomplish that. Intervention is destructive because the price system makes economic calculation possible, and monetary calculation is indispensable for rational thought in a modern society. As a medium of exchange and a common unit of account, money permits people to translate the disparate things they subjectively value into meaningful objective sums that producers and consumers can use to plan, coordinate, and cooperate in the market. Mises's insight is that monetary calculation is necessary for a free, humane, and prosperous society.

As Mises wrote, "Monetary calculation is the guiding star of action under the social system of division of labor." Need one point out that the division of labor based on property rights is essential to personal and social progress?

It is the compass of the man embarking upon production. He calculates in order to distinguish the remunerative lines of production from the unprofitable ones, those of which the sovereign consumers are likely to approve from those of which they are likely to disapprove. Every single step of entrepreneurial activities is subject to scrutiny by monetary calculation. The premeditation of planned action becomes commercial precalculation of expected costs and expected proceeds. The retrospective establishment of the outcome of past action becomes accounting of profit and loss.

Distinguishing profitable from unprofitable activities is necessary because while consumer wants are unlimited, resources and labor are scarce. At any given moment, we cannot have everything we want in the quantities we want, so we must make choices and accept trade-offs. Market prices tell producers what consumers want more of and less of. Looking back, prices signal success or failure—and prompt course corrections.

Mises next makes a crucial point:

The system of economic calculation in monetary terms is conditioned by certain social institutions. It can operate only in an institutional setting of the division of labor and private ownership of the means of production in which goods and services of all orders are bought and sold against a generally used medium of exchange, i.e., money. [Emphasis added.]

Then he clinches the deal: "Our civilization is inseparably linked with our methods of economic calculation. It would perish if we were to abandon this most precious intellectual tool of acting."

If you don't believe Mises, try to imagine living a free, decent, and prosperous life in a society deprived of private property, the division of labor, free exchange, and the resulting market prices. It can't be done unless you count images of chaos and barbarity. Ironically, some people who view themselves as foes of slavery are eager for the government to impose the terms for the disposal of other people's products.

Mises closed Human Action with these words:

The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.

Our future depends on how quickly we repel the economically illiterate clowns who seek political power. We won't find allies among so-called "progressives" and "conservatives."