Among the numerous clichés of socialism is the notion that the state should control prices. At first glance, the idea of price controls may seem to offer many benefits. However, it is important to grasp the full implications of this policy, even before naive do-gooders make it so. The key force behind human action is profit, whatever we weigh against it is called the price. The market, driven by supply and demand, is the most efficient way to set prices, provide incentives for innovation, and ensuring efficiency. Ironically the 'scientific' planning state is impossibly wasteful in setting prices, it can't react quickly to changes in the economy, and creates artificial shortages and surpluses. It might not work, but price fixing does imply that coercion is useful, or even necessary for increasing the quality of life. Worse yet, the outcomes of price controls are far from desirable, meaning the real question at hand not about price controls, but who should have the power to set prices. Who indeed? The free market or the state? When the facts are examined honestly, it is clear that the market is superior to any 'alternative' method for economic calculation. What follows is the answer to why only the market is fit to set prices.
To begin, prices are not arbitrary, in simple terms prices are set by the available supply of goods, and the relative demand for those goods. Prices serve as a way to inform the economy about the value of any good relative to other goods, and about alternative uses for those goods, making economic calculation possible. Thus the market allows individuals to make decisions based on their own preferences and the prices they are willing to pay. This creates a market price that is both fair and efficient. By definition, the market is a self-correcting mechanism that ensures prices stay in line with both supply and demand. In contrast, the state struggles with the socialist calculation problem and the economic struggles it imposes on consumers. Since supply and demand are always known, the market can set prices more efficiently for both consumers and producers. Any attempt to alter this arrangement results in a sub-optimal allocation of scarce resources. Alternative distributions might benefit a few parties in the present, but will also compromise the efficiency of the whole in unforeseen ways
A free market provides the best possible incentives for individuals to innovate and create new products and services. How is this possible? Price systems reward those who are able to offer the best products at the lowest prices. The market also encourages competition, which drives innovation. When companies compete with each other, they are constantly trying to improve their products and services in order to stay ahead of the competition. This leads to continuous improvement and progress in the market where competitors will become more productive and efficient over time. This competition is compromised by state intervention, which arbitrarily advantages some competitors over others. Whatever advantages gained by manipulating prices come at the cost of future innovations.
The market ensures that resources are used efficiently because individuals make decisions based on the prices they are willing to pay. This means that resources are only used in ways that are considered valuable to the individuals who are using them. This leads to an efficient allocation of resources, as resources are only used in ways that generate the highest value. The market also encourages individuals to conserve resources and to use them efficiently. The dialectics of power are not valid here. In a free market the spending power of any party is backed by their cash flow, which is ultimately determined by consumers. In any case, a higher level of demand signals more resources to be allocated for production, leading to the level of abundance actually desired by everyone.
Now the antithesis. The state cannot be efficient in price setting (resource allocation) because it lacks the information that is required to set prices efficiently. The state cannot be aware of the needs and desires of everyone. As a result, it is not able to set prices that accurately reflect supply and demand. The state also lacks the incentives to innovate and to use resources efficiently. Despite the best attempts of regulators, bureaucrats are not subject to the same incentives as private actors. More often than not they are wholly irresponsible for their actions, but given authority over huge things they don't understand to act at their own discretion. As explained, the free market avoids these problems by adopting a decentralized system of calculation know as pricing. Private actors are responsible for their actions exactly to the degree that they choose to invest themselves, but with prices they are informed by a picture as broad as their canvas.
Another problem, Hampered by its bureaucratic structure, the bloated leviathan state is unable to react quickly to changes in the economy. In order to accurately set prices, a centralized system must constantly adjust its calculations of supply and demand. But this is made even more difficult since they have no idea what ought to be calculated in the first place. All this means means that prices will be out of line with supply and demand for long periods of time. Prices are information, and bad information leads to surpluses and shortages which are really good for nobody. Both extremes waste resources and endanger alternative uses of scarce resources. The market on the other hand is able to spontaneously respond to changes in supply and demand, which ensures that prices stay in line with the actual supply and demand.
Beyond the realm of economics, the best argument for the market is that it increases the personal freedom of the individual in every possible way. First of all, by definition the market self-assures that individuals are free to make their own decisions based on their real preferences, not those of far-flung magistrates. This means that people are free to choose the products and services that they want, and they are free to set the prices that they are willing to pay. That leads to greater economic freedom, more options, more value, and more power to the people than a state could ever provide. The market incentives individuals to act on the opportunities they see to create value for society leading to greater wealth and prosperity for everyone. Entrepreneurship provides a way for people to achieve financial independence, which is a key component of personal liberty. When the state interferes with prices it interferes with the personal liberty of everyone to financially benefit a few. What it fails to realize is that the two are twins, you don't get one without the other. Price fixing is like race fixing, only the race being fixed is someone else's life, and in so doing you harm the futures of everyone in countless ways you couldn't even imagine.
In the realm of economics there is a central conflict of authority: People vs. Their magistrates. There is a conflict of law: legislation vs supply and demand, either the state is our sovereign or we are a free nation under God. There is a conflict of sanctions: the state vs the market. Which is a better guide to prosperity: Dependence on Bureaucrats, or our own Thrift? Ultimately it comes down to this question: Which side of the dialectic is morally superior? This is a question of covenant. Will we have Spontaneous order, or will be taking orders from the machine god? What choice will you make? Liberty or this tragic cliché?
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