"A person who believes that no one has the right, under any circumstances, to initiate force against another human being, or to advocate or delegate its initiation. Those who act consistently with this principle are libertarians, whether they realize it or not. Those who fail to act consistently with it are not libertarians, regardless of what they may claim."
-- L. Neil Smith
Wednesday, April 15, 2009
An Important Misconception among Central Planners
An important misconception among proponents of central planning is that value is objective. In the light of common sense and daily experience, it's difficult to believe that this misconception is held by accident. However, proponents of central planning, in order to promote their various economic schemes, must adhere to that belief. The manipulation of the money supply and interest rates, legal tender laws, protectionist tariffs, price controls such as minimum wage laws, wealth redistribution, the "just compensation" which is used to justify the theft called eminent domain and all other economic machinations of central planners hinge on the belief that value is something which can be fixed for all people, in all places, at all times and in all situations by simply regulating price.
Attempting to determine value by setting the price is putting the cart before the horse. Price is determined by value, not the other way around and value is subjective. Value simply cannot be fixed.
The value of every resource is different for every man. There are those who would pay thousands of dollars for a pair of shoes. I wince at paying more than twenty five bucks. You might pay eighty-thousand dollars for a Corvette. While your neighbor wouldn't give a plug nickel for a GM product. Some folks won't touch a can of Spam, but they'll actually pay for a can of tuna fish. Some people will paint their own homes while I will gladly fork over hundreds of dollars for someone else to do it. Bob will pay to have ants exterminated, but Chuck will buy ants for his ant farm.
The value of every resource is different in different places. This one should be obvious. The less of a resource there is in a particular location relative to its demand, the more valuable it will be there. Likewise, sand is as cheap in the desert as lies are on a politician's tongue.
The value of every resource is different at different times. Improvements in technology have drastically increased the production of goods and services. The increase in supply makes those goods less valuable today than they were years ago. The value of produce is still effected by the seasons, but improvements in horticulture and transportation have lessened those differences considerably. By the same token, demand for things like typewriters has shrunken to where they are practically worthless. Keep that typewriter stored for five-hundred years and it might be worth a small fortune.
The value of every resource is different in different situations. Water is typically less valuable than diamonds, but a man dying of thirst will most likely give up his precious gems for a glass of water. Air is free, but a man with a low tire will still put quarters in the compressor at the gas station and a SCUBA diver will pay to have his tanks filled with the stuff.
The fact that value cannot simply be fixed could not be more obvious.
Manipulating prices or regulating them by force always results in distorting the market for the related goods and services. The supply and demand for goods and services is constantly seeking, but never finding perfect equilibrium. Picture it as a balance beam with supply on the left end and demand on the right. If the supply end gets too heavy you have a glut. If the demand end gets too heavy, you have a shortage. Price works as the natural fulcrum on which the beam rests preventing the beam from becoming too far out of balance. When government attempts to fix prices, three problems immediately present themselves.
One is that supply and demand are in constant flux. Very seldom do the two remain in equilibrium long enough for the price to catch up and put the beam in perfect balance. Therefor price must have the freedom to float as fast as the market requires.
The second is that the price scale itself is, for all practical purposes, infinite in length both positively and negatively with zero somewhere in the middle.
The third is that the measure used to determine the price is not permanently anchored either. Using the supply and demand for gold as our example, and the price scale measured in Federal Reserve Notes, it's easy to see how manipulation of the money supply will disrupt the necessary function of the price fulcrum. Even if we could eliminate that problem, we still have the problem of the infinite length of the scale on both sides of zero. Asbestos once had a positive value - people paid for it. After it was proclaimed that asbestos was a health hazard, its value went negative - people paid to have it removed. Even if we could somehow resolve those two, price fixing still runs into the problem of supply and demand being in perpetual motion. Without the price fulcrum allowed to float naturally with changes in supply and demand our balance beam will spend most of its time dangerously tilted toward either glut or shortage.
Perfect balance is Utopian. There are simply too many factors as variables for economic Nirvana to be a reality. The best we can do is use a measuring scale, which moves very slowly and is very difficult to manipulate, (like gold), on which the price fulcrum can move, and then free the price fulcrum from its government shackles so that it can react to the market as quickly as it possible.