Market prices quickly communicate vital information throughout an economy. When governments impose minimum prices, maximum prices, arbitrary prices, or fixed prices it forces people to lie to each other.
Minimum prices are lies to consumers that the goods that they consume are costly to produce while maximum prices are lies to consumers that the goods that they consume are not costly to produce in adequate supply.
When economies allocate resources using prices that do not balance supply and demand it is withholding economic truth from its people – both in their roles as producers and their roles as consumers.
When free people are allowed to communicate through free markets the truth will set them free – free of unnecessary inefficiency, poverty, corruption, shortages, and surpluses.
Market prices are the proven method of providing the rapid and unbiased information for a society to be efficient in a world of increasingly fast technological change.
Economic freedom can be well defended as the undisputed choice for a society to generate new technologies and new products. The economic freedom of Americans has generated almost every major technological advance in the world in the last 150 years (or at least made them available to the ordinary consumer).
But relatively few people understand the importance that “free economic speech” plays in generating innovation and efficiency. In a large economy, people communicate with each other through the prices they offer and the prices they take. In the case of relatively homogenous goods and commodities – from apples to zinc – it is its market price that guides consumers and producers into making the best decision not only for their personal benefit but for the economic efficiency of society.
The brilliant treatise I, Pencil by Leonard E. Read teaches us how market prices allow us to communicate the vast knowledge required to make something as seemingly simple as a nice pencil.
How can farmers in Iowa make good decisions on whether or not it makes sense to use fuel, fertilizer, seed, machinery, labor and land to grow corn rather than soybeans, or which corn seed to use, or when to plant, or how much fertilizer to use, or which equipment to buy, or how to get the product to market or whether to farm at all? How can the farmers be efficient if they do not have access to timely and reliable information?
In centrally-managed economies it is agricultural planners in distant cities who make these decisions. And without access to market prices they make them very poorly. And even if they happen to get the priorities and tradeoffs right this year, they will soon get them wrong as technologies and conditions inevitably change.
In free economies, prices are moved by the choices of thousands or millions of individuals trying to provide goods and services, and consume goods and services, as efficiently as possible.
It is sometimes hard to fully understand how the decisions generated by millions of people – most without Ivy League diplomas and most acting independently in a free market – can be so superior to those made by an esoteric band of experts in a centrally-managed economy. But “…wisdom is proved right by all her children”: the American economy is unrivaled in its ability to invent, innovate and deliver.
When I was young I was taught that the Soviet model of centralized decision-making was a worthy competitor to the U.S.’s free market economy and that perhaps the Soviet model would soon overtake the U.S. economy in growth rates and total output. When I visited communist Poland in 1978-1979 I was stunned by how inefficiently and irrationally the resources were being produced and used. It wasn’t just the long lines for products at the stores with bare shelves – or the egregious inefficiencies at the factory I visited. It was the frequent looks on the faces of the consumers and workers: hopelessness and fear.
Much like in the U.S. in the late 1960s and early 1970s, American youth think that they have found better ways for a society to be run – and they are willing to riot, loot, and burn to get their way.
The merits of freedom are not obvious. They are discerned with time and wisdom. It is not easy to understand why ignorant and hurtful speech should be allowed. It is not easy to understand how economic inequality benefits all in the long run. But setting fires and smashing windows is easy. The ignorant flourish when the wise remain silent.