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  • Writer's pictureMariana Trujillo

Prohibiting Price Gouging is Immoral

The prohibition of price gouging is immoral. It limits the access to urgently demanded goods and services and restricts individual rights. It is bad for society as a whole and for individuals. We must allow the market to operate and find equilibrium. People are often willing to throw basic economic concepts out the window when they appear not to be convenient. Economics is a hard and a very controversial area of study. There are many ways to look at the same thing, however, one cannot ignore the foundations and basic economic axioms when one pleases. Price gouging is not what you think. It simply means the rise in prices that happens in times of higher demand. It incentivizes production. It signalizes to producers that something is in high demand and incentivizes them to produce it. All goods and services are scarce and not everyone that wants them will get them. That’s the whole point of the concept of property and economics. Things are not infinite and we must allocate them accordingly. Prohibiting price gouging will only change the way that people are discriminated against. Instead of discriminating against people based on how much they were willing (or able) to pay for something, we are now discriminating based on who buys it first. The second option feels more right to most of us. People should have equal opportunities to buy what they need, right? This is the goal, to make more people have access to highly demanded goods, especially in times of crisis. To achieve it, we must allow the market to operate. If more people want toilet paper, we need to produce more toilet paper. The most effective way to meet the demand is by increasing production, obviously. The best way to make companies increase their production is, you guessed it, by allowing prices to rise. When something is more expensive, more people will want to produce it and in larger quantities. And, when there is more supply, the price goes down. Markets tend toward equilibrium [1] unless there are barriers. “Laws can't change the market conditions that drive prices up. Prices for hand sanitizer, face masks, and easily stored food are rising right now not because sellers are mean, but because demand is rising relative to the immediately available supply. [...] ‘Moreover, price gouging can serve morally admirable goals by promoting an efficient allocation of scarce and needed resources, and by creating economic signals which will lead to increases in the supply of needed goods available to desperate populations.’ ” 2 Price Gouging also incentivizes and signalizes to people to be more conscious of how they are using these highly demanded scarce resources. If you know that toilet paper is more expensive, you may use less, use a substitute, or even stop using it. It is not an ideal situation, but it is efficient for society. Reallocation of resources in adverse situations is necessary. With that out of the way, let’s talk about morality. Prohibiting price gouging is immoral because it violates an individual right: free initiative. Price gouging is the market’s reaction to new circumstances, and the best thing that one could do is allow it to happen and allow producers to adapt and serve consumers. Producers serve the consumer and produce what they demand. Without higher prices, companies are not incentivized, or at least not as much, to increase production. If more people are demanding hand sanitizer, let people produce it. As Murray Rothbard writes on the “For a New Liberty: The Libertarian Manifesto” : “The developed-market economy, as complex as the system appears to be on the surface, is nothing more than a vast network of voluntary and mutually agreed-upon two-person exchanges [...] when I buy a newspaper for a dime, a mutually beneficial two-person exchange takes place: I transfer my ownership of the dime to the newsdealer and he transfers ownership of the paper to me. We do this because, under the division of labor, I calculate that the paper is worth more to me than the dime, while the newsdealer prefers the dime to keeping the paper.” Any transaction is mutually beneficial. One will always prefer to sell for more and buy for less, but if they agree with a transaction, it means that they are better off doing it than not. This means that even if the equilibrium price is higher than usual, like it is in a catastrophe or pandemic situation, transactions are still mutually beneficial. If someone agreed with an exchange, by definition, it is not predatory. Even if you are not satisfied with the price, you still agree with the transaction. People have the right to commercialize and exchange products and services. We are entitled to our property and the inherent right to transfer its ownership in exchange for whatever we want, including money. No respectable institution should invade this right. 1-situation in which economic forces such as supply and demand are balanced 2-


1-situation in which economic forces such as supply and demand are balanced


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