Price-Gouging Laws Violate the First Amendment

by | Mar 12, 2020

Laws against so-called price gouging — that is, price spikes during emergencies — violate our natural right to engage in voluntary exchange at mutually acceptable terms. As economics has long taught, price ceilings that defy market forces make the affected goods vanish from the market. Instead of a product being available at a price more-than-X, it is instead unavailable at a price less-than-X. Small comfort for the consumer. (Try to find masks and hand sanitizer on ebay or at the supermarket.)

Here’s another way to look at those laws: they violate freedom of speech (expression) and hence the First Amendment. Civil libertarians should be up in arms.

How can those laws violate the First Amendment? It is rather simple. The market’s price system is a communications process, a means of expression. In the market, people’s demonstrated preferences with respect to scarce resources are translated into highly usable information in the form of prices. Typically, when the quantity demanded for something rises, so does the price tend to rise. (Other things equal, as the economists say.) And vice versa. Adam Smith explained this beautifully in The Wealth of Nations. (See my article “The Market Is a Beautiful Thing.”) Through the price system consumers (without realizing it) tell producers what to produce and in what quantity. And producers use it to tell us when we need to economize (that is, buy the product only for our subjectively most important purposes, leaving some for others). This is important because we live in a world of scarcity. To produce more of good A, we might need to produce less of good B. If we want the market to be sensitive to consumers’ priorities, we’ll want the price system to be free of political and bureaucratic molestation. It’s as simple as that.

It follows, then, that if price controls — such as law against so-called gouging — are enforced, our voices are muffled if not silenced. That violates our freedom of expression and thus the First Amendment. When the price of hand sanitizer is bid up during a pandemic, the higher price is like a broadcast summoning producers to bring more product to the market. Laws against price spikes are like the gagging of consumers. It’s true that empty shelves are also a form of communication, but unfortunately, price controls also remove the incentive for people to produce more of the goods that are suddenly in short supply. Prices are the irreplaceable tool of economic calculation, as Ludwig von Mises spelled out a century ago in his case against central planning.

No good comes from stifling the market — that is, from interfering with peaceful cooperation.

About Sheldon Richman

Sheldon Richman is the executive editor of The Libertarian Institute, senior fellow and chair of the trustees of the Center for a Stateless Society, and a contributing editor at Antiwar.com. He is the former senior editor at the Cato Institute and Institute for Humane Studies, former editor of The Freeman, published by the Foundation for Economic Education, and former vice president at the Future of Freedom Foundation. His latest book is Coming to Palestine.

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