The exchange of currency is also an exchange of data. Price is information. This is an easy concept to understand. You wouldn’t want to buy something without having some idea of what it costs. It would be even wiser to have a clear idea of its value, as well.
A prosperous economy can also be viewed as a vast treasure trove of information. The economy “learns” more about the value of goods and services as they are purchased. Greater freedom in these transactions leads to a greater accumulation of pure and accurate knowledge. The most accurate pricing data lies at the precise intersection of supply and demand, without disruption from external influences, such as political ideology.
This knowledge has profound value to those who produce and distribute our goods, since it helps them determine where they should focus their efforts to maximize profitability. A nation with robust private-sector growth also possesses a clean, fast-moving economic data stream. The reverse is also true. Corruption of pricing data leads, inevitably, to poverty and shortages.
To illustrate the point, suppose a law was passed requiring grocery stores to sell every single item for exactly one dollar. It’s easy to guess that such a law would be disastrous. It just wouldn’t work!
The reason such a “dollar store” law would be unworkable is that it would, in computer terms, crash the grocery system by feeding it garbage data. Customers would no longer adjust their purchases to reflect the value of individual items. Filet mignon would grabbed off the shelves instead of cube steak. Wine would be as easy to acquire as water.
This would, in turn, corrupt the data flowing back to grocery distributors and food producers, who would no longer have a realistic sense of the demand for various items. They would likely respond by simply discontinuing everything that can’t be sold for a dollar, and repackaging many other foodstuffs into very small quantities. You would no longer be able to buy convenient family-sized packages, appealing multiple-flavor assortments, or six-packs of beverages. High-demand items would vanish from the shelves with blinding speed, leading to angry crowds and strict rationing.
Consumers would suffer more than mere inconvenience. Many grocery items are sold at a discount because customers buy them in a certain bulk. If your local store prints the price per ounce on its shelves, you can easily see that buying larger packages usually conveys a discount per ounce. You get 50 percent more product, but pay only 40 percent more. This, of course, would come to an end under the Dollar Store rule. Your grocery bill would increase substantially, not least because you’d be paying for more packaging, wrapped around smaller portions. It would also become a lot tougher to stuff a weeks’ worth of groceries into the trunk of the family care.
Since it’s obvious the Dollar Store Rule wouldn’t work, let’s conclude our thought experiment by supposing that after a year, the law was declared a disastrous mistake and repealed by popular demand. Imagine the utter confusion that would reign in supermarkets on the day after repeal! The longer the Dollar Store Rule remained in effect, the more disoriented both customers and manufacturers would be. No one would remember what anything was really worth. Stores would have no idea how to stock their shelves, in order to meet an utterly unpredictable demand.
In fact, you could expect a fair number of politicians to insist that the Dollar Store Rule cannot be repealed for this very reason. They’d issue dark warnings about the chaos that would result at supermarkets, and weep that certain products would suddenly be priced beyond the reach of those who could formerly afford to buy them for a dollar. Instead, these politicians might propose massive government subsidies to make it possible for the Dollar Store Rule to endure. Retailers and manufacturers who spoke out against the rule, and complained about the difficulty of managing their operations, would be demonized for their greed. Taxpayers would be exhorted to do their “fair share” to ensure “working families” could still purchase itty bitty steaks for a dollar.
This one-dollar parable is a fanciful example… but it’s actually quite close in structure to distortions of pricing data that American consumers and corporations routinely accept. Any student of government-imposed price controls can cite real-world examples of everything suggested in my hypothesis.
Virtually all pricing data is distorted by regulations, subsidies, and taxes. A vast substructure of corporate and property taxation is hidden beneath public view, but it most definitely affects the price we pay for everything.
Costs predictably spiral out of control as consumers are further separated from pricing data. Very few people actually “pay” for health care, for example. They don’t even personally pay the full cost of health insurance. And with ObamaCare, the situation becomes uncomfortably similar to the Dollar Store parable, for this health insurance “reform” is a massive contraption built from price controls and mandates.
The final separation of consumers from pricing data comes when the government fully controls a socialized industry. At that point, the consumer has literally no idea what anything costs. The government does not present taxpayers with an itemized bill for its services. They would be physically unable to lift such a massive pile of paperwork, if it were provided. Taxes are not assessed based on individual access to government services – on the contrary, they are applied using an arbitrary “progressive” system, based on the income of the taxpayer, and a fantastically complicated system of exemptions. No living American has the faintest idea what he or she personally “paid” for any given government service.
Great national wealth exists only in tandem with an equally great supply of pricing data. Low information and poverty also go hand-in-hand. Think about that before you decide that managing your own affairs is too much of a burden, and you’d rather have a compassionate bureaucrat hold the door to the Dollar Store economy for you.
Sign up to the Human Events newsletter