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Owners Have the Right to Price-Gouge

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The New York Times recently published an interesting article about the price-gouging debate between advocates of the free market and advocates of economic interventionism. Although the author, Andrew Ross Sorkin, states at the end of the article that he leans toward interventionism during emergencies, he does a good job summing up the free-market arguments in favor of price-gouging — e.g., that extreme prices rises in an emergency tell consumers to conserve and tell entrepreneurs to bring in new supplies of the product.

A good example involves bottled water. Let’s say that before Hurricane Harvey hit, bottled water was selling in Houston for 1 dollar a bottle. The hurricane hits and suddenly a store finds itself with a fixed supply of 100 bottles. If the law requires the seller to keep selling the water at $1 a bottle, it’s not difficult to imagine someone entering the store and saying to himself, “Even though I need only 10 bottles for drinking water to get me through the emergency, since this bottled water is still so cheap I’m going to load up by buying the entire supply, which will enable me to wash my hair every day.” He pays the storeowner $100 and walks out with his entire supply of bottled water, leaving no bottles of water for anyone else.

If, on the other hand, there is no price-gouging law, the seller is free to raise his price to, say, $10 a bottle. Most likely, that same customer is going to think twice about buying out the entire supply of bottled water. It is likely to be too costly for him — $1,000 versus $100. So, he instead decides to buy just the amount that he needs for drinking purposes and forgets about washing his hair every day. That leaves plenty of bottled water for other people who come into the store.

What a free-market price system does is simply allocate a fixed supply of a product. In the process of doing that, it communicates an important message to people. Extremely high prices tell consumers: “Use the available supply of bottled water for drinking only, not for frivolous purposes, and use it conservatively.” It also tells entrepreneurs: “Want to make a large amount of money quickly? Then buy bottled water elsewhere for $1 and bring in in to the emergency area and sell it for $10. You’ll make a big profit.”

Over time, the additional supplies of water will cause the price to begin dropping, which tells consumers that the need for conservation has become less urgent and which tells entrepreneurs that the need for additional supplies has also become less urgent.

Throughout the price-gouging debate, however, many commentators have missed the most important point about a free-market system: the concept of private property. The bottled water belongs to the owner, not to the government and not to society. The owner of private property has the right to do whatever he wants with it. That’s what private ownership is all about.

Let’s assume that a person has 1,000 bottles of water in his house on the day a hurricane suddenly hits. Is he legally required to sell his water or give it away? Of course not! That’s because it’s his property. It belongs to him. Government has no legitimate authority to confiscate his property and give it to others.

What if the owner of those 1,000 bottles of water offers to sell half his stock for $10 a bottle? That is his right, just as it is his right not to sell any bottles of water at all. By the same token, people are free to turn down the offer.

What if the owner of those 1,000 bottles puts half of them in his truck and transports them to his downtown store and offers them for sale at $10 a bottle? Should that make a difference? Interventionists say it does make a difference because the man is selling his products in a store that is open to “the public.” But that’s ridiculous. Why should it make any difference, from a private-property standpoint, whether the man is selling his bottled water from his garage or from his store? The water is still his private property, just as his store is. As the owner of the store and the water, he has the right to sell the water at whatever price he wants, or not to sell it at all.

As history has shown, the time when the liberty and well-being of the citizenry are most at risk is during crises and emergencies. That’s because government officials seize on the emergency or crisis to adopt totalitarian or authoritarian powers and also because many people, being frightened, are tempted to trade their liberty for the hope of security.

But as so many people in history have learned, it’s a bargain with the devil, one whereby people not lose not only their liberty but also their security and well-being. Price-gouging laws are no exception. Not only are they antithetical to the principles of economic liberty, they also makes the overall situation worse.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.