“We must learn from the mistakes of others because we cannot possibly live long enough to make them all ourselves.” That quote has been attributed to various individuals. But the sentiment is as true today as when it was first spoken.

While accusations of price gouging persist, it’s an old tactic. The earliest known use of the verb price-gouge appeared in the Detroit Free Press in the 1940s.

In the wake of a natural emergency or disaster, complaints of price gouging have elicited policies restricting the amount of price increases allowed on necessary items. There have been four occasions during the 20th century when the federal government enacted price-gouging policies —  World War I, World War II, the Korean War and during the Nixon administration. A total of 37 states have enacted price-gouging policies prohibiting unreasonable increases in prices in the event of an emergency. The high prices in America today are the result of government policies.

Consumers might believe a price is simply the monetary worth placed on a product or service. But the concept of price is fundamental in economics. Market prices are determined by the supply and demand of individual products. The economic term, equilibrium, is the point where consumer choices and willingness to pay intersect with the cost of making and distributing products.

Ryan Bourne, an economist with the Cato Institute, wrote “Prices and Price Controls: An Introduction.” He wrote transactions occur when they benefit both parties. If a buyer values a product more than the money parted with and the seller appreciates the cash more than the product relinquished, a trade is made. This refutes the idea businesses have free rein to set prices at whatever levels they wish.

Blaming high prices on price gouging offers a way for politicians to look like they’re trying to solve a problem by resorting to government intervention and central planning. Bourne provided classic examples of how central planning can’t assess consumer needs or coordinate who needs what and how. The Soviet Union demonstrated the disastrous inadequacy of this approach. Germany’s split into a democratic capitalist state in the west and a communist state in the east also provides a perfect illustration. By the time the Berlin Wall came down, the gross domestic product per capita in East Germany was less than half the level of that in West Germany. The freedom to trade without government interference produces more trade and prosperity.

Politicians never admit their failure to live within a budget causes inflation. It’s easier to blame producers, laborers, merchants and others for high prices.
It seems especially advantageous during an election year to propose price controls. Price controls are government-enforced restrictions on the rates sellers charge for products. Politicians always use the excuse these policies help the poor.
Do price controls really benefit the poor?

George Reisman, professor emeritus of economics at Pepperdine University, described in his book, “The Government Against the Economy,” the pitfalls of price controls. Shortages exist when there are more buyers than products to buy. Central planners arbitrarily setting prices don’t know market forces, the requisite costs to produce products or consumer demand. Price controls can prevent the producer from expanding or making a profit. Businesses could cease to exist if production costs exceed the allowed pricing. Businesses are only viable with financial returns on their investments.

If prices are set below product replacement costs, the natural tendency of the public is to hoard in anticipation of shortages. The poor will be less likely to have adequate resources to buy extra quantities of the product before shortages worsen. The very people price control policies are supposed to help are harmed.

Price controls in the early 1970s resulted in shortages and even the destruction of farm animals because central planners froze the price of farm animals, but not the price of feed. That made it cheaper to kill animals than feed them. Government intervention is never better than a free market.

Politicians need not make this mistake again. They should learn from the past and the mistakes of others. The United States is running out of time.