Nov

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The beauty of prices

November 1, 2024 |

From Prices, by Warren and Pearson (1933):

Prices are the major criterion by which the producer can know what society wants. The only way the farmer can tell whether to produce cabbages or wheat is on the basis of price. The only way that his son can determine whether society wants him to be a farmer or a coal miner or doctor is on the basis of price. The woman with the market basket, the retailer who must sell to live, the farmer who must have fence wire to keep his cattle in, the steel producer who must sell in order to operate his mill — all combine to make prices. The algebraic sum of all the millions of transactions between all the buyers and sellers of the world makes prices. The system does not always work perfectly, but no committee could guide the millions of producers to meet human needs so well as prices guide them — provided the medium of exchange functions properly. When it functions badly, the people turn to dictators and social control.

Only through prices can consumption be wisely guided. We would all like porterhouse steak and Packard cars, but these require so much human effort to produce that it is not possible to produce enough for all. Hens do not lay many eggs in winter. Consumers would like them in winter as well as or better than in summer. By raising prices in winter, the supply is made to last.

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