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The Fallacy of Government Control Over Prices from "summary" of Economics in One Lesson by Henry Hazlitt

One of the most common misconceptions in economics is the belief that the government can effectively control prices through legislation. This fallacy arises from a misunderstanding of the forces of supply and demand in a market economy. When the government attempts to fix prices below the level that would be determined by supply and demand, it creates a shortage. This shortage leads to a situation where consumers are unable to purchase the goods they desire at the artificially low price. As a result, some consumers may be forced to go without the product, while others may resort to illegal means to obtain it. On the other hand, if the government sets prices above the market equilibrium, it creates a surplus. This surplus leads to a situation where producers are unable to sell all of their goods at the artificially high price. As a result, some producers may be forced to reduce production or even go out of business, leading to unemployment and inefficiency in the economy. Furthermore, government control over prices distorts the signals that prices send to producers and consumers in a market economy. Prices serve as a reflection of the relative scarcity of goods and services, as well as the preferences of consumers. When the government interferes with prices, it disrupts this important function and leads to misallocation of resources. In addition, the enforcement of price controls requires a significant amount of bureaucratic oversight and regulation, which can be costly and inefficient. It also creates opportunities for corruption and rent-seeking behavior, as individuals and businesses may seek to influence the government in order to gain an advantage in the market.
  1. The fallacy of government control over prices stems from a misunderstanding of the fundamental principles of economics. Prices are not arbitrary numbers that can be manipulated at will; rather, they are the result of the complex interactions of supply and demand in a market economy. Attempts to control prices through government intervention inevitably lead to unintended consequences and distortions in the economy.
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Economics in One Lesson

Henry Hazlitt

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