Many critics of modern-day capitalism argue that capitalism in its purest forms is inherently heartless and places profits over people. A commonly used example to the supposed heartless nature of capitalism is the practice known as price gouging. Price gouging is the act of manipulating prices in order to take advantage of a current event, such as a natural disaster, in order to increase profit margins. While on a surface level, this may seem to be a heartless act to gain more profit, on closer inspection, this ability to change prices is a key element to a free market. The questions must be raised, “What is the government’s role in this situation?” and “Has the government involved itself in similar situations?”
Firstly, it must be uncovered who controls prices to any given good. The law of supply and demand dictates that if demand outweighs supply, there will be a shortage of that service or good. Conversely, if supply outweighs demand, then a surplus occurs. Regardless of this fact, a business owner has the absolute responsibility to decide the worth and the price at which he is willing to sell his goods or services. The beauty of the free market is that if someone sells a good that is not in line with both its quality and demand, someone else will come in and compete. Competition is one of the key aspects of a laissez-faire economy that allows it to run efficiently and keep costs low.
Price gouging occurs for a few main reasons. The first is the increase in demand. As seen during natural disasters, such as hurricanes, prices of basic items increase due to the increase in demand for those products. The increase in demand places the product in jeopardy of running out. Price gouging allows for the potential of running out of stock to be limited. Secondly, if adequate competition is present, price gouging would be extinct. The reality stands that a business owner has the opportunity and responsibility to adjust his or her own prices to match those of the surrounding market. While this can be seen as an act of greed, it is merely a move with economic incentive.
Lastly, what is the result seen when governments intervene to assure prices stay stable? British economic theorist John Maynard Keynes developed an economic theory that stated that, during potential economic recessions, the government should involve itself to assure that the nation does not go into a complete economic depression. This applies itself well to the practice of price gouging.
According to Keynes, the government should involve itself in order to assure that people are not taken advantage of. However, government involvement sometimes leads to unintended consequences. Entrepreneurs are discouraged from involving themselves and their assets in a specific market that is heavily regulated. This has been seen clearly in the United States health care sector. As a result of heavy government regulation, health care costs have skyrocketed due to the lack of competition in a heavily regulated market. This lack of competition is what sparks many large monopolies that are endorsed and subsidized by the government.
In the end, the false narrative portraying capitalism as a heartless economic system is unsubstantiated. One of the most famous capitalists, Adam Smith writes, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Business owners must care for their own interests, and if that means ensuring that their products match the quality and price of the current market value, then that is what needs to be done.