In 1680, French finance Minister Jean-Baptiste Colbert met with group of successful merchants and tradesmen. A mercantilist, Colbert was committed to the success of enterprise in his country and sought to use the power of the French monarchy as a tool in improving the profitability of French trade. But his inquiries regarding how to facilitate commerce in his country were met with a curt reply by the leader of the group M. Le Grande, who pleaded with the Minister to “Laissez nous-faire” — literally translated as “let us be.”
Le Grande’s words proved resonant in his own country and the economic minds of the future. The group commonly cited as the first to publicly promote capitalism, the Physiocrats, arose from a similar group of French businessmen a few years later. The term laissez-faire became a descriptive moniker of the philosophy associated with Austrian and Classical Liberal schools of economics, as well as all those that see government as a hindrance rather than a help in economic affairs.
But those famous words were ignored by the vain Colbert, who proved himself uniquely inept at letting anything be. As finance minister, Colbert issued more than 150 edicts regarding the quality, quantity, and price of goods produced in France. He was of the mindset that the government can set prices more fairly and efficiently than the private market, and that decisions in economics are too important to be determined by individuals.
In Colbert’s defense, he was an employee of a monarchy that believed its legitimacy to govern was derived from divine will. One can hardly blame Colbert for wanting decisions to be made by a divinely appointed king and his advisors, rather than the unwashed masses. Hindsight has elucidated the causal link between price ceilings or floors and shortages or surpluses, respectively, and the market-distorting consequences they have.
The continued practice of government set prices is far less defendable. The detrimental effects of price setting are evident in the rent-controlled apartments of any major U.S city. When apartments are cheaper than they would be in a free market, an artificial demand is created. Individuals who might not otherwise look for housing, such as senior citizens or young adults, can live on their own thanks to artificially cheap housing. In turn, there are fewer apartments available for those who would be renting out apartments under market conditions.
Landlords have little incentive to spend money keeping up the appearances of their tenements when demand for housing is artificially high and when their ability to make profits from the housing is minimized.
It is common for cities with rent-controlled apartments to experience crippling shortages of housing, lack of new buildings, shoddy upkeep of existing living spaces, and abandoned apartments sealed off by landlords seeking to repurpose their building so as to return to profitability. Perfectly usable apartments are closed by landlords who have no incentive put in the work to keep them open. Although rent control exists ostensibly to help, its effects are an enormous detriment wherever it is instituted.
Government attempts at control prices are essentially doomed to fail, mainly because it is impossible for any agency or body to accurately gauge the myriad factors that must be weighed in pricing an item that they themselves neither produce nor sell.
Knowledge is disseminated through more channels than can be accounted for; it is only hubris on the part of governmental officials that suggests they may be able to better determine economic conditions than hundreds of thousands of individuals who determine prices unconsciously, yet cohesively, in their voluntary purchase of goods and services.
Government controls on anything should be viewed with skepticism. While the rhetoric behind a new program or fiat is invariably framed by the language of fairness or justice, politicians have short event horizons: The consequences of their actions will not be felt until they are removed from office, allowing them to distance themselves from the consequences of their actions.
The upcoming implementation of the Affordable Care Act will be among the largest forays into the planned economy in American history.
Already, shortages of physicians are being reported, a problem expected to accelerate in the years ahead. Of course the idea of healthcare for all is egalitarian and makes a great bumper sticker, but healthcare is a service just like any other. The government can try to ameliorate the ills of our current system, but further centralization and price controls are bound to make matters worse.