If there’s one view that unites large swaths of the American body politic today, that articulates common ground between the traditional left and the emerging social democratic right, it’s that market prices are a source of much unnecessary misfortune and even wickedness, and that a—perhaps the—chief end of policy should be to protect favored industries, classes and interest groups from the predations of price.
From the price of oil to eggs to childcare to rent to healthcare to money itself, public policy edges prices up and down in response to political whims through a complex and frequently opaque set of taxes, subsidies, floors, ceilings, prohibitions, requirements and jawboning. The result is not just economic inefficiency, but a world in which people have less agency, information and opportunities, and instead more queues, instability and poverty.
These efforts to stanch prices happen at all levels of government and across all branches. Local governments artificially raise rents through rent control, building restrictions and other anti-housing policies. States punitively tax some forms of energy and generously subsidize others. Congress raises price levels through the hilariously misnamed Inflation Reduction Act, and presidents of both parties use the Strategic Petroleum Reserve to strategically manipulate public opinion.
In “The War on Prices: How Popular Misconceptions about Inflation, Prices, and Value Create Bad Policy,” the Cato Institute’s Ryan Bourne argues that this isn’t just a matter of some misguided policies that have incidental effects on market prices. Rather, these continuous, compounding and often contradictory policies result from “a lack of appreciation for the important functions of market prices” by policymakers and voters—and that their aggregate impact on the economy, and society more broadly, is far wider and more pernicious than popularly understood.
The core of the argument of Bourne’s book, which includes contributions from a variety of economists, philosophers and policy experts, is a familiar one, at least to those with a background in political economy: Prices play an invaluable role in economic coordination, but their nature is widely misunderstood. At their essence, market prices aggregate and convey a tremendous amount of information about wants and needs, tradeoffs and scarcity. As George Mason University economist Alex Tabarrok succinctly puts it, “A price is a signal wrapped up in an incentive.” In this way, prices are sublime in that they incorporate the decisions and preferences of millions of people into a single real number.
But sublimity in economic calculation and coordination does not imply metaphysical or teleological claims, and that is where the wheels begin to come off the bus. Increasingly, Bourne argues, the war on prices is being driven “not from well-thought-out economic reasoning against market prices, but from moral intuitions.” This lack of understanding about what prices can and cannot tell us is the starting point from which much of “The War on Prices” proceeds.
The book is divided into three main sections. The first part of the book covers inflation, which after a four-decade hiatus in the United States recently reared its head to find policymakers, intellectuals and journalists unable to even understand, much less explain, what inflation is (and what it is not), what causes it, how to fight it once it arrives, how long it might last and (most importantly) how to avoid it in the first place.
The book’s contributors do an admirable job of providing an introduction to the economic logic of inflation and how it differs from, say, changes in relative prices (a distinction missed—or deliberately obscured—by much of the commentariat), as well as articulating why the commonly nominated causes of inflation (greed, wage-price spirals, the war in Ukraine) are not to blame. Bourne takes on the suggestion that price controls can be used to slay the inflationary beast, and American Enterprise Institute economist Stan Veuger provides a highly charitable and nontechnical critique of Modern Monetary Theory’s suggestions for controlling price levels.
This charity is a hallmark of the entire volume, and it is a great credit both to Bourne as editor and the contributors he recruited that they avoid the temptation to mock and belittle arguments they oppose—as easy in some cases as it would be. Rather, they steelman and address the best possible versions of the arguments they reject. Such intellectual honesty has fallen out of fashion in many circles, and Bourne et al. equip themselves well in bucking the temptation to simply label and dismiss opponents. Such an approach would likely sell more books, but readers would be the poorer for it.
The book’s second section moves from the macro level to the micro, digging deep into prices and price controls. This section is the most crucial of the volume and is likely to resonate most with readers, especially those without technical backgrounds or an interest in macroeconomics. In the opening chapter, Bourne explains what prices do and what price controls are. The chapters that follow expound on these most basic of microeconomic truths in compelling, enjoyable and occasionally humorous ways.
The chapter on rent control by Harvard University economist Jeffrey Miron and Northwestern Ph.D. student Pedro Alighieri is a master class in economic argumentation conducted with economy. The authors marshal theory, empirics and compelling anecdotes to dismantle the case for rent control, an idea unfortunately rescued from the ash heap of history in recent years by the progressive vanguard in the war on prices. In a similar vein, Institute for Economic Affairs economist Eamonn Butler marches readers through the history of 4,000 years of price controls, starting in ancient Egypt and running through the medieval era, modernity and finally the present day. Even when pre-modern potentates made price ceilings or floors compulsory under pain of death, black markets—that is, markets that clear—inevitably emerged. Like water, prices find a way.
In a chapter on minimum wages, the University of California at San Diego economist Jeffrey Clemens highlights the oft-forgotten fact that job quality and amenities (simply put, how pleasant, convenient, safe and flexible a job or workplace is) adjust relatively seamlessly to policy demands on wages. As with rent control, price floors and ceilings lead to quality adjustments, and quickly. (Bourne addresses a similar subject in an earlier chapter, showing how World War II-era price controls led to measurable and significant deteriorations in consumer product quality, which caused wartime inflation to be significantly underestimated.) Georgetown University philosopher Peter Jaworski uses the market (or lack thereof) for human organs, blood and plasma to explore when moral intuitions lead policymakers to make pricing policies that result in shortages with grotesque moral consequences.
Bourne’s third and final section addresses the subject of value, a concept that is related to but conceptually distinct from prices. Both classical and Marxian economists defined value as a function of its labor inputs. By this logic, a sweater that takes 10 hours to knit is twice as valuable as a stool that takes five hours to carve. This theory falls apart under gentle prodding upon the realization that a sweater’s “value” isn’t inherent to the time spent by its maker, but rather a series of factors that are specific to its wearer. Still, it retains a hold on people’s minds because it comports with our long-held moral intuitions. One cannot understand prices without understanding value—but conflating the two concepts is a grievous (albeit common) error.
Deirdre McCloskey, perhaps the most prominent and prolific political economist writing today on the intersection of market economics and moral philosophy, contributes three chapters to this effort. As she writes, “Prices in a market do not reflect ethical or personal or environmental worth. Nor do we liberals, supporters of price mechanisms, pretend otherwise.” Prices reliably aggregate information, but that information does not include anything about deserts or moral worth. Additional contributors to this section address popular applications of the liberal theory of value to gender wage gaps, CEO pay and dynamic pricing.
The reader quickly sees why Bourne’s title at the Cato Institute is “R. Evan Scharf Chair for the Public Understanding of Economics.” His explanations of what prices are (and are not) are clear and concise, and as an editor he has pulled together an excellent group of contributors. Arguments throughout are thoughtful, measured and backed by well-explicated theory and illustrative stories, which are accessible to interested laypeople with no economics background and useful to those brushing off the cobwebs of an undergraduate economics course or major. While some chapters do delve into more technical details, readers not inclined to wade into the underlying theory or analysis of the merits of competing empirical studies can easily skip those sections with no loss of learning.
Critiquing a book for what is absent is seldom helpful. Still, it would have been good if Bourne and his co-authors had paid greater attention to artificial intelligence, even speculatively. The possible impact of this and related emerging technologies in the immediate future on many prices, from artwork to money, seems undertheorized and underdiscussed. Also, some of the examples used feel somewhat dated, and surely Taylor Swift’s meteoric rise (recently becoming the first American musician to join the Three Comma Club solely from her music) would be a great opportunity to retell Robert Nozick’s famous Wilt Chamberlain thought experiment for the zoomer generation. (The cost of tickets to Miss Swift’s concerts is, however, discussed in Liya Palagashvili’s chapter on dynamic pricing.)
One must always be modest when it comes to claims about edited volumes. Many line the shelves of libraries, but Saint Jerome was the last editor of a collected volume of writers whose work changed the world. Still, while “The War on Prices” has more modest goals, it is an excellent example of what a well-edited volume looks like. Too many such books are little more than a dozen or so chapters brought together on the thinnest of pretenses when there is in fact little connective tissue holding them together.
By contrast, Bourne has crafted an exceptional collection of accessible but substantive arguments that are more than the sum of their parts. Together, they form a sober, articulate and—unfortunately—much-needed defense of market prices for a society that has forgotten that the suppression of information to avoid unwanted facts or advance a political agenda seldom works out well.
