Just Prices: Are They Fair or Effective?
Wednesday, April 9th, 2008By: Robert F. Abbott
In my part of the world (the province of Alberta, Canada) we’ve had a big debate over the royalties paid by oil companies to the provincial government. At the heart of the debate was the idea of ‘fair‘ royalties, which is to say how much or how little the oil companies should pay.
Unfortunately, a debate framed in terms of what is fair and what is not won’t be a meaningful one. There can be no fair price when one party (the government) can unilaterally impose a price, which it did.
As Laurence M. Vance points out in The Myth of the Just Price “Free exchange is fair exchange. Free trade is fair trade. The just price is the freely agreed upon price.“ And, of course, on the other side of the coin, when an exchange is not voluntary, there can be no just price.
The futility of trying to set ‘fair’ or ‘just’ prices might be better illustrated by a couple of extreme examples.
For those of us watching the unravelling of Zimbabwe over the past few weeks, and for the past couple of decades, there’s a tragic lesson in ‘just‘ prices. President/dictator Robert Mugabe has attempted to set ‘just‘ prices to offset very bad economic policy (if you can call it policy at all).
By attempting to set a ‘just’ price for food, to make it affordable for the people he’s driven into poverty, he’s pushed farmers out of business. That’s magnified the problem, rather than fixed it. His unfortunate economic meddling has also driven inflation into quintuple digits, virtually ruining what’s left of an already desperate economy.
We can see the same disasters unfolding in Venezuela, under the leadership of Hugo Chavez. He, too, is making a shambles of his country’s economy, and attempting to fix it by setting ‘just’ prices for food. The consequences? Farmers close to Venezuela’s external borders cross over the boundaries into other countries and sell their produce there. And, the poor of Venezuela end up paying even higher prices and watching inflation suck away the value of any money they do get their hands on.
Getting back to home, we’ve seen the new royalty regime work wonders — for neighboring jurisdictions. As some of us expected, oil companies voted with their wallets and took a significant chunk of their business elsewhere.
Just price, then, turns out to be one of those damnable economic ideas that, when imposed by governments, has done exactly the opposite of what was intended.
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