Is Price Gouging a Right?

When a large scale tragedy strikes an area (such as a hurricane, earthquake, etc), business owners may decide to raise the prices of the goods and services that they provide.  At times there may be a “legitimate” reason for the higher prices – such as an increase in costs.  Other times business owners may just see an opportunity to increase their margins and generate more profits.  Whether or not a business owner should raise their prices in a time of time of need is a question that varies based upon the circumstances.  The issue I wanted to address is whether force should be used to stop business owners from “price gouging” during these times of emergency.

I just recently finished reading The Long Winter – the 6th book in the Little House on the Prairie series – where this issue is addressed beautifully.   Due to a long winter of snow and storms, the people in the town of De Smet are at the point of starving.  Suddenly the shop owner in town has a large supply of wheat at his disposal and rather than selling it for the normal mark-up amount above costs, he decides to sell each bushel for over two times what he paid.

After Loftus, the store owner, states “That wheat’s mine and I’ve got a right to charge any prices I want to for it.”  Pa Ingalls responds:

“That’s so, Loftus, you have,”…”This is a free country and every man’s got a right to do as he pleases with his own property.”  He said to the crowd, “You know that’s a fact, boys”.

Pa Ingalls approached this situation with a much deeper understanding and respect of our God-given rights than those in the town who wanted to force the business owner to sell the wheat to them at a “reasonable” profit.  He realized that this wheat was the property of the business owner and so the business owner could sell it at any price he desired.  Using force to get the wheat from him at a lower price would have violated one of the fundamental tenants of America.

However, Pa decided to use persuasion to get the store owner to lower the price.  In addition to petitioning the humanitarian side of the business owner, Pa also goes on to state:

Don’t forget every one of us is free and independent, Loftus.  This winter won’t last forever and maybe you want us to go on doing business after it’s over…  You’ve got us down now.  That’s your business, as you say.  But your business depends on our good will.  You maybe don’t notice that now, but along next summer you’ll likely notice it.

Loftus decided to sell the wheat at cost, due to persuasion and not force.

When we see “price gouging” in the world, rather than petition government to punish the property owners for their “crime”, we should rather follow Pa Ingalls example of respecting our God-given right to property and use persuasion to attain lower prices.  If the property owner persists with the higher price, we can exercise our God-given right to take our business elsewhere in the future when more options are available to us once again.

About Jeremy Ashton

Jeremy Ashton, a homeschooling father of four, is a founder of and co-host of the podcast with the same name.
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2 Responses to Is Price Gouging a Right?

  1. The moral argument is irrefutable but there is an equally viable economic argument, which is that the raising of prices in response to increase in demand and reduction of supply due to disaster or any other cause has the effect of rationing the scarce supply to serve the greatest needs for the most people, and to create incentives for a major increase in production of the needed commodity or its substitutes to capitalize on the profit opportunity, thus eliminating the shortage in the shortest time possible, and thereby eliminating the original distortion. This is all accomplished most efficiently when left entirely to the devices of creative, profit motivated individuals. As soon as the government intervenes with coercion, this corrective process is delayed or denied and the problem gets worse. So price gouging is also the most economically efficient method to solve the problem of shortages and high prices. Absent any force or fraud, buyer and seller are both richer after the transaction than before, because each obtains something they valued greater than that what they gave in exchange for it.

  2. Spencer Morgan says:

    It seems we agree on the non-propriety of force as a mechanism to prevent price gouging, bu I’d be inclined to reject even the moral premise presumed here… which is that asking the highest price possible, even in a situation of opportunity arising from disaster or emergency, is a moral evil. If the basis for deciding to whom a product is sold is not on the price willing to be paid, then we are just introducing the moral hazards which will inevitably attend any other criteria.

    One thing to consider is the important role that so-called “price-gouging” plays as a market signal, and how important that freedom is especially in a situation of emergency or natural disaster.

    Here is one illustrative scenario, which has played out in reality;

    A hurricaine approaches a town, and evacuations are ordered and begin.

    Option 1: Prices are controlled either by an actual compulsive law, or a widespread moral inclination and the gas station owners keep their prices low. People stock up on gas at the low prices and buy more than what they actually immediately need, and shortages ensue. Those who were not first in line are deprived of the gas they need, and there is no incentive for new supply to be brought into the area to overcome the risk of doing so in face of the impending storm.

    Option 2: Gas station owners are free to respond, even opportunistically, by raising prices as high as people are voluntarily willing to pay. As a result, people buy only what they immediately need given the high prices and there the actual immediate NEED for gas is met for more individual, voluntary customers as a result. Outside suppliers, seeing the market signal and opportunity which comes from the high prices are willing to risk shipping into the area despite the risk posed by the storm and do so which also eventually puts downward pressure on prices and provides needed gas for more evacuees.

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