Contributed by: filbert Wednesday, August 17 2005 @ 07:44 AM CST
I’ve before touched on Ludwig von Mises’ explanation of what the price system really does: not only does it promote equilibrium when prices are high, it allocates resources to those who value them the most. Obviously the trucker filling up his rig felt that it was worth $500 (actually slightly more), otherwise he wouldn’t have done it. Meanwhile, I might cut back on my leisure driving because of higher gasoline prices, and that’s perfectly fine. It means that petroleum has become more scarce, and the trucker values it more than I do. He will use it for a more productive endeavor than I will, which seems logical, but how can we determine that? No person should ever have the power to decide which activities are worth more than others, so instead we have the price system. As Mises said, it is how we can make rational economic decisions.
Now, does this mean that gas prices aren’t darn high? No, but all the hype about “record prices” is just that–hype.