Chapter 2, "The Market"
. . . Is the price we are to pay for things to be set by the arbitrary decree of the governmental authorities, when they have no more basis than anyone else for arriving at an objective valuation? This is precisely what is done in Russia today, and the result is that when the government sets on any commodity a price that is cheap in the estimation of the consumers, the latter hasten to purchase it until the existing supply is exhausted, and the the government is obliged to raise the price. Contrariwise, when the price that the government sets for a commodity seems dear to the consumer, he abstains from purchasing it, and the commodity remains indefinitely on the shelves as an unsold item of inventory, immobilizing capital and running the risk of deteriorating. Then the government, to extricate itself, is obliged to lower the price. In other words, supply and demand come into play even in a nationalized economy.
Supply and demand constitute the mechanism of the market that determines prices, which are the value of goods and services expressed in terms of another, neutral commodity, viz., money. These prices are formed by competition in the market, not only among those who offer to sell goods and services, but also among those seeking to buy them. When a commodity is in abundant supply and is difficult to sell, the vendors, to avoid immobilizing the capital it represents and running the risk of its depreciation through spoilage or a change in the tastes of the consumers, lower the prices and compete with one another to make a sale. When, on the contrary, an article is scarce and is in public demand, people are prepared to pay higher prices in order to obtain it, and competition arises among those seeking to purchase it. . . .
Hence it is said that free trade or the free market means the sovereignty of the consumer. And so effective, so necessary, so ineluctable is this sovereignty that, as we have just had occasion to observe, not even the communist economy can suppress it completely. And as the consumer is the public in general, without distinction of rank or fortune, the free market is the most obvious expression of the sovereignty of the people and the best guarantee of democracy. Individual guarantees stated in writing in the constitution are of no use to a nation if it is not the people, but a third party, whether government or trade-union, that fixes prices and wages and determines what is to be produced and what is to be sold; for in that case the people, in being deprived of their right of free choice in the market, i.e., their right to assign everything the rank and the value it suits them to give it, are being reduced from being sovereign to the status of slaves. Control of the market by the governmental authorities is the instrument of the modern dictatorships, much less cruel in appearance, much less spectacular, but far more effective than the police and the resort to naked force.
In clarification of the foregoing,
we can conclude with the following remarks:
. . .