(L50) Fiat Money & Government Interference

1.) What problems do price ceilings cause, and what are the benefits of letting prices adjust without government interference?

Price ceilings lower the quantity of products available to consumers, and raise the demand all at the same time. This causes shortages. Allowing prices to adjust themselves would allow producers to accurately interpret economic signals and meet the needs of consumers in a highly efficient fashion.

2.) Name and explain three disadvantages that have been identified with fiat money.

One disadvantage that has been identified with fiat money is the fact that when the government (really The Federal Reserve) increases the paper money supply, prices rise to a level that they would not have naturally reached without intervention. Another disadvantage to fiat money is that it increases the power of the government. Because they can create new money from thin air and there is no limit to how many paper bills they can print, they have, in a general sense, unlimited resources. Adding onto this, when new money is created there is a distortion in the distribution of money throughout the economy, because whoever receives the new money first is spending it at the prices of the old money. (When new money makes its way through the economy, prices rise; however those who are the first to receive the money have not yet experienced this rise in prices, and are therefore favored in this process.) The losers of this process are those who get the new money at the end of the process, or by the time it has already taken it’s toll on the economy.

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Price Controls, or People Controls? (L40)

For those out there who believe that “government should control prices, but not people” – you have been greatly misled. These two, are in fact, the very same thing. 

When government steps in and says that they’re only controlling price floors and ceilings – but not people themselves, they are offering a false reassurance. While this does keep many people calm and at bay, it doesn’t change the fact that in reality their lives are being altered, toyed with, and controlled in every sense of the word.
“Money makes the world go round” is a common saying; but if this is true is could be better worded as: “money controls the world”. Break this sentence down, and one would find that at it’s core, this saying really means “money controls people”. When government is given the control of prices, they are given control over people themselves in almost every aspect of life. This is a violation, and a perversion of the original intentions of a government for the people.

Why Free Market Individuals Should be Regulating Prices, & Not the State (L35)

When observing a community of liberty-loving free marketers, one finds that success is abundant. Everyone has what they each need; there is peace and unity in a voluntaryist society such as this one. The fruits from each beings successes are shared and celebrated among many. However, on the other hand, should one observe a community submerged in state regulated price floors and ceilings, the entire market pricing system would be found a palpable lie.

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This is because state regulated prices aren’t fluctuating based on a supply and demand route; and when price floors are implemented, there is over production. Price ceilings result in shortages of goods. In a free market, the key to knowing how much of an item to produce is all found in the prices, seeing as how they display the demand of that particular item at a certain point in time. Price decision should stay between the buyer and seller, and when it does, the market will function healthily; without surplus or shortages.