Yesterday the House Agriculture Committee discussed the possibility of reviving a state Milk Commission. As reported by The NC Insider:
The new version of Senate Bill 380 introduced during the committee meeting Wednesday would establish a 10-member board that oversees several aspects of buying and selling milk.
The most alarming part of the re-worked bill is the power the commission would have over setting prices not only at the wholesale level but the retail level as well.
The government has no businesses fixing prices for goods in the market, and the negative impacts would be felt well beyond just the milk industry.
I was reminded of a 1950 essay by the great Austrian economist Ludwig von Mises entitled “Middle of the Road Policy Leads to Socialism.” In one section, Mises describes how fixing prices for one product can have ripple effects that eventually spread throughout the economy and lead to “all around planning by the government – socialism.”
The example he used for this one product? Milk.
For instance, Mises wrote, if the government sets a cap on the retail price of milk, “The result is that the marginal producers of milk, those producing at the highest cost, now incur losses.”
These producers will divert their resources, like their cows and their labor, for other purposes like cheese, butter or meat where they have a better chance to earn profit. The result is a shortage of milk.
To eradicate the milk shortage, Mises explained, the government must then “add to the first decree concerning only the price of milk a second decree fixing the prices of the factors of production necessary for the production of milk at such a low rate that the marginal producers of milk will no longer suffer losses.” In short, the government will try to force down the prices of inputs for milk producers to allow them to make a profit even at the lower retail price.
But the price controls on the inputs used in milk production will squeeze the producers of those inputs. What to do? More price controls, this time on the inputs used to produce the inputs used in milk production. The government’s price fixing spreads more and more remote from the original target of retail milk prices.
And even supposedly unrelated industries must then come under the purview of price fixing, because “If some branches were to be left free out of regard for the fact that they produce only goods qualified as non-vital or even as luxuries, capital and labor would tend to flow into them,” and the result would once again be milk shortages.
In a world of scarce resources with alternative uses, price fixing in one product or industry has a profound impact felt throughout much of the economy, with the tendency toward, as Mises put it, “all around planning by the government – socialism.”