As we continue to confront a range of top-down efforts to manage and manipulate prices, whether through tariffs, subsidies, or government-directed wage controls, much of the surrounding debate tends to focus on arbitrary notions about “just prices” and “the balance of economic power.”
What’s less discussed is the actual function of prices in a free economy, and what’s truly at stake if we forget or neglect it. Most simply, prices are signals for service, giving us critical information about human needs and how best to meet them.
In a short film from Planet Money on the history of the price tag, we get a small taste of the significance of all this, demonstrating the power of economic information, clearly conveyed.
Emerging in the 1800s, the price tag challenged the status quo of bartering and haggling, which became increasingly difficult to maintain as American businesses began to scale. An invention of Quakers who “thought charging different prices for the same thing was morally wrong,” the price tag began to be embraced more broadly, but for different reasons—namely, empowering consumers and businesses to facilitate meaningful trade amid rapid economic growth.
By the 1870s, retail pioneers John Wanamaker and Rowland Hussey Macy had both begun using the innovation in their stores, believing it would simplify the hiring process and create a better customer experience. “It wasn’t about fairness anymore,” the narrators explain. “It was about building really big stores.” The revelation was simple but striking: providing increased visibility and consistency to price information brought benefits to everyone involved.
Such a story gives us plenty to consider as we assess the many other bottom-up innovations we continue to see in price-setting and price-signaling. But when it comes to public policy, more specifically, it ought to inspire plenty of pause. Amid the modern mix of policymaker manipulations, the efforts are not typically focused on putting better and clearer information in the hands of consumers, but rather on manipulating behaviors, penalizing economic or ideological foes, or controlling various outcomes all along the supply chain.
The story reminds us that prices are not play things. They are foundational signals that allow us to better organize our efforts as we respond to and fulfill human needs. When made plain and clear, they help facilitate better and more peaceful exchange. When tinkered with by external forces, however, we lose that clarity, turning a vital means for communication into an end or an outcome.
Once again, prices are simply signals for human service—guiding our hands toward the meeting of human needs. The clearer those signals are, the more confident our responses will be.
Image: Retro Price Stickers, Counselman Collection (CC BY-SA 2.0)