Over the previous half century, economic central planning and price fixing have been intellectually discredited in almost every sector of the economy. In the 1970s many developed countries, including Britain and the United States, had governments which used widespread price fixing, extending to petrol and other goods used every day by the public. Both academic institutions and pragmatic government officials realised over time that such interventionism by government agencies does not work. At best it prolongs the malaise, but more often than not it seriously distorts the structure of the economy both in conspicuous ways, such as product shortages, but also in ways that are more insidious.
Having deracinated almost all theoretical support for price fixing from economic theory, we in the developed world now only have one domain of our economy wherein this ghost has still not been exorcised – central banking. Economists understand that prices coordinate economic activity, that when there is too much of a good prices must fall in order to accommodate this, and that when a good falls into shortage prices must rise, which both reduces demand and entices people to enter the market to supply more of the good. These mechanisms of free market capitalism are the reason why in developed countries we can go to the supermarket and buy exotic food from all over the world rather than seeing the bare shelves that are all too familiar in Venezuela and other countries that engage in economic central planning.
Interest rates perform a similarly crucial role in the economy. They must be allowed to move with the demand and supply of credit rather than being set by bureaucrats.
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