Rothbard on Price Controls

“At the control price, the market is no longer cleared, and the quantity demanded exceeds the quantity supplied by the amount AB. In the ensuing shortage, consumers rush to buy goods that are not available at the price. Some must do without; others must patronize the market, revived as ‘black’ or illegal, while paying a premium for the risk of punishment that sellers now undergo.”

— Rothbard, Power and Market, §3.1 “Price Control”

Rothbard treats price control as the prototype case of triangular intervention: the intervener prohibits a pair of would-be exchangers from transacting on terms they would otherwise have accepted. Two scope claims do the load-bearing work for the rental-housing case.

First, an effective maximum price prevents the market from clearing, and the resulting shortage is not a transitional friction. As Rothbard writes in Power and Market: “price control creates an artificial shortage of the product, which continues as long as the control is in existence — in fact, becomes ever worse as resources continue to shift to other products.” The shortage is generated by the control, not by underlying demand pressure.

Second, the shortage worsens with the elasticity of supply: “The more ‘elastic’ the supply, i.e., the more resources will shift out of production, the more aggravated, ceteris paribus, the shortage will be.” Rental housing is unusually elastic on the medium horizon — landlords can convert units to sale, withhold them from the market, or shift capital to other uses — so a binding rent ceiling generates a deepening shortage rather than a stable equilibrium. Repeal reverses the same mechanism in the opposite direction: removing the binding ceiling restores the clearing price and the marginal supply re-enters the market.

See Also

• Mises on Rent Ceilings — the residential-rent-ceiling case of the same maximum-price result, with Vienna as the worked example
• State Power and Intervention — triangular-intervention frame
• Power and Market — full-text source
• Murray N. Rothbard — author reference page
• Economic Calculation Problem — adjacent Austrian frame: the suppressed price is the calculation signal the intervener obliterates
• Argentina’s 2023 Rent Decontrol — thesis applying the maximum-price claim to the Argentine case

Sources

• Power and Market: Government and the Economy (Full Text) — §3.1 “Price Control” and §3 “Triangular Intervention”