The empty shelf and the silenced signal

The Washington Examiner's account of the 2020 toilet-paper shortage is, at bottom, a very old story dressed in modern packaging. The public remembered the headlines — Why are stores running out? — but the more instructive question is: why did the shelves stay empty for so long? The answer, I would submit, is not that commerce failed, but that we prevented commerce from doing the one thing it does best: communicate scarcity through price.

Consider the pin factory, which I used in The Wealth of Nations to illustrate the division of labor. A modern tissue mill is the same principle extended across an entire supply chain — pulp, bleaching, rolling, trucking, retail. Each link is coordinated not by any central director but by prices. When demand spikes unexpectedly, a rising price is the signal that recruits more pulp, more trucks, more shelf space. Suppress the signal — as anti-price-gouging statutes do — and the recruits never arrive. The Examiner's argument, as I understand it from the lead, is precisely this: politicians, fearing the optics of the merchant earning more in a crisis, silenced the very mechanism that would have shortened the crisis.

I have seen this pattern before, though in different commodities. In the corn trade of my own century, merchants who bought grain cheaply in a year of surplus and sold it dearly in a year of scarcity were denounced as hoarders and enemies of the people. Yet those very transactions — storing when cheap, releasing when dear — are what smooth consumption across time. The speculator who profits from scarcity is, without intending it, performing a public service: he is rationing a scarce good to those who value it most, and his profit is the fee the market pays for that rationing. Destroy the fee, and you destroy the service.

I want to be fair to those who passed the price-gouging restrictions. Their instinct was moral: they did not wish to see the poor outbid for necessities by the wealthy. That instinct is not ignoble. The Theory of Moral Sentiments rests on sympathy — on our capacity to feel what another feels — and sympathy for the family that cannot afford hand sanitizer at a tenfold markup is genuine and proper. But sympathy misdirected by bad policy produces the opposite of its intention. When the price is frozen, the good goes to whoever arrives first, not to whoever needs it most; and those who can afford to queue — those with leisure, with transport, with the physical capacity to visit many stores — are rarely the poorest among us.

The institutional question, which is always my real concern, is this: what framework would allow the price to rise enough to call forth supply, while protecting the most vulnerable from being simply outbid? There are tools available — emergency income transfers, rationing by documented need, public stockpiles funded as a genuine public good — that do not require silencing the price signal altogether. Defense, justice, infrastructure, and basic welfare: these are the proper charges on the public purse. A strategic reserve of essential goods in a pandemic belongs on that list far more naturally than a prohibition on the merchant's margin. The Examiner's blame falls on politicians, and on that narrow point I find myself, perhaps surprisingly, in considerable agreement — though I would add that the solution is not the absence of government but the presence of better government, one that strengthens the market's mechanisms rather than smothering them in the name of fairness.