We Don’t Set Prices, We Discover Them
One Takeaway
Prices are signals, not just random numbers. They coordinate billions of decisions and help us adapt, cooperate, and thrive without anyone needing to be in charge.
What Is The Price System?
Prices might be humanity's most powerful coordination technology. The thing is, most people don't understand how they work.
Prices come from the everyday decisions of buyers and sellers, each acting on their own knowledge, values, and limits. No person sets prices from the top down. Instead, prices are discovered through things like negotiation, trade, and interaction.
But they do far more than tell us what something costs.
Prices share information. They help us choose what to produce, how much to buy, and when to change course. They reflect both the value people place on things (which affects Demand) and the scarcity of the resources needed to make them (which affects Supply).
What Prices Actually Do
At a glance, prices might look like a tag on a shelf or a line on a receipt. But underneath, they’re doing serious work:
They help people plan. Businesses use prices to compare options, estimate potential demand, and decide whether something is worth producing.
They guide behavior. A rising price says, “People want more of this,” encouraging others to step in and supply it.
They respond in real time. If an avocado shortage hits, prices rise. That signals consumers to buy less and producers to ship more if they can.
They bundle knowledge. A price reflects everything from weather patterns to labor shortages; even if you don’t know it. You don’t need to read a global supply chain report to know oranges are more expensive this year. The price already tells you.
All this happens without anyone needing full information.
Prices and Social Cooperation
One of the great miracles of our world is that millions of strangers can coordinate without speaking a word.
You can sip coffee grown in Guatemala, sweetened with sugar from Brazil, poured into a mug made in Ohio—and never once meet the people who made it possible. Prices link your life with theirs. They align actions across borders and time zones. You don’t need to know how to grow beans or refine sugar. The price tells you what it’s worth to others and what it will cost you to enjoy it.
When We Get in the Way
Prices work best when they’re free to change as needed. But when they’re held down or pushed up, usually by laws or policies, the entire feedback loop can break.
Imagine a bakery. Flour prices go up due to a drought. That single change ripples through the price system. The baker might try to raise prices to cover the cost, reduce output, or switch to recipes using less flour. Customers may respond by buying fewer baked goods or switching to something else entirely.
Now imagine the government steps in and says flour can’t cost more than it used to. The information and signals vanish. The baker doesn’t cut back. Flour runs out. Shelves stay empty. Everyone’s frustrated, even though the decision was made with good intentions.
Specific Examples Of Price Fixing Policies
Rent controls might make housing cheaper for some, but they can lead to shortages, neglect, or disrepair.
Minimum wages might help some workers, but can unintentionally price others out of a job if businesses can’t afford to hire at the mandated level.
Subsidies from government spending might make prices lower for a bit, but they distort demand. When something feels artificially cheap, people use more of it—whether or not that’s the best use of resources.
None of these negative outcomes happen because people involved in these situations are bad actors. It’s because signals can get scrambled by well-meaning policies. In each case people think they’re acting on good information, but instead they’re acting on information that’s been faked.
Why Relying on Prices Works Better Than Planning
No one, not even the smartest policymaker, can gather and process all the information embedded in every price. Attempts to do so will almost always fall short. Why? Because the simple fact is no one can have access to all the real-time knowledge of every person’s wants, values, trade-offs, and priorities. But prices do.
The Bottom Line
Prices are more than price tags. They’re tools used for coordination, built from the choices of millions. When we let them do their job, we unlock cooperation at a scale no planner could ever copy. Prices help us be efficient, but they also are necessary for us to be more resilient, adaptable, and for the us to have the freedom to act on what matters most to each of us.