"The cure/remedy/solution for high prices is high(er) prices” is a popular commodities axiom. With high prices or higher prices, supply is increased and demand is decreased, thus lowering prices again. However, if the government steps in and artificially lowers prices (on gas, for example), supply is not increased (there’s less incentive to find more oil supplies at lower prices) and demand is not decreased (there is less incentive for the consumer to seek energy efficiencies at lower prices).
The origin of the statement is unknown. Financier Henry Clews wrote “the best cure for high prices is high prices” in a 1918 letter. A related saying—“The cure for low prices is low prices”—has been less popular.Texas Congressman Ron Paul wrote in February 2009, “The best cure for a recession is a recession.”
Wikipedia: Henry Clews
Henry Clews (1836–1923) was an American financier.
He was born in Staffordshire, England, and emigrated to the United States around 1850. His first job was at an import business, working as a junior clerk. In 1859 he co-founded Livermore, Clews, and Company, what was then the second largest marketer of federal bonds during the United States Civil War. He split away and started Clews and Company in 1877. He organized the “Committee of 70,” which deposed the corrupt ring associated with William M. Tweed in New York City, and he served as an economic consultant to President Ulysses Grant. He married the American woman Lucy Madison Worthington; they had two children: Elsie Worthington Clews and Henry Clews (1876–1957), that was an artist.
4 February 1918, Logansport (IN) Pharos-Reporter, “Henry Clews Letter,” pg. 4, col. 2:
Paradoxical as it seems the best cure for high prices is high prices, which automatically correct themselves by curtailing consumption and stimulating production. National economic law will always be vastly more effective than any artificial government edict.
November 1919, Public Service, pg. 124:
Putting the Horse Ahead of the Load
WHEN WE PLACE PRICES ahead of production we are putting the cart ahead of the horse. Prices is the cart and production is the horse that draws the load. If we look after the production prices will take care of themselves, while if we interfere with prices we may stop production. The reason for all this is that high prices stimulate production, increase the supply of goods and thus automatically usher in lower prices. That is why an economist said that the remedy for high prices is higher prices. On the other hand, if we force down prices arbitrarily, we will discourage production and cause a shortage of goods and still higher prices.
("Homer Hoyt, Professor of Economics, Delaware College, in The Nation’s Business for November.” Also in the October 31, 1919 Olympia, WA, Record.—ed.)
Speculation and the Chicago Board of Trade
By James Ernest Boyle
New York, NY: The Macmillan Company
Thus the cure for high prices is high prices. The cure for low prices is low prices. Thus, in the open competitive market, a constant adjustment is made, coordinating consumption to production, on the basis of facts and not theories.
By James Ernest Boyle
Philadelphia, PA, J.B. Lippincott
It is quite generally held that the cure for low prices is low prices; the cure for high prices is high prices.
7 June 1931, New York (NY) Times, pg. RE12:
REAL ESTATE AXIOMS.
State Association of Realty Boards
Offers Some Pertinent Advice.
In real estate, like in other commodities, the best remedy for high prices is high prices, and the best remedy for low prices is low prices.
4 May 1946, New York (NY) Times, “Strawberry Prices,” pg. 14:
What happened in strawberries in Tucson is also an illustration of the principle that, in a free market, as Prof. Harley Lutz has put it, “the most effective remedy for high prices is high prices.” When the price of a given commodity rises, the profits in producing it rise; this leads existing producers to increase their output and new producers to enter the field, and the increased supply brings prices down again.
2 September 1973, New York (NY) Times, “Food Prices Expected to Level Off at High Point” by Seth S. King, pg. 26:
“The Surest Cure”
“There is a frequently quoted saying in the grain business that the surest cure for high prices is high prices,” said L. F. Stice, extension economist at the University of Illinois in Champaign.
“That means when grain prices reach unbelievable levels, they’ll soon ease off,” he said, because users cannot go on paying that much.
4 January 1975, New York (NY) Times, pg. 22:
Prof. Harley Lutz, Economist,
Foe of Federal Spending, Dies
Dr. Harley L. Lutz, emeritus professor of public finance at Princeton University and a vehement advocate of reducing Government spending, died yesterday in a nursing home in Montgomery, Ala. His age was 92.
Consultant to N.A.M.
He assailed price controls, asserting that “the most effetive remedy for high prices is high prices.”
The Complete Idiot’s Guide to Options and Futures
By Scott Barrie and Lita Epstein
Indianapolis, IN: Alpha Books
An old trader’s saying is “the best cure for low prices is low prices” and “the best cure for high prices is high prices.” When prices are low, supply is cut back as producers don’t like to work for less. However, when prices are low, consumers tend to buy more and are less efficient in using the product.
Daily Dispatch: The Cure for High Prices
By Casey Research
Published: September 24, 2010
Commodity traders have a saying that goes, “The cure for high prices is high prices… and the cure for low prices is low prices.”
The wisdom of that homily can be best understood by considering the impact of price movements on a commodity such as wheat.
Should the price of wheat rise well above the norm, the natural response of farmers will be to plant more. At a high enough price, farmers who traditionally plant other crops will also shift to wheat to take advantage of the profit opportunity. And, in the absence of trade restrictions, producers in other parts of the world will increase their wheat shipments to markets where they can get a better rate for their crops. In almost no time at all, a glut of wheat will assure that the price of wheat will fall. Ergo, “The cure for high prices is high prices.”
The Crusty Credit Analyst
Thursday, January 27, 2011
The Cure For High Prices Is High Prices
A quick, cursory glance at almost any commodity chart will lead the viewer to only one conclusion: watch out! Agricultural products, precious metals, industrial metals, rare earth minerals, energy, etc. have all experienced a steep ramp up over the past 6 months.
New York City • Banking/Finance/Insurance • (0) Comments • Saturday, January 29, 2011 • Permalink