Letter Re: Market Prices and the Availability of Goods

Unfortunately, it has become common for preppers to express outrage at the exorbitant post-Newtown pricing of ammo and certain magazines and firearms. Frequently, the complaints are accompanied by vows and pleas for others not to patronize certain offending retailers after things return to “normal.” Apart from the implicit assumption that things will return to “normal,” I think that this sentiment is way off base. Although I like paying “reasonable” prices as much (and probably more) than the next guy, I find the notion that retailers should not raise prices to meet increased demand both fundamentally flawed, and ultimately dangerous for preppers. 
First, we have to be true to our principles. Either we believe in free markets where supply and demand sets prices, or we do not.  And if we do not, Heaven help us. If we admit that free market principles really are not truly important, we open the door to all kinds of unsavory alternatives, including both “voluntary” and mandatory government-sanctioned price and wage controls. (I, and perhaps you, are old enough to remember our country’s last attempt at wage and price controls, to “Whip Inflation Now (WIN).” Younger readers can either take my word for it or do the research: the government’s efforts to control the markets did not work.) 
Second, why do consumers think high prices are unfair, but have no compunction about buying at “below market” prices? No one who snags a good deal at a gun show thinks that it is unfair to the seller. Rather, we all instinctively understand that the seller wouldn’t sell at that price if he did not want to. If he wants to sell “below market,” we assume that he has a reason (maybe he doesn’t want to carry it home, he needs the money right away, his wife is impatient and wants to leave, or his feet are tired). But it is his decision. So why should our attitude change when the seller is demanding a price that we think is too high?  I think that most of the reason is bias in favor of self interest; most preppers currently see themselves as primarily buyers, not sellers. That motivates a lot of complaining about “price gouging.” But those that are preparing for TEOTWAWKI presumably will be net sellers when the big day comes. In other words, it will likely be those who have prepared (and set aside items for barter) who will be trading a couple jugs of clean water for a box of ammo, a box of ammo for a FN-FAL, or a FN-FAL for a cabin, a cow and ten acres.  We should be very reluctant to stake out the idea that the fair value of an item is what it sold at for years, months or even days earlier. The fair value of an item is the price that a willing buyer agrees to pay now and a willing seller agrees to accept now–not a penny more or a penny less.  
Third, although the retailers that raised their prices post-Newtown are motivated by self-interest, they are performing a critically important public service, by keeping scarce items available. For example, although I thought that I was pretty prepared pre-Newtown, I took to heart your admonition to make sure that my family’s future generational needs were satisfied, especially with respect to certain magazines. So within days of Newtown, I purchased some used, high quality steel AK-47 mags, at the still pre-Newtown price of $15. I was equally successful in buying some other mags at pre-Newtown prices. But I dallied, and did not fare nearly as well with respect to Glock mags. So I hedged my bets. I placed one order with an authorized distributor at “reasonable” prices. (That retailer recently informed me that I am still at least four months away from receiving my mags.) And I simultaneously went on Gunbroker and bought some others at the then-market price (which was about three times their MSRP). The mags arrived the next week. Did I make a good decision? It is too soon to tell. If transfers of the backordered mags are outlawed before I receive them from the authorized distributor, then I was a genius to buy on Gunbroker.com. On the other hand, if I receive the mags from the distributor before I actually want to use them, then I wasted my money on the Gunbroker.com mags. But the important thing is that I had a choice. Because sellers in the marketplace were willing to “gouge” people like me, I had the freedom to get my mags when I wanted them.  
Similarly, within days of your recommending the Mako Group E-Lander AR-15 magazines in early January, I placed an order at “reasonable” prices. I am still waiting for mine (and have heard nothing from the supplier, despite my e-mails). Nevertheless, based on your experience and others’, I expect to receive them any day now, in which case I will be happy with my decision. But irrespective of whether it was a good or bad decision, the important thing is that it was my choice. I could have bought similar magazines from another vendor at maybe double the price (or more), and received them months ago. Although I chose to wait, the freedom to do what I think is best is of great value to me. In the future, I want to continue to have options.
I came across a recent example of what can happen when consumers intimidate vendors into not raising prices during a shortage. I sometimes patronize an Internet retailer, Classic Firearms.com, which is physically located in Monroe, North Carolina. I do not know anyone there, but have been very satisfied with their merchandise quality and customer service, and especially their candor. (And, as their web site makes clear, they are owned by Believers.) I also think that they tried hard to keep prices down the last couple months. (For example, shortly after Newtown, I bought 40 round Bulgarian AK mags at $19.99 each. When I decided to buy more the next day, the price had gone up to a still “reasonable” $22.99. Subsequently, they went to $24.99 and then were quickly out-of-stock, which is their current status.)  In any event, Classic Firearms recently advertised on their web site that they would soon have corrosive milsurp 7.62×25 ammo available after a period of unavailability, at a price of $499.99 per case of 1260. Although this price is less than many other calibers, it is about three times the price that this stuff was selling for a few months ago, when supplies were plentiful. (Although I did not spend a lot of time looking, I cannot find anyone that has milsurp 7.62×25 ammo available now.) But according to the Classic Firearms  web site, their announcement generated a lot of negative feedback from their customers about the new price, though they were merely planning to pass along their own high wholesale cost with a “very small profit margin.” So they decided not to offer the ammo at all, out of concern that it “would reflect badly on us as the seller.”  Although I am not in the market for 7.62×25 ammo (and certainly not at $499.99 per case), this is a crazy result. Having the option of buying 7.62×25 ammo at $499.99 a case is infinitely preferable to not being able to buy it at all. 
In fact, history teaches that attempts to persuade/coerce sellers into keeping prices below that which they can sell to others never works. That is why black markets exist. As anyone who has ever been a visitor in a country with currency controls knows, you can always find a burly guy on a street corner who is willing to give you more of the local currency in exchange for your dollars than will the government-owned bank. And here is an example closer to home: in December, the operator of a classified ad web site specializing in certain firearms was dismayed that sellers had jacked up prices. He therefore decreed that ads for exorbitantly-priced firearms would no longer be accepted. Presumably, he thought that the sellers would lower their prices for the privilege of listing on his web site. Guess what–they didn’t. As could have been predicted, they simply stop listing on his web site. The sellers didn’t care that the bump in prices might be temporary, or that market prices were higher than what the operator deemed reasonable; they weren’t going to voluntarily sell below the market that then existed. And anyone who has read through this lengthy posting can probably guess how this story ends: the operator’s policy lasted only a few days. Rather than become irrelevant, he relented and let sellers post their ads at the prices that they thought appropriate.  
In short, the law of supply and demand is as immutable as the laws of physics. Attempts to ignore either one do not end prettily.
Keep up the good work. – A Consumer Who Likes Choices

JWR Replies: I concur. As a believer in free markets I am of the opinion that “price gouging” is a myth. This is a fiction perpetuated by Keynesians, societal malcontents, and people who don’t take the time to fully observe free market forces. The fact is that there are buyers and sellers in every market, and that supply and demand do indeed drive pricing. The few price disappointments that we encounter in our daily lives are more than offset by the successful gains made when we are simply observant. In a free and fair market, intelligent people who are forward thinking generally win. But, in contrast, those who are unobservant and stupid generally lose.

I liken all this to the inherent difference between those who are math and market astute and those who are math and market illiterate. The former do things like:

  • Clip coupons
  • Studiously comparison price
  • Pay cash
  • Buy tangibles
  • Buy into long term up-trends
  • Take advantage of seasonal sales
  • Buy in bulk
  • Fill their underground storage tanks with fuel during price dips
  • Buy quality-made products that hold timeless value
  • Make ratio trades
  • Invest using dollar cost averaging
  • Closely watch market trends
  • Cash out during market spikes.

But he latter (the market illiterate) do things like:

  • Pay on credit
  • Buy shabby products
  • Buy products that decline in value. (“Contrapreneurs.”)
  • Make impulse buys
  • Buy consumer products that are popular and faddish
  • “Invest” in timeshare condominiums
  • Major in the Social Sciences
  • Buy conceptuals
  • Buy lottery tickets

Since 2005, I have consistently urged SurvivalBlog readers to invest in tangibles like common caliber ammunition, full capacity magazines and guns. Those who took that advice up to December 13, 2012 (the day before the Newtown Massacre) are presently sitting very pretty. Many of these tangibles have doubled or tripled in price. Not wishing to gloat or to sound trite, but I told you so. Oh, and FWIW, I still stand by my often-maligned advice on stockpiling nickels. (In a couple of years, I can foresee again being able to say “I told you so.”)