Not everyone has heard of Ludwig von Mises (1881-1973), but he was a seminal economist - taking on the mistakes of traditional textbook economics - and great advocate of the market economy.

I wrote a book on Mises a while back, and another one on wage and price controls, so the great sage popped into my thoughts this week when I read of a report from some transport quango saying that bus fares should be kept down through regulation. Mises explained the error of this back in the 1930s.

Why not control the price of milk, he says, and help mothers and children who need it? Well, because the lower price prompts people to buy more milk, but makes milk production less attractive. So there is less milk going on to the shop shelves, and it leaves them faster: there is less milk around, even for those who we wanted to help.

To meet this problem, you might try rationing. But it still doesn't cure the problem that you now have less milk than before.

Or you might try to make production more attractive by legislating down the price of fodder for milk herds. But the same happens: the demand for fodder rises, but the supply dries up. So what prices can you hold down to make it more attractive to grow fodder... And so on.

In other words, when a government tries to keep down the price of one thing, it finds itself drawn into more and more controls, until (to quote Mises):

...it will finally arrive at a point where all prices, all wage rates, all interest rates, in short everthing in the whole economic system, is determined by the government. And this, clearly, is socialism.