Pricing on Free, Regulated Markets

Pricing on Free, Regulated Markets as One of 17 Principles of Regional Economic Order Under the Maxims Democracy and Market Economy.

An Article in the Compendium of Market-Based Social-Ecological Economics

Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?

Click here for the list of all articles: Compendium
Click here for the German-language version: Preisbildung auf freien geregelten Märkten

Table of Contents

  1. Overview
  2. Preliminary Remarks
  3. The True Pricing on Free, Regulated Markets

Overview

regionaleordnung01In view of the threatening extent of the devastations caused by the neoliberal economic doctrine, the turning towards compatible economic principles becomes almost existential. But only when these principles are combined to form a model of sustainable regional and global economic order, can the urgently needed economic policy measures be derived.

All 6 global principles are summarized in the article Principles of Global Economic Order in the form of questions. The supplementary 17 regional principles are listed in the article Prinzipien regionaler Wirtschaftsordnung, also as questions.

In the context given here, the term »regional« refers to largely homogeneous entities, currently primarily nation states and supranational political and economic areas (unions), that meet all the requirements for political sovereignty and economic autonomy and are therefore in a position to form a viable foundation for the prosperous coalescence of the world. Hereafter, these entities are mostly referred to as economic areas.

The European Union (EU) and, in particular, the euro zone existing within the EU, can serve as a cautionary example here. Both are supranational entities that have emerged from the political and economic self-interest of powerful players, and whose inhomogeneity and centralism have since unfolded great destructive potential (as a supplement see the article Demokratie und europäische Integration).

Preliminary Remarks

In the course of the historical economic development in Europe and the USA democracy and market economy have emerged as useful and reliable Maximes of Economic Order. Both maxims have, however, been distorted by the neoliberal indoctrination since the 1990s to such an extent that the »natural principles« inherent in them are hardly perceived by the citizens any more. It is therefore essential to return to these principles and to combine them into a model of a sustainable regional and global economic order. See also the article Market and Market Economy.

In contrast to the centralistic structures produced by modern Neoliberalism, the model presented here is based on decentralized structures, or, better still: on subsidiary structures. Only if the citizens in as many countries as possible are recognizing democracy and market economy in their interaction again as convincing maxims, can a culture of political co-determination and economic self-determination return to society, politics and the economy and work towards social and ecological justice. Embedded in subsidiary structures, the citizens bear full responsibility for their actions and well-being, so that they are always brought to shape the conditions in their immediate environment in exchange with each other and at the same time create the preconditions and the foundation for global exchange.

Social and ecological justice, by the way, arise from a multitude of economic mechanisms: For example, the terms Efficiency and Productivity as well as specialization, which are wrongly defined in the neoliberal context, are redefined in the sense of social justice and ecological sustainability and are no longer subject to the arbitrariness of »liberalized« (unregulated) markets, but to economic policy control. The market thus regains the freedom it deserves, which enables it under meaningful and uniform framework conditions, rules and standards to allocate economic resources efficiently and equitably like no other mechanism.

Thus, the price is able to perform its original function again as the central information medium and control element of market transactions of individual economic players, because under the conditions of social and ecological justice and productivity it reflects all internal and external costs. By allowing the players to be guided by truthful prices resulting from the interplay of supply and demand, economic resources move – as if steered by an »invisible hand« – to where they provide the greatest benefit to individuals and, at the same time, to society as a whole. As a supplement see the article Economic Pricing.

Subsidiary structures ensure that prosperity and welfare are no longer at the mercy of the imponderables of a worldwide production quantity achieved under oligarchic rule and high capital concentration, but result automatically from the domestic production structure. The production structure alone is decisive for local and regional economic diversity and consequently for the level of employment, the performance-related equal distribution in society and the preservation of natural resources.

Unlike domestic competition, international competition can not, by its very nature, be granted the freedoms of regulated domestic markets. It must rather be based on bilateral trade agreements given the completely different traditions, standards and resources in the world. In these agreements the exchange rate must be set as the crucial trading link, supplemented by autonomous tariffs and trade quotas to balance out the differences and to grant trade profits to both sides. The primary objective of these agreements must be to ensure that imported products with their characteristics and prices are integrated into domestic competition in the most stimulating but harmless way possible.

The separation into regional and global order thus results quite naturally from the principle difference between domestic and foreign trade. Besides, this explains why there can be no superordinate, all-dominant, self-regulating and self-stabilizing world economic order in a desirably diverse and democratic world. For more details see the article Future-Proof Foreign Trade.

Among politically sovereign and economically autonomous nation-states and economic areas, the global order is reduced to agreements of norms of conduct, especially regarding norms of international trade and cooperation. By applying these norms, economic subsidiarity can be extended beyond national borders and find its perfection at the global level in the form of projects of global interest and scale.

With domestic and cross-border subsidiarity the doctrinal practice of transferring economic powers from lower to higher levels (especially nonstate) is overcome, of which neoliberal protagonists claim it would bring about »more appropriate« and »more efficient« decisions. Along with overcoming this practice, the justification is removed for a World Trade Organization, which is entrusted by its current 164 member states as the guardian of the Grail of global cut-throat competition based on dumping prices in lead currency (i.e. US dollar or euro). This is an unprecedented event in economic history, especially because the condition for membership is the (voluntary) renunciation of national economic autonomy.

It should be noted that the demarcation of the specific functions of the various economic levels, i.e. the subsidiary structure of autonomous nation-states and economic areas both domestically and beyond their borders, is absolutely crucial for the future viability of economically autonomous entities and for the global economy as a whole:

Functioning regionality is a prerequisite for sustainable globality. Globality is the complement of functional regionality.

In what follows, is the plea for the true pricing on free, regulated markets as one of 17 principles of regional economic order:

3. The True Pricing on Free, Regulated Markets

PreisbildungGeregMärkte01The same applies to the market economy as to other areas of democratic coexistence: In order to grant equal degrees of freedom to all players, freedoms must find their limits where they become the bondage of others or endanger the common good. With regard to the free market economy, it follows that on the one hand players are granted comprehensive freedoms in their choice of occupation and entrepreneurial activity, in consumption and savings rate, in production and investment, in contract design and property rights including property of production means, but on the other hand players are subject to equally comprehensive restrictions on the use of scarce resources, on control over production capital and, in particular, on the accumulation and concentration of production capital, on the employment of labor as well as on participation in international trade.

Only when the market mechanism is not expected to solve political tasks – which by its very nature it is unable to do – will the mechanism prove to be a central element of a truly free market economy. This means that only if the freedoms of the market economy are regulated by economic policy with regard to the long-term common good can it be ensured that the market participants, in their personal quest for profit and benefit maximization, in fact simultaneously serve the common good and, above all, social and ecological justice. Only then can true prices be formed in the competition between suppliers and demanders, which automatically steer economic activity in a prosperity and welfare-increasing direction.

It is essentially the prices that provide constant feedback in the competitive environment and provide the players with the critical information for their transactions. But only if prices reflect the real social and ecological requirements can the self-interested price-rational approach of the players at the same time ensure that flows of resources and goods are steered, as if by an »invisible hand«, into economically efficient (inexpensive), productive (value-adding) and effective (needs-based) paths. Only then can the players fully exploit their individual potentials without causing damage. These potentials are considerable: they include personal initiative, willingness to perform, entrepreneurial spirit, joy in competition, striving for one’s own profit and benefit, and finally the desire to make an unmistakable contribution to society.

Free market economy therefore means nothing other than that the market directs the flows of resources and goods under political framework conditions, but free from direct political intervention, solely through the independent, decentralized decisions of the market participants. Conversely, this means that the market loses its ability and its freedom to allocate resources and goods optimally if it is denied political framework conditions and is, none the less, expected to fill the political vacuum purely market-based and self-actingly establish social and ecological justice. Then, under the self-interest of the players – as is the case under the prevailing neoliberal doctrine – the market inevitably turns into an anarchic battlefield.

The political framework conditions for the market have to be determined by the regional economic order in an absolutely binding manner. This order must be designed to establish social and environmental productivity and equity fundamentally through dynamic subsidiarization of economic structures to optimize the distribution of productive capital and property, the distribution of income of the self-employed and employees and the use of natural resources. The result is a free social-ecological market economy which, under the framework conditions, rules and standards of social and ecological justice aiming at full employment and environmental protection, grants its participants all market economy freedoms, and which succeeds in integrating the free domestic economy not only undamagedly into international trade and competition by means of price-neutralizing exchange rates and adjusted import prices, but also in promoting prosperity, welfare and progress.

For a deeper insight I recommend the articles: Economic Pricing, Economic Subsidiarity, Regional Economic Cycles and Future-Proof Foreign Trade.

As a warning example see also the article Currency War and Exchange Rate.

Note on the COVID-19 Pandemic

The pandemic has noticeably revealed the significant weaknesses of the neoliberal economic system for everyone, above all the shortage of medical, but also other products, caused by disruptions in the absurdly networked value and supply chains across the globe.

The analyses of the neoliberal system as well as the principles and practical procedures based on them for building a sustainable system, which are presented in this compendium, thereby obtain an unexpected topicality. Now is the time to seize the opportunity and build up economic policy pressure to enforce the development of an economic order that is sustainably oriented towards social and ecological welfare.

The following article refers to the targeted arguments contained in the Compendium: COVID-19 and Globalization
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Click here for the German-language version: Preisbildung auf freien geregelten Märkten.

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