Price

PRICE. - I. NOTION. - P. is the value of a unit of goods or service, expressed in money. In free and voluntary exchanges, the p. generally rises as demand increases, and falls as supply grows. Exchange is always preceded and determined by a comparison of p.: the buyer chooses the p. of the best offer and the seller that of the best bid. When the two p. coincide, or can be reduced to coinciding, the exchange takes place. Great importance therefore attaches to the comparison of p.: which, as with fractions reduced to the same denominator, is reduced to the simple comparison of the numerators or monetary quantities, when the p. refer to uniform contractual conditions (payment, delivery, waste, tare, transport, insurance, guarantees, disputes, etc.). Such a favorable situation, which makes p. intelligible and comparable even for the least prepared and shrewd, is brought about by mercantile technique through standard contracts, forfaits and contractual unifications already in wide use in certain branches of the great trade in raw materials and in public services: scarcely in the domestic trade of semi-finished and manufactured products, and of securities.

The continuous fluctuations of p. determine, while being in turn determined by them, variations in direction and importance in the monetary currents that make products circulate in the opposite direction. The government of these monetary currents would therefore be equivalent to the government of p., that is, to the economic government of the world.

The play of free initiatives could translate into an automatic government of p., according to the mirage of the liberal schools, if the political protection, always insufficient and one-sided, alternately of producers and of consumers, were replaced by the permanent economic protection of the contracting party, rendered in every case of the same and maximum contractual capacity (in the comparison of the p.) and of the same and maximum enterprise (with the abolition or the forfaiting of risks).

Since demand is represented by a monetary volume (quantity of money multiplied by velocity of circulation), and supply by an exchange volume (quantity of production multiplied by the number of transactions in the passage from producer to final consumer), their ratio, or general average of prices, and with it money, will oscillate around stability as the two volumes tend to equalize. Of the four factors in play, the one most easily and effectively governable, with a high degree of automatism, is the velocity of circulation of money: through the governance of the incentives that determine the stipulation of exchange contracts in general, and of capitalization contracts in particular. Such incentives, were the insurance of savings and the contractual unification in the field of capitalization to be broadly implemented, would be reduced to the oscillations of refined income (that is, exempt from risks): if rising, drawing capital toward the socially most useful employments, and if falling, diverting the currents of savings, once saturation has occurred, toward other regions and other needs.

Measures such as the insurance of capital, contractual unifications and the organizational and functional improvement of markets (price formation, commercial information, legal and arbitral assistance, guarantees, credit), by facilitating and multiplying the transactions in which the velocity of circulation of money is concretized, tend to stabilize just prices and the value of money: also helping to calm economic life by progressively freeing it from psychological and political influences that do not directly concern economic facts, but invariably resolve themselves into alterations of prices.

The whole social problem revolves around the concept of the just price through a more exact measure of value: the economic aspect of the great Christian precept "love thy neighbor as thyself." That "as" establishes in fact that there must be equivalence between the useful effect of the work that each person devotes to the well-being of his neighbor and the well-being that each person claims for himself in return. Were the just price realized, the only way to increase one's monetary income would remain that of procuring for one's neighbor the greatest possible well-being. Who, however, will be the judge of the real utility of the work, if not that neighbor who is to enjoy its benefits? Easy, therefore, is the identification of the "neighbor" with the "market," and of the just price with the market price. This will be all the closer to the just price, the more integrally the conditions that make the market perfect (that is, single, accessible, free, sensitive, expressive) are verified, and prices intelligible and comparable, and transactions easy and guaranteed, upon the indispensable foundation of honesty and moral correctness in the participants in the exchange.

V. COMPRESSIBILITY OF PRICES

The constituent elements of price (cost of production or of reproduction, cost of buying and selling, overhead expenses, interest on capital including therein the risk premium, profit) present different degrees of compressibility. Competition presses mainly on profit, which can save itself only by reducing the rate of interest through the abundance of capital, the risk premium by means of the insurance of savings (v.), overhead expenses and the cost of buying and selling through bureaucratic simplifications and rationalizations in the technique of exchange and in commercial organization; and finally the cost of production, by adopting more perfect and more efficient machines and production processes. The excessive and premature compression of individual or entrepreneurial profit implies the abandonment of free initiative and a falling back first on controls and then on statism, which can go as far as the complete realization of a collectivist regime (v. PIANIFICAZIONE E PIANISMO).

Prices that are not economic or market prices (such as monopoly, political, legal, price-ceiling, tariff prices and the like) introduce into economic life spurious elements that profoundly alter its characteristics and its course (the conventional price is an exception, for objects outside commerce, e.g., famous paintings). Economic life will prove all the more rational and humane the more, on the basis of a general spiritual renewal, it can unfold autonomously, with a minimum of interventions by non-economic factors: whether those be the selfish ones of monopolists and speculators, or the political ones that exceed the just legal protection and that desirable charity, in a civilly organized form, in which politics substantially consists.

The notable complication of theories of price, accentuated in recent decades, particularly through the work of Anglo-Saxon economists, is destined to become even more complicated: and uselessly for economics, if the latter does not reduce itself to being above all itself, and to governing itself by its own laws, giving life to a true and proper applied economic science. If there is a legal price, one must observe it in conscience, but if it is not in practice observed, nor does the State concern itself with it, and worse if it is evidently unjust, then one may follow the common price, so that the seller does not ask beyond the maximum commonly permitted and the buyer does not give less than the minimum. On the influence of an unjust price on the value of the contract, v. RESCISSIONE E RESCINDIBILITÀ.

Mario Baronci

END OF THE NINTH VOLUME.