PRICE
### I. Concept
Price is the value of a single unit of a good or service, expressed in money. In free and voluntary exchanges, price generally rises with increasing demand and falls with growing supply. Exchange is always preceded and determined by a comparison of prices: the buyer chooses the price of the best offer, and the seller that of the best demand. When the two prices coincide, or can be reduced to coincidence, the exchange takes place. Thus, the comparison of prices is of great importance; as in fractions reduced to the same denominator, it reduces to a simple comparison of the numerators or monetary quantities when prices are based on uniform contractual conditions (payment, delivery, waste, tare, transport, insurance, guarantees, disputes, etc.). Such a favorable situation, which makes prices intelligible and comparable even to the less prepared and discerning, is achieved by mercantile technique through standard contracts, lump-sum agreements, and contractual unifications already widely used in certain branches of large-scale trade in raw materials and public services; less so in the domestic trade of semi-finished products, manufactured goods, and securities.
### II. Fluctuations of Prices
The continuous fluctuations of prices determine, being themselves determined by, changes in direction and magnitude in monetary flows that circulate products in the opposite direction. The regulation of these monetary flows would therefore amount to the regulation of prices, that is, to the economic governance of the world.
The interplay of free initiatives could result in an automatic regulation of prices, according to the ideal of free-market schools, if political protection—always insufficient and one-sided, alternately favoring producers and consumers—were replaced by permanent economic protection of the contracting party, ensuring in every case equal and maximum bargaining power (in price comparison) and equal and maximum enterprise (through the abolition or forfeiture of risks).
### III. General Average of Prices
Since demand is represented by a monetary volume (quantity of money multiplied by its velocity of circulation), and supply by an exchange volume (quantity of production multiplied by the number of transactions as goods move from producer to final consumer), their ratio—the general average of prices—and with it the value of money, will fluctuate around stability as the two volumes tend toward equality. Of the four factors involved, the one most easily and effectively governable, with a high degree of automaticity, is the velocity of monetary circulation: through the regulation of incentives that determine the conclusion of exchange contracts in general, and capitalization contracts in particular. Such incentives, when implemented broadly—through the insurance of savings and contractual unification in the field of capitalization—would reduce price fluctuations to those of refined income (i.e., income free from risk): if rising, attracting capital toward socially useful investments; if falling, diverting savings, once saturation is achieved, toward other regions and needs.
Provisions such as capital insurance, contractual unifications, and the organizational and functional improvement of markets (price formation, commercial information, legal and arbitral assistance, guarantees, credit), by facilitating and multiplying transactions—where the velocity of money circulation is agreed upon—tend to stabilize fair prices and the value of money; they also help to calm economic life by progressively freeing it from psychological and political influences that do not directly pertain to economic realities but inevitably result in distortions of prices.
### IV. Fair Price
The entire social question revolves around the concept of a fair price through a more precise measure of value: the economic aspect of the great Christian precept, “Love your neighbor as yourself.” That “as” establishes that there must be equivalence between the useful effect of the work each person devotes to the well-being of others and the well-being each person claims in return. When a fair price is realized, the only way to increase one’s monetary income would be to procure the greatest possible well-being for one’s neighbor. But who will judge the real utility of labor if not that neighbor who must benefit from it? It is therefore easy to identify “neighbor” with “market,” and fair price with market price. The latter will be closer to a fair price insofar as the conditions that make a market perfect are more fully realized (i.e., unified, accessible, free, responsive, expressive), prices intelligible and comparable, and transactions easy and secure—all grounded in the indispensable foundation of honesty and moral correctness among participants in exchange.
### V. Compressibility of Prices
The constituent elements of price (cost of production or reproduction, cost of buying and selling, overhead expenses, interest on capital including risk premium, profit) exhibit varying degrees of compressibility. Competition primarily pressures profit, which can only be preserved by reducing the interest rate through capital abundance, the risk premium through savings insurance (v.), overhead and transaction costs through bureaucratic simplification and rationalization of exchange techniques and commercial organization; and finally production costs by adopting more efficient and higher-yielding machinery and processes. Excessive and premature compression of individual or entrepreneurial profit implies the abandonment of free initiative and a retreat into increasingly rigid constraints, first private and then state-imposed, which may culminate in a fully collectivist regime (v. PIANIFICAZIONE E PIANISMO).
Prices that are not economic or market prices (such as monopoly prices, political prices, legal prices, price controls, tariffs, and the like) introduce spurious elements into economic life that profoundly alter its character and course (with the exception of conventional prices for non-marketable goods, e.g., famous paintings). Economic life will be all the more rational and humane insofar as, on the basis of a general spiritual renewal, it can unfold with minimal interference from non-economic factors—whether the selfish motives of monopolists and speculators or political interventions that exceed the bounds of just legal protection and the civilly organized charity that should fundamentally characterize politics.
The considerable complication of price theories in recent decades, particularly under the influence of Anglo-Saxon economists, is destined to grow even more complex—and to no avail for economics—unless economics itself is reduced to being primarily what it is and governed by its own laws, thereby giving rise to a true applied economic science. If a legal price exists, it must be observed in good conscience; but if it is not practically observed, and still less enforced by the state—and worse, if it is manifestly unjust—then the common price may be followed, so that the seller does not demand more than what is generally allowed and the buyer does not offer less than the minimum. For the influence of an unjust price on the validity of a contract, see RESCISSIONE E RESCINDIBILITÀ.
Mario Baroni
END OF VOLUME NINE