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Monday, December 31, 2012

Röpke on the Price System and Laissez-Faire

"The tying of prices to costs, which many regard as one of the stupid quirks of 'capitalism,' thus assumes a function which is central to any economic system, whatever its organization: the function, namely, of effecting the best possible allocation of the nation's productive resources. This does not in the least imply that our economic system founded for the most part on the price system, is perfect. For in the price system, only those individual demands count which are backed up by the requisite purchasing power. Even if the price system functioned ideally, the factors of production would be employed in the 'best possible' manner only in relation to the existing (and unequal) distribution of income. No one will seriously pretend that our present distribution of income is the best possible. As the result of such unequal distribution a rich cat fancier, to take one example, can buy milk to feed her animals while milk is denied to the mother of a family of poor children because she cannot pay for it. We should not make the mistake of equating the explanation of the price system with a glorification of it, for this would be to fall into the error of the classical school which derived from such explanation premature conclusions with respect to economic policy (laissez-faire liberalism)." -- Economics of the Free Society, p. 37

2 comments:

  1. But, an economy with a working price system may be an economy better suited to undergo the gradual redistribution of income that one person or another may find ideal. For example, could we say that changes in the distribution of income in England prior to the Industrial Revolution had something to do with the redistribution of power and greater political pluralism there?

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  2. Isn't this point made less impactful in light of the idea that a given individual demand may coincide with enough similar individual demands so as to create a competitive draw on resources? For instance, there are enough people of limited means that there is a market for the Nissan Versa in the U.S. despite an ugly Gini coefficient.

    Coming at it from another angle, we often hear that there aren't nearly enough billionaires to soak in order to extinguish the federal debt.

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