Noncapitalist price systems

The foregoing discussion has been confined to the price system as it exists in capitalist economies. The communist countries have prices, but not autonomous price systems; in those countries the direction of economic activity is largely in the hands of the central authorities, and prices are used mainly as accounting devices. None of the three allocative functions of an economy—determination of what will be produced, of how it will be produced, and of who will get the product—is performed by the price mechanism in the socialist economies.

The relative scarcities that money prices measure exist, of course, in all countries and would exist in a world where no money or exchanges were allowed. Robinson Crusoe had a problem of allocating his time between sleep, garnering food, building shelter, etc.; and he confronted implicit costs of extending any one activity, for more food meant less of other things. The economist calls these implicit exchange ratios “shadow prices,” and they appear in all areas of life in which deliberate choices are made.

Price systems are therefore the result of scarcity. The basic proposition of economics, that scarcities are essentially ubiquitous, is often phrased as “there is no such thing as a free lunch”; and it reminds one that the price of the lunch may be future patronage, a reciprocal lunch, or a boring monologue. The task of economic organization is the task of devising price systems that allow a society to achieve its basic goals.