Principles of a Postcapitalist Economy

In the previous section we introduced the idea of credits which can be redeemed for goods of individual consumption. The question now is what the “price” of these consumption goods ought to be. How many credits have to be redeemed for an apple? How many for a PC? Intuition tells us that a computer should cost more than a single apple, since its production takes significantly more effort. But how much more? Since prices, as will be explained further below, have a highly significant feedback control function within our mode, they cannot just be determined at random.

First of all, we must realise that the sum of all prices of individual consumption goods must be equal to the sum of credits issued for their purchase, otherwise either consumption goods or credits will remain unused. If the level of prices is too high, then consumers will not be able to afford all goods. Some products will remain unused for no good reason. If the level of prices is too low, then other unnecessary problems arise. Consumers might have credits left over, yet there are no more products to redeem them for. As under “real-existing socialism”, consumers would be faced with empty shelves. Credits would lose their function in determining the distribution of products and other principles, for example rationing, would have to take their place.

To avoid both waste and shortages of consumption goods in general, as well as particular consumption goods, the principle of market clearing prices ought to be used. The market clearing price of a product is the price at which all products are purchased and all consumers willing to redeem this number of vouchers for the product are able to do so. The market clearing price will constantly be redetermined in a dynamic process, by constantly comparing the rate of consumption with the rate of production. Should it be found that shelves empty faster than they can be restocked at the current level of production, then the price must be increased. If products remain in the shelves unused, then prices must be lowered to lower the barrier to consumption. The use of market clearing prices ensures that products go towards those consumers that through their willingness to pay the highest price demonstrate the largest interest in the product. Unlike under capitalism, purchasing power in the social economy is distributed more or less equal. For this reason, we can assume that “demand” more accurately reflects the actual needs of people. Under an unequal distribution, it is often the case that the needs of some people are urgent, but they are not taken into account at all because they have little or no money.

Market clearing prices also indicate whether production of a certain good should be increased or decreased. If many people are willing to redeem a large amount of credits for a product, this indicates that an expansion of production is warranted. But if prices are low, then this means that not enough people can be found which are prepared to redeem their credits for this particular product, meaning the current extent of production is unjustified. Resources should rather be used elsewhere, or the necessary labour can be saved, meaning working hours for all people can be reduced. This raises the question of what it means for the price of a product to be “high” or “low”. What price should the market clearing price be compared with when determining whether the level of production is too high or too low? In the terminology of control theory, the market clearing price is the “actual value”, since it is the value at which products are actually given away at this time. What we have not determined is the “set-point” or “target value”, towards which market clearing prices are to be regulated by adjusting the level of production.

The target value must certainly be a different one for a computer than for an apple. The reason is that producing a computer makes use of more of society’s productive capacities than the production of an individual apple. On the one hand, a computer and an apple require unequal amounts of labour to produce; on the other hand, their production requires varying amounts of limitedly available resources. These include naturally scarce resources such as fertile land, but also machines or components that take a long time to produce and the availability of which is then limited for the near future. Conscious limitations of certain production procedures, for example for environmental reasons, must also be taken into account. For example, goods whose production leads to more carbon emissions should carry a higher price to encourage consumers to instead use their credits to purchase products less environmentally damaging. Our task is then to determine a unit which appropriately reflects all these factors that limit the expansion of production, based on current circumstances. The existence and computability of such a unit was successfully demonstrated by the mathematician and economist Leonid Kantorovich, who was awarded the 1975 Nobel prize in economics for his contributions to mathematical economics. These objectively determined valuations are closely linked to the determination of an optimal production plan and will thus be discussed further below. At this point we shall simply note that these objectively determined valuations can be used as our “set-point” or “target value”. In this way prices of products are regulated in such a way that those that require more limited resources, more labour and more environmental degradation are costed higher. Consumption of these products will be limited to those cases that serve the biggest uses. Only those cases justify the associated use of resources and labour. Consumers will be incentivised to switch to other products which require less productive resources.