excerpts from ESSENTIALS OF ECONOMICS: A Brief Survey of Principles and Policies by Faustino Ballvé, 1956

 Chapter 2, "The Market"

 . . . Is the price we are to pay for things to be set by the arbitrary decree of the governmental authorities, when they have no more basis than anyone else for arriving at an objective valuation?  This is precisely what is done in Russia today, and the result is that when the government sets on any commodity a price that is cheap in the estimation of the consumers, the latter hasten to purchase it until the existing supply is exhausted, and the the government is obliged to raise the price.  Contrariwise, when the price that the government sets for a commodity seems dear to the consumer, he abstains from purchasing it, and the commodity remains indefinitely on the shelves as an unsold item of inventory, immobilizing capital and running the risk of deteriorating.  Then the government, to extricate itself, is obliged to lower the price.  In other words, supply and demand come into play even in a nationalized economy. 

        Supply and demand constitute the mechanism of the market that determines prices, which are the value of goods and services expressed in terms of another, neutral commodity, viz., money.  These prices are formed by competition in the market, not only among those who offer to sell goods and services, but also among those seeking to buy them.  When a commodity is in abundant supply and is difficult to sell, the vendors, to avoid immobilizing the capital it represents and running the risk of its depreciation through spoilage or a change in the tastes of the consumers, lower the prices and compete with one another to make a sale.  When, on the contrary, an article is scarce and is in public demand, people are prepared to pay higher prices in order to obtain it, and competition arises among those seeking to purchase it.   . . . 

        Hence it is said that free trade or the free market means the sovereignty of the consumer.  And so effective, so necessary, so ineluctable is this sovereignty that, as we have just had occasion to observe, not even the communist economy can suppress it completely.  And as the consumer is the public in general, without distinction of rank or fortune, the free market is the most obvious expression of the sovereignty of the people and the best guarantee of democracy.  Individual guarantees stated in writing in the constitution are of no use to a nation if it is not the people, but a third party, whether government or trade-union, that fixes prices and wages and determines what is to be produced and what is to be sold; for in that case the people, in being deprived of their right of free choice in the market, i.e., their right to assign everything the rank and the value it suits them to give it, are being reduced from being sovereign to the status of slaves.  Control of the market by the governmental authorities is the instrument of the modern dictatorships, much less cruel in appearance, much less spectacular, but far more effective than the police and the resort to naked force. 

        In clarification of the foregoing, we can conclude with the following remarks:
        1. Nothing has value in itself.  The consumer confers value to it by seeking to acquire it.  Hence, the value of a thing is never objective, but always subjective.
        2.  The monetary price of a thing is not the measure of its value, but only an expression of it.  To say that a cow is worth two hundred dollars is nothing else than to say that it is worth twenty ewes or a sewing machine.
        3.  It is an error to believe that he who buys a thing wishes to give for it an equivalent value or that he who pays two hundred dollars for a cow thinks that a cow has the same value as two hundred dollars, or vice versa.  In the market the buyer as well as the seller gives less than he gets . . .   If this were not so, no exchange would take place:  each one of them would keep what he already has.
        4.  The sovereignty of the consumer does not mean the tyranny of the consumer . . .  If  . . .  the consumer still continues to hold back, then prices do not fall any further, because nobody wants to make a gift of his possessions or his labor; what happens is that the merchandise in question ceases to be produced and sold and disappears from the market.
        5.  Neither does the free market involve the dictatorship of the producer or of the merchant.  For if the producer or the tradesman dealing in a particular commodity, or all the producers joined together, demand excessive prices because they are the only ones who have such merchandise (i.e., if they constitute a monopoly), then not only does the consumer abstain from buying and forgo that commodity, replacing it with some substitute ("Better some of the pudding than none of the pie"), but other, less avaricious suppliers and businessmen produce it and offer it for sale at a lower price.  Thus the price level is necessarily one that both buyer and seller find equally tolerable.
        6. Economic dictatorship arises when production and trade are withdrawn from the mechanism of the market by the action of the governmental authorities.  Then neither the consumer nor the seller is sovereign, but only the dictatorship of the bureaucracy over both, even though this is not one hundred per cent effective, as we have already seen in the case of Russia.  The market continues to function, nonetheless, albeit in clandestine form (the black market); but in any case, economic dictatorship deprives the people of their liberty and well-being.

. . . 
 


-- excerpted from Chapter 2 of ESSENTIALS OF ECONOMICS: A Brief Survey of Principles and Policies  by Faustino Ballvé (First edition, Mexico, 1956) translated from the Spanish and edited by Arthur Goddard
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