Establishing open markets to determine the price of goods and services is a sensible idea and is better than regulated prices. Unfortunately, they often fail to perform as expected, resulting in market failure. Governments attempt to rectify failures with rules and regulations, but these seldom address and exacerbate the issues as regulation often increases the cost. Regulation fails because, in competitive markets, regulations are easily bypassed or used to advantage by some participants, both buyers and sellers.
This article demonstrates how to set prices by treating markets as dynamic, complex adaptive systems that can easily adjust themselves to minimise the money needed to transfer the maximum value between buyers and sellers and where the value to buyers and sellers is dynamic.
The current system allows sellers to set the prices, and buyers compete with sellers and other buyers to get the lowest prices. The alternative proposed here involves buyers, sellers, and all other interested parties working collaboratively to transfer the maximum value for the least cost. It reduces prices while increasing profits to sellers by reusing money collaboratively to speed up its transfer.
Businesses still compete in the same market but use collaboration rather than competition to set prices. It works equally well with monopoly, oligopoly, and monopsony markets.
A Collaborative System
Figure 1 shows a collaborative market for shares. It starts with the supply of bank loans as simple interest loans that reduce the cost of loans by removing interest on interest costs. Compound interest increases the money transferred because money is assumed to earn money. Simple interest is the cost of the loan the bank makes a profit because the government supplies the money for the price of interbank loans and the risk of non-payment.
The risk of non-payment is lower because the time to repay is lower.
The cheaper form of loan is when investors and prospective buyers purchase shares. The shares earn more shares with time. The profit or loss varies with time, and the number of shares varies dynamically and matches the rate of return, so this reduces the risk. Shareowners can purchase goods and services with shares or sell to another buyer. It is in the interests of both customers and investors to keep the prices at a level that makes a profit and saves marginal costs. Investors and customer investors set the price, which means the price is reliable and varies little.
Instead of changing dividends and share prices, investors get more shares each month, and buyers of products buy shares from the profit they pay when buying goods. It creates a liquid market in shares.
With this approach, the business has the anticipated profit in the money invested. Both buyers and investors can see the profits and the cost of production and decide whether to buy or sell shares and purchase the goods from the business. Like all businesses, shareholders take risks and get the rewards or losses. The new approach treats all shareholders equitably for losses and gains, meaning interests align, leading to collaboration rather than conflict.
The Future
The models we have of economic interactions determine how those interactions occur. Economics is an artificial system, and we implement what we design.
The current model of selfish individuals trying to minimise their costs and maximise income differs from how humans deal with each other. We work together to maximise the benefit for the group and the groups of groups.
Our economic models should reflect the financial outcomes.
Humans are naturally cooperative, and we work together to complete tasks. We share our surpluses with the expectation that others will share their surpluses if we have shared with them or if we will in the future.
People put different values on different exchanges, and our systems should reflect those values.
We have modelling tools available that allow us to model each individual and their interactions in real-time, and we can implement these models to reflect our future interactions. We can then adjust our models and the implementations as we progress through life. The article “In Economics, the Model is the Message” expands on this idea.
We can measure economic productivity by the total amount of money to achieve a given outcome for groups of individuals.
An example of a system of a productive home market can be found at Permanent Home Markets. These markets eliminate the standard real-estate market as all participants are always buying and selling their homes incrementally and there is no debt.
An example of a system that moves a community to address climate change is “Government Incentives for a Just Climate Change”.
This draft article, Grant to Encourage Walking, gets two investment outcomes for the cost of simple interest.
