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It’s all about the money! Price setting is one of the most important subjects in the economy. All the forces that play a role in economic life, come together in the price of a product. But how can we set prices correctly?


Fair prices


Research by the economist B.S. Frey shows that consumers think in terms of ‘fair prices’. When asked if it is fair for a shopkeeper to raise the price of snow shovels right after a snowstorm, a large majority of people say: "no".


But what are 'true' or 'fair' prices? Pricing is fair when all the stakeholders – all the participants in the economic chain who have added value to the final product – get their fair share. And when we talk about 'all the stakeholders', we mean the environment too! The environment should not suffer too much from our economic activity. So changing a production process to protect the environment could result in a higher, but fairer price of a product. 


We referred above to a 'fair share' for all stakeholders. This already implies that the distribution of the income from sales is a ‘legal’ matter - meaning a matter to be decided on through discussion between all the stakeholders that ends in a legal agreement. To make these deliberations possible, we need new organizations, or: economic associations. These associations are co-operative networks of producers, traders and consumers. In these associations all the information about everyone’s share and needs comes together.


The foundation of pricing


So the foundation for fair prices actually consists of freely agreed contracts, where a base line is set via the minimum wage. Within the state, it can be democratically decided what an employee should earn as a minimum each month or, in other words, what he/she needs as a minimum to cover his/her cost of living. If it is also decided what an employee should be able to produce in a month, then a basis for the right price has been found.


Transparency of prices


In order to judge whether prices are fair, transparency is of course essential. It must be clear (to the participants in the economic chain, but also to consumers) how prices are set. Hopefully in the future producers will be legally obliged to publish what is all included in the price of their products - just as they already have to put nutrition and health information on food labels.


An example of transparency? If you realize that 10 percent of the price of a liter of milk, a loaf of bread or of an apple consists of repayments and interest on the mortgage the farmer needed to take out to be able to buy his farm, then slowly you'll start to realize how damaging the fact is that land, capital and means of production are private property.


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