The Bluffers Guide to Economics/ PRICE

Price is political. Who pays what to whome and for what is fundamental to political economy. When talking about stocks of goods, understanding price is fairly simple. Supply and demand. The price falls until the stock clears. However thinking in terms of political economy requires thinking about flows. Stock are an output, and to have a continuous stock of any product the price must be sufficient to provide for all inputs, otherwise the stock can not be replenished. Thus the price of anything is at minimum the total cost of the Factors of production required to make it. The cost of Land is called Rent. The cost of Labour is called Wages. The cost of Capital is called Interest. Just like the names of the Factors, these terms are often misunderstood because their meaning is quite different from common usage. Rent is not the monthly fee you pay for an apartment. Interest is not the percentage you pay on your creditcard balance. Wages is not the amount of the cheque your employer sends you. All these tings are prices and all prices are composed of Rent, Interest, and wages. The economic meanings are different than the common meanings. Rent is the portion of the final price of the product required to acquire access to enough Land to reproduce it. Wages is the portion required for the Labour. Interest for the Capital. Who sets and collects the factor prices is not a function of any natural economic laws, but rather are a matter of politics, shaped by power and struggle.

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