Efficient Economies Allow For Price Discovery

Hey Jessconomists

If there's one thing that I feel is sorely lacking in today's world, then it's the ability for price discovery. Money was made with the idea of making the exchange more comfortable when we barter with one another exchanging labour, thoughts, physical goods, services and stores of value with one another.

The whole point was for money to make bartering easier. As time went by the ability to bargain has all but been stripped from the formal economy.

What is price discovery?

Price discovery is a process of setting the spot price or the proper price of anything of value like an asset, security, commodity, or currency. The method of price discovery looks at several tangible and intangible factors, including supply and demand, investor risk attitudes, and the overall economic and geopolitical environment. Put, it is where a buyer and a seller agree on a price, and a transaction occurs.

This is how efficient markets work as products that are not profitable or the market needs are abandoned as demand dictates supply. It keeps oversupply in check and helps consumers get more for the money and businesses have more room to adjust to correct against specific trends.

Image source: - slideplayer.com

How does price discovery work?

Price discovery involves finding where supply and demand meet. In economics, the supply curve and the demand curve intersect at a single price, which then allows a transaction to occur. Factors such as location, storage, transaction costs and buyer/seller psychology also play a role all affect the price.

There is no specific formula using all these factors as variable and puts all the emphasis on willing buyer vs willing seller.

What is the benefit of price discovery?

In a system where the money supply is infinite, it allows for price manipulation which we've seen with stock buybacks inflating share prices. We see it with institutional investors buying up and marginalising consumers in the property market.

We see it in the price of consumer goods produced by conglomerates and franchises with them setting the price and dictating demand and consumers having to pay what they are told, not what they think they should be paying.

If you take STEEM for example, if I'm a business or consumer looking to purchase steem and I'm looking for the best deal I will go to the exchange or the peers willing to sell me STEEM at the cheapest rates. As all the steem at the most competitive prices are purchased, the value moves up, and those who had sell orders may want to adjust as the demand and scarcity change.

That is how price discovery works.

So do we see that in the fiat economy? Let's take a look at the good old cheeseburger. It's made of a bun, cheese, lettuce and beef patty. Depending on the cost of each of the ingredients, the location of the restaurant with a large or small population, transport costs to get foods, the supply of local product should all affect the price of the cheeseburger.

Each day/week should see restraints looking at the supply to adjust pricing to remain profitable and source the cheapest high-quality products to keep the prices sustainable for them to keep running. Now we have centralised franchises that can secure production lines or make bulk orders to set pricing regardless of demand or supply and profit from the arbitrage of acquiring the raw materials while the customers keep buying in at the set price.

This kills competition and artificially adjusts supply and demand in favour of one company which then gets to dictate things like wages as workers now have no bargaining power or options to move. Fiat money and a debt built economy have destroyed price discovery, and unless we move to a hard money system and live within our means, our economy will remain inefficient.

Let's connect

If you liked this post sprinkle it with an upvote or resteem and if you don't already, consider following me @chekohler

---

Buy & sell STEEM	Donate LikeCoin For Free	Earn Interest On Crypto