In economics, a price system is a component of any economic system that

uses prices expressed in any form of money for the valuation and distribution of

goods and services and the factors of production. Except for possible remote and
primitive communities, all modern societies use price systems to allocate
resources, although price systems are not used exclusively for all resource
allocation decisions.[1]
A price system may be either a fixed price system where prices are
administered by a government body, or it may be a free price system where
prices are left to float "freely" as determined by supply and demand uninhibited
by regulations. A mixed price system involves a combination of both
administered and unregulated prices.

Contents

 1History
o 1.1Debate on socialism
o 1.2Hayek
 2See also
 3References

History[edit]
Price systems have been around as long as there has been money.[citation needed]
The price system has transformed into the system of global capitalism that is
present in the early 21st century.[2] The Soviet Union and other Communist
states with a centralized planned economy maintained controlled price systems.
Whether the ruble or the dollar is used in the economic system, the criterion of a
price system is the use of money as an arbiter and usual final arbiter of whether
a thing is done or not. In other words, few things are done without consideration
for the monetary costs and the potential making of a profit in a price system.
Debate on socialism[edit]
See also: Socialist calculation debate
The American economist Thorstein Veblen wrote a seminal tract on the
development of the term as discussed in this article: The Engineers and the
Price System.[3][4] Its chapter VI, A Memorandum on a Practicable Soviet of
Technicians discusses the possibility of socialist revolution in the United States
comparable to that then occurring in Russia (the Soviets had not yet at that time
become a state (USSR formed in 1922)).
The original conception of socialism involved the substitution of money as a unit
of calculation and monetary prices as a whole with calculation in kind (or
valuation based on natural units), with business and financial decisions replaced
by engineering and technical criteria for managing the economy. Fundamentally,
this meant that socialism would operate under different economic dynamics than
those of capitalism and the price system.[5]
In the 1930s, the economists Oskar Lange and Abba Lerner developed a
comprehensive model of a socialist economy that utilized a price system and
money for the allocation of capital goods. In contrast to a free-market price
system, "socialist" prices would be set by a planning board to equal the marginal
cost of production to achieve neoclassical Pareto efficiency. Because this model
of socialism relied upon money and administered prices as opposed to non-
monetary calculation in physical magnitudes, it was labelled "market socialism".
In effect, Oskar Lange conceded that calculations in a socialist system would
have to be performed in value terms with a functioning price system rather than
using purely natural or engineering criteria as in the classic concept of socialism.
[6]

Hayek[edit]
Further information: Price signal
Austrian School economist Friedrich Hayek argued that a free price system
allowed economic coordination via the price signals that changing prices send,
which is regarded as one of his most significant and influential contributions to
economics.[7]
In "The Use of Knowledge in Society" (1945), Hayek wrote, "The price system is
just one of those formations which man has learned to use (though he is still very
far from having learned to make the best use of it) after he had stumbled upon it
without understanding it. Through it not only a division of labor but also a
coordinated utilization of resources based on an equally divided knowledge has
become possible. The people who like to deride any suggestion that this may be
so usually distort the argument by insinuating that it asserts that by some miracle
just that sort of system has spontaneously grown up which is best suited to
modern civilization. It is the other way round: man has been able to develop that
division of labor on which our civilization is based because he happened to
stumble upon a method which made it possible. Had he not done so, he might
still have developed some other, altogether different, type of civilization,
something like the "state" of the termite ants, or some other altogether
unimaginable type."[8]

https://en.wikipedia.org/wiki/Price_system