2. Kinetic Theory of Price
What is Price
The price has three meanings as below and it performs various economic functions relying on the meanings. First, it means the monetary value of a specific commodity. This includes both the price of general commodity and service and the wage and profit of the production participants, as well as the interest rate and exchange rate which are the price of currency. Second, it means exchange rate between commodities. Third, it means the price level of all goods, that is prices.
These three meanings serve as signal lights throughout the whole economy. It is the price that tells us who, what and how much to spend, and who, what and how much and how to produce as well as to whom and how to distribute. For example, if the price of a goods becomes expensive, its production would increase while its consumption would decrease, and it increases the share of distribution. Prices also indicate whether the economy is overheating or overselling and indicate which direction the economy will go in the future. This issue will be covered in detail in the 'Economic Pathology' and 'Economic Diagnosis and Forecasting'. This principle of price is the most basic theory in economics. It is not too much to say that recognizing how the price is determined, how it fluctuates and what variables affect its fluctuation is knowing about half of the economic principles.
However, the mainstream economics has focused only on the first meaning of the value of a certain goods. For the second meaning, that is the exchange rate between goods, the mainstream economics does not sufficiently have clarified how the rate is determined and how it varies, even if the economics have recognized it. For the third meaning, that is, price level of the economy, the mainstream economics has recognized that a different principle works from the price theory of a goods. This recognition causes fundamental problems ad follows. If price theory and prices theory are applied to different principles, this causes a serious problem of logical duality because the prices is a set of prices of various goods. In other words, as a result of it, the mainstream economics disregards the principle how the prices is determined and how it fluctuates. It is not only necessary to be able to identify the prices theory but also to achieve logical coherence with the price theory.
The price theory of the mainstream economics has the fundamental problems as described above, so it often shows limitations in reading price phenomena. The issue of ‘stock market price and transaction’ shows this problem in a word as mentioned above. Indeed, those men who trade based on the price theory are considered foolish or immature, although stock prices are determined in the markets closest to the paradigm of mainstream economics that the numbers of sellers and buyers are almost unlimited, almost complete competition is taking place, there is little time required for transactions, and most of the informations are also released, making the general equilibrium relatively easier than others. The solution to this problem will be discussed in detail in the title of 'Price Principles and Stock Market'.
In short, the price theory of the mainstream economics needs to evolve so that price phenomena can be read more accurately and more widely. In order to be able to elucidate how the changes occur, how exchange rates between goods are determined and fluctuated, how the overall price level is determined, and so on, It has to evolve beyond the theory about the value of a certain goods. The beginning of the evolution can be found in the fact that price is not a simple phenomenon but a synthetic phenomenon. Let's start with this problem.