What would happen if there were no markets or prices? We examine how economic systems work by looking at the causes and consequences of scarcity, and analyze the reasons behind the failure of communism.
What would happen if there were no markets or prices?
In February 2022, Pokémon Bread was relaunched in South Korea. Each loaf of this bread comes with a sticker featuring one of over 100 Pokémon characters and has enjoyed tremendous popularity since its release. It caused a massive sell-out frenzy immediately after its launch and set a new record by selling 10 million units in just 43 days.
At the height of Pokémon Bread’s popularity, people would line up at stores just as new shipments arrived, and stories flooded social media of people—both adults and children—chasing down delivery trucks to buy the bread. Pokémon Bread remained in short supply throughout 2022 and only became easier to find by that winter.
This case suggests that there was an issue with the price of Pokémon Bread. According to the simplest model in economics, the appropriate price of a good is determined when buyers and sellers propose prices. This is called “market equilibrium” or the “equilibrium price.” Once market equilibrium is established, supply and demand match, so shortages do not occur.
Causes and Severity of Shortages
For a shortage to persist over a long period, two preconditions are necessary. The first is that supply is insufficient relative to demand. When a product suddenly becomes popular, demand increases rapidly, but supply cannot keep up at the same pace. To produce more of a product, companies must purchase additional raw materials, hire more workers, or extend factory operating hours by paying overtime wages—all of which require significant time and expense. If supply remains insufficient even after these measures, additional factories must be built or existing ones expanded, incurring further costs and delays. Furthermore, products like automobiles and housing are difficult to manufacture quickly.
Meanwhile, it is difficult for companies to determine whether the popularity of a specific product is a one-time phenomenon or will persist over the long term. Kkokkomeon, which gained explosive popularity in the instant noodle market in 2011 and was selected as one of the “Top 10 Hit Products” by the Samsung Economic Research Institute, saw sales decline starting in 2012, causing difficulties for the investing company. Honey Butter Chips, launched in 2014, also gained immense popularity, but the company did not significantly increase supply out of concern that the popularity might be short-lived, resulting in a shortage that lasted for about a year.
Another factor is that prices remain fixed for some reason, or that price increases are insufficient. It is a basic economic principle that when a product is in high demand but supply is low, raising prices leads to increased sales. If prices rise sufficiently, more people will give up on purchasing the item, causing demand to decrease; as a result, the market reaches an equilibrium price, and the shortage disappears. However, in the case of Pokémon Bread, the selling company did not raise prices, causing the shortage to worsen.
Consequently, some people engaged in so-called illegal bundling—selling Pokémon Bread attached to other items—or middlemen diverted the product. Furthermore, people began trading it on online second-hand sites at prices higher than the list price. Those buying and selling Pokémon Bread for arbitrage purposes further fueled demand, making the shortage even worse.
The reason such difficulties do not arise in everyday life is, of course, due to price. For most products, prices rise or fall appropriately according to supply and demand. When a product becomes popular, its price rises, prompting companies to increase production to earn more profit; ultimately, it is price that signals these changes in demand. As a result, over time, production of popular products increases, satisfying consumers’ growing demand.
On the other hand, the “first-come, first-served” queue system could be seen as an alternative method of distributing Pokémon Bread to those who “desire it most earnestly.” Compared to the market economy’s pricing principle, which expresses the intensity of desire for a product in monetary terms, the queue system—which expresses it in terms of “time spent waiting”—has a certain fairness to it. This is because while people have different amounts of money, everyone is given exactly 24 hours a day, without exception. Therefore, spending time with a partner, family, or friends is one of the most important ways to express one’s feelings.
However, distributing all goods in this manner would be too cumbersome and inefficient. If there is no price, or if prices are fixed at levels other than the equilibrium price, problems of supply and demand mismatch frequently arise for many goods. Some items are hard to come by, so you might have to go to the store at the exact time they’re restocked and wait in line. If you simply can’t buy them, you might have to purchase them at a very high price on the secondhand market. On the other hand, for some items, there is too much supply, so businesses might have to bear the burden of excess inventory or even dispose of it. The resulting inconvenience can become so great that it’s hard to put into words.
Another example is the controversy surrounding taxi fare increases in South Korea in 2022. Since taxi fares are determined by the South Korean government, it is difficult to respond immediately to changes in demand. In the summer of 2022, the number of people wanting to use taxis increased, but low fares led to a decrease in taxi supply, causing inconvenience for consumers. Consequently, taxi fares were raised that winter, but this time, raising prices too much resulted in a decline in demand and an oversupply.
Why did communism fail?
This has been amply proven by history. From the end of World War II until 1990, the regions that are now Russia and Eastern Europe, as well as China, adopted communism and operated economic systems that excluded market economies and private property. The ideological struggle that lasted over 40 years ended in a complete victory for the market economy and capitalism. Distributing all goods through government control rather than market price mechanisms was highly inefficient, and because private property was denied, it failed to provide people with sufficient motivation to work hard.
Since 1990, China has actively introduced elements of a market economy and, becoming a key player in globalization, has vigorously engaged in international trade. As a result, China has achieved remarkable economic development and established itself as a core nation in the global economy. Although China’s political authorities still exercise excessive control over the economy in some respects, the country has fundamentally embraced the market economy system, and this has become a major driver of its economic development.
This does not mean that everything should be left to the market. There are times when government intervention is necessary. However, experiments that rejected the market economy have failed, and we can see both historically and in our own surroundings just how inconvenient and problematic life becomes without markets and prices. To overcome the shortcomings of the market economy, we must not dismantle the system but rather find ways to improve it from within.
