The role of prices in coordinating economic activities
When the debate about the possibility of general crises of overproduction began, Sismondi discussed the regulatory function of the market. He explained that when the production of an industry is disrupted - for example by the introduction of new technologies - the adjustment, while theoretically possible, is difficult because of the many factors that hinder the mobility of labour and capital and by the imperfect knowledge that entrepreneurs have of the markets for commodities.
To be certain to sell, the producer “should know two things of which the most capable can only have a very vague idea: the quantity of the good he produces which is required by the public, and the quantity which could be produced by those who are in the same trade” (Sismondi 1838, vol. 1: 120-21). According to Sismondi, the low mobility of factors and the fragmentary nature of the available information explain why improved techniques in a particular activity can lead to a general glut in markets. In these circumstances, he concluded, it is up to the legislator to intervene to ensure that the social interest prevails over individual interests.For Molinari (Benkemoune 2008) Sismondi’s arguments should be taken seriously: an analysis should be made of how the problem of the balance between consumption and production is solved in a system based on the division of labour and exchange. To answer this question, economists have relied on the mechanism of gravitation. Molinari argued that this mechanism is all the more effective when a small change in the quantity of the product brought to or removed from the market significantly changes the price. In this case each manufacturer has an incentive to produce and bring to the market what is demanded. The pricing mechanism can be relied upon as solving the problem of the balance between consumption and production.
However, various phenomena could disturb the natural order.
One phenomenon, stressed by Molinari, is the lack or insufficiency of knowledge, and this case is typical of systems based on the division of labour and exchange. In his Cours (1855 [1863], vol. 1: 172), Molinari sees the solution in the development of “industrial and commercial advertising”. In Les notions fondamentales d’economie politique he is more specific. It is the intervention of intermediaries - such as traders and speculators - who, by circulating products across space and over time, disseminate information and stabilize prices. Unlike Sismondi, Molinari does not ask the state to intervene to ensure equilibrium: “The markets, at one time isolated... now regularly and permanently communicate with one another. Products and capitals... move from one country to another with the same ease they once moved from one district to another in the same town” (1891: 398). The problem is that this trend has not yet also transformed the labour market. The worker combines two naturally distinct functions: he is the producer and merchant of his labour. In fact, he needs an intermediary to sell his commodity. To overcome this absence, workers have formed unions or syndicates but these associations have neither the capital nor the credit for the development of their activities. According to Molinari, the solution lies in the development of private businesses, with sufficient capital, to transfer the labour from markets where it is in excess supply to those where it is in excess demand. In short, it is necessary for the labour market to evolve like the other markets that have evolved, and create Labour exchanges in the image of the model of the Stock or Commodity exchanges.