If not in whole, then partially, centrally planned economy still rules with respect to prices in Mongolia.
I guess trade in goods and wares originated almost at same time as man. Something like a sheep for a goat, a cow for an axe, and before that, three stones with only one edge sharpened for one stone with both edges sharpened.
So,how does the price form?A kilo of mutton is now 3500, and in spring it was reaching even 7 thousand. Why it cannot be, let’s say, 500 tugrugs or 10 thousand tugrugs? While prices and services for computers and mobile phones decline , the prices for meat and bread, on the other hand, keep on rising,I mean,what’s going on here? Who does come up with prices for things like for SONY TV sets? By emergence of separate field of science called economics, scientists have tried to answer this question and each shriveled on the spot. The first man to find an answer was English economist David Ricardo. He found very simple answer. Apparently, price is determined by amount of labor spent on goods and services. Later, Marx really liked this answer and made it even a gospel. If indeed great amount of labor is spent into making a specific product, it turns out it price must have exactly same amount. I guess, it is kind of correct from the viewpoint of “fairness” but it is not like that in life.
Apartment in 3rd khoroolol are pretty expensive, by and in themselves. Although exactly same buildings are left by Russians in Shivee Ovoo and Baganuur, those have no value whatsoever. Actually, taking those apart and moving them to where high price can be gotten for them would most profitable business to do at those places. There many folks who used to sweat like hell and make by hands jeans that would look really fine. Although in any way one would calculate it would have more cost that Levis jeans that are manufactured by millions from plants, still their prices will not reach even a half of those of Levis. While 5 novels about Harry Potter written by Mrs. Rowling brought a billion dollars to her, heavy books made during 12 years and amount of labor spend on them several hundred times more that Mrs. Rowling spent on her 5 novels, they brought to the writer nothing but tons of expenses and discouragement. It appears that what’s called talent is making too much money with too little labor. While nobody gives a damn about building with great amount invested and called “ stinky white”, folks are scrambling each other to get apartments that have far less cost in Zaisan for 2500 dollars per meter, I mean, what the heck is going on in here, dear Lord?
This weird, not understandable thing was explained first in history by a group of scientists called Austrian economists. The end of XIX century beginning of XX century was the time when city of Vienna was at the pinnacle of not only waltz but science too. Carl Menger and other Austrian economists have identified that price is determined not by structure of production process, duration of labor spent or production cost but by final demand and thus , determined esteemed function of a consumer in productive activities. Austrians named this theory “ theory of examination”. In another words, the consumption will make final examination and make grade on whether the price of item being bought is efficient or not. By being able to determine correlation between a consumer and a price the Austrians closed for once mouths of opposing Marxist socialist thinkers.
They also came up with concept called satisfaction yield( also called margin). This is difference of profit and cost between the pair of a seller and a buyer. The seller gets yield, therefore, satisfaction from selling specific product above its cost while buyer gets satisfaction from getting the product for cheap price. Apparently, the price forms at the point of intersection of finding satisfaction from two sides. In this way, the thing called price turns out to be extremely subjective matter that depends from minds from two sides that doing the trade. Many economists before the Austrians who were trying to find “ price invariable” were really in fact chasing vain dream like water of eternal life, fruitless attempt. Menger and his followers have discovered that price is completely dependent from desires of consumers and producers, and therefore all things such as labor fees, lease and rent, interest on money, profit are all determined by subjective evaluation of a consumer. Although economics is considered social science depending from whatever angle it looked upon, this law of price formation is rock solid truth that will not be tempered with or disputed. Exactly just like Newton’s law or Avagadro’s constant.
Later, yet again Austrian, great philosopher Hayek introduced major modern understanding about price. In a word, when price forms, it contains most accurate information about specific product or service. Let’s illustrate what Hayek said. As soon as weather folks forecast that the drought is likely in Eastern Europe next year price of crude is to start falling and following that there will be corresponding changes in prices of myriad of goods and services. In a world, because Soviets used to exchange wheat and grains from West with crude, if next year there will be drought that means that harvest will be poor, then they export a lot of crude to the West therefore it possible to know that crude prices will fall a year before.
Although it has been twenty years since our country has transitioned to market economy on the issue of prices up till now if not in whole form then partly centrally administered economy still rules. Regardless of any price that a specific product and service has, as long as it is being bought, it means that there is still satisfaction between the producer and the buyer. This is “agreement” between both sides that , in Menger’s words, forms, in fact, by “ satisfaction yield”, not by disappointment that life is poor, salaries are low, it does not depend from election campaign of some politician who wants to be liked by the public. Indeed , it is a firm law. If a state is started to be pulled in this disappointment hysteria perhaps it would be most efficient way to destroy the country’s economy. In the final end, the whole meaning of the free market comes down, after all, to this state of balancing on this subjective factor called price. One of the fundamental reasons of communist ideology and socialist economy becoming unsustainable and destructing is fixed price system under state monopoly. Since neither the producer neither the consumer would get “ satisfaction yield” , quality of goods and services, quantity, the whole production would proceed only by central administering system and finally, weakened, will fall. Simple truth proven by history.
There are instances when prices are regulated by state through taxes. Any state puts high taxes on some goods such as liquor, tobacco and perfumes, measures against harmful consumption. European countries regulate prices of petroleum fuels by state taxation policy. Japanese, in order to support their farmers, levy high taxes on imported rice. Main food staple of Egyptians actually turns out to be pita bread (just like our “gambir”), hence state subsidizes on purpose wheat, pays for half and keeps prices low. Well, it can hardly be called state actually, as according to Camp David agreement Americans give three billion dollars every year, it is used to keep price of pita bread /”gambir”, in return, the people don’t riot, in this way Egyptians don’t participate in all-Arab war against Israel and just hang out munching on the pita bread/”gambir”. Is logic understandable here? However, because of this just imagine how serous is corruption surrounding the pita bread/”gambir”. Another example that nothing in this universe is free.
Although there over 200 goods that determine inflation in Mongolia only trio of fuel,flour and meat become main indicators of inflation. Therefore it is sound that any Government that thinks about lives of the people is to pay attention of this trio of goods. Well, at least meat depends from ourselves, however fuel 100 per cent and wheat 30 per cent depend from the northern neighbor. Therefore, politics are extremely vital here. Actually, I don’t dispute that. Only as in proverbial deedless king’s fool ministers, those who are raising prices of meat, fuel and wheat have become the fool ministers.
All dirty jobs like murder of Danzan, confiscation of property, establishment of collective farms, destruction of temples were had done by hysteric fellows from communist youth association called the Evlel (Union). Those brainless fellows who cannot accept any responsibility were indeed so helpful for a job of destroying the country. They are the tools that are used. Now old communist youth folks are used in work to prevent inflation. Turns out the latest boss of communist youth association was appointed as the general of staff headquarters to fight Unfair competition. What’s more, the fellow is just understands the assignment so damn well. Just think that his interview that “I am the one who determines the price of flour” is actually out in the papers. Every evening he would rage on TV. Looks like folks of Ministry of Agriculture are playing with the poor fellow. Note that those are individuals who under the name of Virgin Lands 3rd Campaign sucked out tons of money and from the beginning are starting to hit the jail. Seems like such fanatical fellow is needed to bury their cases.
Announcements are on TV that one sack of flour per person is to be given for 480 tugrug, poor folks, assemble at this and that distribution points. The crazy fellow promotes this and can be seen like Gorky’s communist hero Danko burning his own heroic patriotic heart leading people to the light and happiness. Really, if in Hayek’s words price transmits information, then this ill fellow is announcing most loudly that price of flour will skyrocket this winter. Does not giving one sack per person mean that the goods in shortage are being rationed, does not it? If we will harvest 300 thousand tons of wheat this year, perhaps we will cover domestic need, no need to plead Russians. Yet when shock like this done and communist youth campaign is proceeding, folks cannot help but get down to stocking up on flour beyond their needs. This will give informational shock to the society several hundred times more stronger than some company raising the flour price by five or ten tugrugs. Deedless king has fool ministers. Great is the function of middleman in free trade. In principle, market economy cannot exist without middlemen. No matter how much we label them as “speculators” and mistreat them, they do, in fact, make the flow of goods and services go. In fact, even stores and shops are actually speculators too. Within this campaign to fight flour price state salaried servants are all over ger suburbs and doing the four trade selling from trucktops just like during socialist rationing times. Perhaps this kind of bizarre stuff can only be seen in North Korea that has no market economy.
Milton Friedman has compared financial crisis to a fire in crowded cinema. When the fire starts if rows by rows are informed quietly and exited from the hall no one will suffer. Yet if it is shouted all over the hall everybody will stampede at the doors, no one can get out and all viewers will die because of smoke. In this way, those kind of communist youth are sent on purpose for everyone to die from smoke. There are always ones who win from that. In the end, all case will be blamed on the crazy one, it will pass and be forgotten. In the beginning of 1950 Americans have lost atomic secrets to Soviets. Communism became a danger. A crazy one appeared called senator McCarthy and fired up campaign to catch Soviet spies. So many innocent folks were repressed. Biggest tragedy in the history of American democracy. In the end, all blame was pushed on McCarthy and in every dictionary foul name called maccarthyism was introduced.Then there was another Senator ,Nader.” His famous book called “ Unsafe at any speed” was in whole dedicated to discrediting automobile industry, the national pride of Americans. The people too fell for it. During this time, Japanese car manufacturers have sneaked it and by 1980 have left America behind by automobile production. Courtesy of Nader. Now Obama, in order to save national industry, using miserable methods to discredit Japanese, is taking shameful measures to defamate Toyota and Mitsubishi companies and recall their cars. In fact, there will no results. In this way, looks like those kind of communist youth are everywhere regardless of the society’s structure.
August 23, 2010.
(Footnotes by translator:
 In this context, local currency ,tugrugs, are meant
 Karl Marx is meant.
 Could be viewed as middle-class neighborhood of UB built by Soviets in socialist times as “modern residential area” of that times
 Mongolian proverb that can be translated as “Deedless king has fool ministers”
 Market minded Mongolian statesman of 30s.
 The Mongolian colloquial word “ chenj” is used, originally meaning foreign exchange middlemen and later encompassed all middlemen, in some connotations, the term is used negatively in meaning of “speculators”)