The neo-classic liberalism economics tends to owe the economic cycle to the exogenous shock from money or physical objects, so as to overcome the economic crisis through the prevention of external shocks. In particular, the Austria School attributes the economic cycle to credit expansion led by the government based on the transmission mechanism of interest rate, so as to put forward the proposition that currency issuance should not be nationalized, which has become the most popular concept nowadays. Here, the Austrian School takes interest rate as the transmission mechanism, which leads to the change of the production structure, and then out of touch with consumption. However, this paper holds that the basic mechanism of guiding consumption and production is price but not interest rate, and then the changes of production and consumption with credit are analyzed from the perspective of the market pricing system, which clearly reveals that the economic cycle or the economic crisis is born in the market economy from the market pricing system. The basic analysis logic of this paper is that: （1） The Matthew effect of the market will inevitably lead to the widening of income gap, and the purchasing power determined by income causes the hierarchical price of different grade products. （2） Correspondingly, not only the rich people prefer the consumption of advanced products, but also the social mass has a universal preconsumption under the guidance of producer sovereignty, and all of which will stimulate manufacturers to produce and invest the advanced products. （3） As a result, there is to occur asymmetric between the consumption structure and the income structure in the market economy, and which causes the disconnection between the consumption level and economy development as well as the industrial structure being out of the actual level of economy development. （4） Furthermore, with the help of the credit system and credit expansion, there is more significant price stratification in the boom period than that in the depression period, and which makes the social production especially the production of high-grade products significantly surpass the actual level of economy development and the level of consumption demand. （5） However, the oversupplied advanced products is very vulnerable to the demand impact from economic fluctuations, and which will lead the sinking of capital investment, the idling of capacity as well as the bankruptcy of the related enterprises, so as to lead to the economic crisis.By systematically analyzing the origin, transmission, intensification and triggering factors of the economic crisis, this paper draws the following conclusions: What the cyclical expansion and constriction of credit is mainly due to is not the government’s improper policies but the merchant’s impulse of pursuing profits. Moreover, the expansion and constriction of credit only plays a role in fuelling and intensifying the economic crisis. In other words, the economic crisis is more rooted in the market economy system than in exogenous shocks. Just because the economic crisis cannot be avoided in the pure market economy, this paper gives such a policy implication: to alleviate and avoid the economic crisis, we should not let the market run freely at all, but amend and perfect the market mechanism, and the most important thing is the supervision and restriction of the tournament pricing system to avoid the trend of social income stratification, so as to establish and improve the self-discipline market mechanism.
Economic Cycle Born in the Market Pricing System: Income Distribution，Price Stratification and Advanced Consumption
Journal of Finance and Economics Vol. 45, Issue 01, pp. 35 - 58 (2019) DOI:10.16538/j.cnki.jfe.2019.01.003
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Cite this article
Zhu Fuqiang. Economic Cycle Born in the Market Pricing System: Income Distribution，Price Stratification and Advanced Consumption[J]. Journal of Finance and Economics, 2019, 45(1): 35-58.