Full Cost Accounting

Updated: Aug 13, 2020

Full Cost Economy
Download PDF • 3.64MB

Our modern industrial economies are managed on the macro-level through a framework that is divided between the public and private sector. The large centralized systems of organization that developed during the modern era, and today manage our economies, are a combination of private businesses operating in the market and public organizations that are integrated through the nation state.

The modern socio-economic institutional framework for managing our economies is a balancing act between public and private organizations. The market system manages privately owned resources that can be defined as discrete, quantified and exchanged. While a framework of public institutions manages those resources that can not be privatized and require some form of collective coordination and ownership. In succinct terms, the state manages the whole, while the market manages the parts.

The market works as a distributed mechanism for resource allocation and distribution. In a price the market collects the information that people have about the value of something, how much it is worth and to whom it should be given, all based upon the price that people are prepared to pay for it. Given the right conditions market mechanisms can be highly effective at aggregating information about current and future availability and allocating resources to where they are most needed.

But in order for them to be effective, there are a number of preconditions, the good must be discrete and quantifiable in some way so as to make it possible to privatize it. Within the market system, it is the private ownership of valued resources that incentives people to manage them effectively. In such a way the market can be very effective due to its capacity to harness the intelligence, incentives, and management capability of the whole population; this is one of its most advantageous characteristics. But many things can not be effectively rendered discrete, privatized and managed by the market. The public sector deals with those things that can not be divided up effectively; those things that form a natural monopoly with the government operating as that monopoly purportedly in the interests of the whole economy and society. Within a modern economy for example parks, air quality, public security, water systems, much of basic research and many other important economic activities are managed by government institutions.

  • LinkedIn
  • YouTube
  • Twitter
  • Facebook
Si logo.png