As we have seen time and time again, our current system is much more fragile than is commonly understood. Its ability to withstand shocks is poor–so poor that often problems in one sector can spread to other sectors and take out the whole economy, requiring powerful interventions to get the system back on track. Even the basic functions of our markets rely on various kinds of interventions, such as rate adjustments from central bankers.

What if we could harness the power of supply and demand and create a robust and self-balancing marketplace that has the capacity to find its way back to equilibrium?

How we construct our markets is not an insignificant question. In their current form, markets produce vast inequality and are responsible for a great misallocation of resources. They also rely on regular outside interventions to function properly. At present, our markets simply fail to produce the outcomes described in our economic text books.

The price mechanism, which mediates supply and demand, is an ingenious system in principle. When supply is restricted and demand is stable, prices rise. The prospect of higher profits induces existing producers to ramp up production and draws in new producers. Once the demand has been met, the price falls back to its equilibrium. If the producers create a glut of supply, however, they are forced to compete for customers by lowering their prices. The prospect of diminished profits will lower production and force some producers to exit the market. Once supply matches demand again, the price will return to its equilibrium.

The genius behind a well-functioning market is that it is supposed to be self-balancing. The simple signal provided by a changing price can coordinate production on a vast scale from one side of the globe to the other. Yet, when we look at our markets, we see great imbalances all around us and regulators are regularly forced to step in to untangle the wreckage.

Our task then is to outline the principles behind a better functioning market that is self-balancing by design. For the system to work properly, it relies on the powerful forces of supply and demand. The system is built around the dynamic interplay of three valuable resources–time, money and reputation–which each citizen can balance and optimize the best way they see fit based on their own supply and demand.

Compared with our current system, our proposal has a much higher capacity to balance itself without outside interference. How the system controls for inflation is a great case in point.

When an increased amount of money competes for the same amount of goods and services, prices rise. This is called inflation. When money is scarce, goods and service compete for it by lowering prices. This is deflation. Due to the constantly rising money supply, a 1–2 percent annual inflation rate has traditionally been seen as desirable. For the same reason deflation has been seen as potentially destructive for the economy, which is why central banks will ease lending in numerous ways to ward off it from happening.

Today the main lever that controls inflation is the interest rate set by central banks, which in turn affects how much money commercial banks can lend out. When the interest rate is high, the ability to borrow goes down and so does the amount of money in circulation. Low interest rates, on the other hand, encourage borrowing, which increases the amount of money in circulation. As we can see, the elastic nature of the amount of money in circulation has a powerful effect on inflation.

Central bankers adjusting interest rates is a powerful intervention in its own right. Since the system proposed in this book is built on a steady flow of a steady money supply, how it will experience and respond to inflation will be completely different. The system we are designing is close to a steady-state economy. The aggregate demand, the amount of money in circulation and the amount of natural resources available to the economy are all stable and predictable.

The only real variable is the supply of human labor and the fluctuating demand for certain individual goods and services. Simply put, a lower supply of labor raises prices, creating inflation, whereas an increased supply lowers them, causing deflation. This simple dynamic creates changing incentives, which prods and prompts market participants to behave in a way that results in a dynamic equilibrium and a narrow range of price fluctuations.

In an economy with a stable money supply, economy-wide inflations and deflations should be contained phenomena. The higher prices created by increased demand in a specific product category should be matched by the lowering of prices in other categories. This means that while certain products will experience inflation, the economy as a whole should be mostly immune to it. The corrosive effect economy-wide deflations have on our economies now is unlikely to translate into the system proposed here.

One of the fears people have about adopting a UBI is that it encourages people to drop out of the labor force, since they can live without doing any work. But let’s see how a dynamic market responds to such behavior.

Dropping out of the labor market lowers the supply of labor, which raises prices in that particular field. If too many people stop working, the demand for work outstrips supply so much that prices go through the roof. On average this rise won’t affect those who are working, since on average their pay will go up at the same rate as inflation. At an individual level purchasing power can, of course, vary, since the price hikes will affect specific sectors of the economy and often be balanced by falling prices in other sectors.

When prices rise, it lowers the purchasing power first and foremost of those who live exclusively on the basic income: the very people who have dropped out. They will be drawn back into the labor market by two powerful incentives: their inability to make ends meet and the rising wages in their own field. Here prices act the way prices should, providing a built-in stick and carrot to modulate the supply of labor. This dynamic is the perfect example of a self-regulating market that automatically generates incentives that bring the system back to equilibrium.

A great aspect of the pro-social market economy is that citizens themselves have the keys to control inflation. Since inflation is not affected by changes in the amount of money in circulation, every citizen has an opportunity to hold down inflation for their part by participating in the workforce.

When a citizen offers their labor or a cell offers its goods and services at a competitive rate, the more it forces others to compete on price. This lowers prices, makes money last longer and stretches the basic income further. Lower prices create well-being, and healthy competition is necessary especially in areas concerning our basic needs, like the production of food, housing and energy.

The basic income represents 10 percent of the total value exchanged each week and it is shared with every citizen. Ninety percent of the total value is shared only with those who work. By the end of the week the money from the non-working people ends up in the pockets of those who do the work.

The basic income will lure some able-bodied citizens to drop out of the labor market, but this shouldn’t been seen as a problem. These people can be immense contributors in the arts, personal care of their family members and other unpaid forms of labor. Moreover, those who work should welcome the higher prices they are able to charge thanks to the lack of competition from those who do not work. Businesses will be greatly served by the fact that all citizens have money for basic necessities. Who would ever refuse the patronage of those who live exclusively on the basic income?

The trade-off between workers and non-workers is simple: workers are rewarded with the use of more goods and services (energy/matter) while non-workers enjoy more free time.

For the sake of sustainability, it is important that there are those who choose to forgo the use of natural resources and instead value their free time. Those who voluntarily live only on basic income should therefore be respected for their smaller ecological foot print, which is vital for the Earth’s carrying capacity. It is well documented that people who have dropped out of the formal labor market can still contribute immensely to the well-being of a society.

A self-balancing system is created by correctly built incentives, feedback loops and other structures. Every mechanism we design should contribute to this capacity. The self-balancing dynamic will emerge as soon as we apply market forces to the system as a whole.