Markets are the best way to apply the intelligence of the whole society to the problem of how resources should be distributed. But some resources are not subject to market forces. Some costs are not accounted for in market transactions. The costs that are outside the normal cost/benefit analysis are called externalities. They are borne not by the economic actors, but by society at large.
When we charge fees in proportion to the adverse impacts that external actions cause, we can internalize the externalities. They become a normal part of the economic calculus. The market failure that they represent is then repaired. Only by taking account of externalities can we have prices tell us the truth about the true costs of our actions.
If we charge fees in proportion to adverse impacts caused, and if we recognize all the people as owners of the air and water and other natural resources and disburse the fee proceeds to all people equally, we will have achieved a synthesis of capitalism and communism. We will have the best of both systems together, without the worst of either.
When will we take this last big step in the evolution of our economic system?
A Capitalism-Communism Synthesis