I also did not mean to imply that forcing a merchant to by an item at is TES:CS value would fix the economy, but it would give players some extra tools to balance it, or create TCs with a much more balanced economy. This system itself would allow a player to trade in high value locked priced items "Real world examples could be Land Titles, Mining Contracts, Letters of Credit, etc. which are not present in Morrowind at all." All of which are created at the modders discretion.
The fix I intended to propose is one that will allow modders more control over an economy by realistically adding things of constant value to the game. This would allow Total Conversion Makers, (Like Me) to be able to create a very realistic economy, where poor citizens pay in trade goods and copper, and Nobles trade in Gold Bars and Land Deeds, etc. (Or at least give the illusion that this is happening)
While I agree that the freebies handed out to the player do present a problem, they can be remedied. It would take a significantly long time to do and may not be worth doing, as the leveled loot list is a game breaker in and of its self, but starting from square one and working it all out again (which falls within the purview of the conundrums of Total Conversion's) would allow for a patch up. ( I dare not say fix, because IMO Morrowind's economy is unfixable)
Mostly everything in the game is somewhat overpriced or under valued. There is no visible law of supply and demand, and there is no truly dynamic economy to present this. For instance, you dump a butt load of steel armor on a merchant, he pays you for it, which increases his supply of Steel in that Local Economy, but then, when you go to dump more, and there isn't a demand for it at all (IE, no one is buying it, whether it be the PC, or invisible NPCs) he pays you the same price for it regardless of how much he has on hand and how fast its moving. Dumping items that have no guaranteed value on a merchant should in theory lower the price of an item, in both terms of buying and selling.