What is the Definition of a Market?

The US economic system is based on what we’ve all agreed to call free markets. The entire system is often called the free market system instead of the capitalist system. I’ve been looking for a definition of the term market.

1. Textbook Definition. Samuelson and Nordhaus define markets early in their textbook Economics (2005 ed.):

A market is a mechanism through which buyers and sellers interact to determine prices and exchange goods and services. P. 26.

Markets consist of buyers and sellers interacting to determine prices? I’d call that moderately descriptive. Is it interacting when you go to the grocery store and decide to buy one brand of crackers rather than another? Is Macy’s is running an auction? You get into an accident and your car needs body work. The insurance company negotiates with your body shop. Is that interacting? You need to see a doctor. There’s no interaction over prices. This definition implies that as far as ultimate consumers are involved, a market is an arrangement where prices are set by sellers, and buyers get to pick whether or not to buy and from whom among the reasonably available sellers. It is a reasonable description for transactions among merchants. There isn’t really a mechanism, and the whole thing doesn’t constitute a mechanism, and the term interacting seems inaccurate. There is, of course, exchange of goods and services.

They also define the term “market economy”

A market economy is an elaborate mechanism for coordinating people, activities, and businesses through a system of prices and markets. It is a communication device for pooling the knowledge and actions of billions of diverse individuals. P. 26.

Again we see the word “mechanism”. It must be a metaphor, and not a definition. These descriptions lead you to think a market is a circuit on the motherboard of a computer that is running the market economy program. You’d think a market economy operates by formal laws and in accordance with mechanical rules. You’d think it was a permanent thing, to be studied in the same way you’d study galactic movements or steel balls rolling down an incline. That seems completely wrong.

And anyway, the term mechanism doesn’t tell us anything about what a market is. The other terms are vague and unconnected to anything. It’s hard to see how this definition could serve as the basis for an economic system.

2. Markets as defined by early neoclassical economists. One of the first neoclassical economists was William Stanley Jevons, a mathematician and philosopher. His principle contribution to economics is his book The Theory of Political Economy, published in 1871. The book includes an early effort to apply the new Riemann Integral to the field of economics. Compare the drawings in III.17 and III.21 with the graphics at this link. Here’s his definition of Market:

By a market I shall mean two or more persons dealing in two or more commodities, whose stocks of those commodities and intentions of exchanging are known to all. It is also essential that the ratio of exchange between any two persons should be known to all the others. It is only so far as this community of knowledge extends that the market extends. Any persons who are not acquainted at the moment with the prevailing ratio of exchange, or whose stocks are not available for want of communication, must not be considered part of the market. Secret or unknown stocks of a commodity must also be considered beyond reach of a market so long as they remain secret and unknown. Every individual must be considered as exchanging from a pure regard to his own requirements or private interests, and there must be perfectly free competition, so that any one will exchange with any one else for the slightest apparent advantage. There must be no conspiracies for absorbing and holding supplies to produce unnatural ratios of exchange. Were a conspiracy of farmers to withhold all corn from market, the consumers might be driven, by starvation, to pay prices bearing no proper relation to the existing supplies, and the ordinary conditions of the market would be thus overthrown.

The theoretical conception of a perfect market is more or less completely carried out in practice. IV.16-17

This is an excellent description of what we call a competitive market, you know, the kind that doesn’t exist in the real world today, if it ever did. Jevons thinks the model is close enough to reality to allow him to create equations, which he thinks this is crucial.

But if Economics is to be a real science at all, it must not deal merely with analogies; it must reason by real equations, like all the other sciences which have reached at all a systematic character. IV.38

3. Post WWII economics. Neoliberal economists of the Chicago school updated the metaphor of the early neoclassicals. Bernard Harcourt in his excellent book The Illusion of Free Markets explains that neoliberal theory extolling marvels of markets rises from 18th and 19th Century theories that markets are part of the natural order of things. One branch, related to the ideas of Friedrich Hayek, springs from Adam Smith’s metaphor of the invisible hand of the market, a form of spontaneous order, updated with “new models from computer science.” Chapter 8.

Harcourt describes another strand of thought about markets, this one closely linked to Gary Becker and Richard Posner of the Chicago school of economics. He says it focuses on the alleged economic efficiency of the market economy, and he traces its roots to French Physiocrats who believed that markets were the embodiment of a natural order. Just as we perceive order in the physical universe (more or less, depending on how you understand quantum behaviors), so markets reproduce that efficiency. Efficiency is set up as the chief goal of the economy. With this step, we incorporate a determinative model of the economy, one that can be represented by equations.

But there is still no definition of the term market.

4. Contemporary works. Now, as in the past, economists raid the physical sciences for new ideas. Here’s a fascinating example: The Market as a Creative Process, available starting at page 378 here [huge .pdf] by James M. Buchanan and Viktor J. Vanberg. They discuss an early book on complexity theory by Ilya Prigogine and Isabelle Stengers; Prigogine won a Nobel Prize in chemistry, and later turned to the study of complexity. His book is about the role of chaos theory in the self-organization of more complex forms.

Buchanan and Vanberg discuss a very old problem arising from Newtonian physics. That system is thought to be deterministic, in the sense that if you knew the position and motion of every particle in the universe, you could predict the future. Nobody has actually thought that was true for decades, at least. As far as I know, economists don’t think that markets are deterministic. Buchanan and Vanberg point out that lurking in a system of equations based on the idea of general equilibrium, there is a kind of determinism lurking. They explain that Prigogine’s book should bring an end to ideas about determinism in economics, and presumably an end to the idea of equilibrium in the economy.

Ideas about chaos theory were cutting edge in the mid-80s. Chaos theory is a mathematical field, so I’m not sure it’s the best argument Buchanan and Vanberg could have made. There has been much progress since then in both complexity theory and ideas about self-organization. This seems to me to be a very elegant solution.

Buchanan and Vanberg’s paper is in a book titled Philosophy and Economics. Therefore, you’d expect a bit of formalism, like a definition of market. But no. We learn that standard economic teaching is based on the “self-organizing nature of markets.” 383. That doesn’t accord with Samuelson, which I have set up as standard economic teaching, but it seems to be at the heart of the Austrian School; you can see it in this paper by Friedrich Hayek. This school preaches that markets are self-organizing and automatically compute the proper allocation of resources without resort to any centralized apparatus. Hayek explains that the “price system”, which seems to mean the market system, “evolved without design”. H.24. He doesn’t cite any evidence for this proposition, and surely no one really thinks the bread markets in 18th Century France evolved without design, any more than the Chicago Board of Trade did. See Harcourt’s The Illusion of Free Markets.

I’ve got a lot of stuff to look at, but so far, I don’t see a formal definition of “market” that will bear any scrutiny. Why it matters is the subject of a future post.

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38 replies
  1. bloopie2 says:

    Thanks. I look forward to seeing where this leads. In the meantime, a few comments.
    *
    I don’t think anyone would say that my purchasing food at the grocery store, at a set price, is a “free market”. It is a market, exchanging money for goods, as you note. But to say that we don’t have a free market because most purchases occur this way, is not, I think, correct.
    *
    Why would anyone who thinks about it, think that there is ever a completely free market? If I have something you really want to purchase, you are free to haggle price with me only up to a point – at which you reach your “I really need this” level. So, to say that “It is incorrect to say we have a free market economy” is begging the question. What does “free” mean, anyhow? That word can carry a lot of baggage, implications, inferences. I can’t believe anyone hearing the term “free market” believes it is totally “free” in the broad sense.
    *
    “It is a reasonable description for transactions among merchants. There isn’t really a mechanism, and the whole thing doesn’t constitute a mechanism, and the term interacting seems inaccurate.” Huh? Every retailer has a complex system by which it interacts with wholesalers and manufacturers, to order and obtain goods. Isn’t that a “mechanism”?
    *
    By the way, what is that “whole thing” you reference, that supposedly doesn’t constitute a mechanism? There are lots of antecedents in this paragraph to choose from when I look for a meaning for that term.
    *
    A market is where I go to buy vegetables (farmer’s market). It’s also a universe of potential purchasers (“Is there a market for my new invention?”) It’s also a place where I put those things that I want to sell (“put it on the market”). So, the term “market” is used in a lot of different contexts — how can there be any one definition? How can someone try to settle on any one (short) definition? (Many dictionary words have several meanings, of course.)
    *
    To say that something is or is not “the product of human design” is tricky. Basically everything a human does is, by definition, a result of that human’s actions, and so we can say that it is by human design. Or does design mean intent? In any event why are you disputing Hayek’s assertion? Is it just to discredit him as a thinker? Seems pretty random.

    • Ed Walker says:

      The point of this post is just to get a definition of the term “market”. I don’t think the definitions I have found so far are very useful. Instead, I think, and your response shows it, that people have some idea of what a market is and they assume that is what it means when economists talk about it. We’ll get to why that’s a problem later.

      The material about free markets isn’t meant to do more than explain how markets fit into the definition of free markets. It also suggests a problem with thinking about markets as Samuelson and Nordhaus define them. It may open up other ideas.

      I use the term “merchants” in the technical sense set out in the linked statute. Among merchants, the Jevons definition seems a lot closer than the doctor example.

      As I say, I will discuss the problem with the lack of definition in a future post. Hint: one issue lies in the second quote from Jevons. As to the Hayek material, I think it’s a fascinating set of ideas, and is an natural, if wrong, response to the problem with Jevons and the neoclassical economists.

          • Ed Walker says:

            Polyani is also on my reading list. Here’s more from Yves Smith at Naked Capitalism. http://www.nakedcapitalism.com/2015/01/something-changed-perspective-karl-poliyani.html I particularly like this quote:

            Such precisely was the arrangement under a market system. Man under the name of labor, nature under the name of land, were made available for sale; the use of labor power could universally be bought at a price called wages, and the use of land could be negotiated by a price called rent…

            But, while production could theoretically be organized in this way, the commodity fiction disregarded the fact that leaving the fate of soil and people to the market would be tantamount to annihilating them. Accordingly, the countermove consisted in checking the action of the market in respect to the factors of production, labor, and land….

            Productive organization was also threatened from the same quarter. The danger to a single enterprise – industrial, agricultural, or commercial insofar as it was affected by changes in the price level. For under a market system, if prices fell, business was impaired; unless all elements of cost fell proportionately, “going concerns” were forced to liquidate, while the fall in prices might not be due to a fall in costs, but merely to the manner in which the monetary system was organized. Actually, as we will see, such was often the case under a self-regulating market…Paradoxically enough, not just human beings and natural resources but also the organization of capitalistic production itself had to be sheltered from the devastating effects of a self-regulating market.

  2. oracle says:

    Check out Philip Mirowski’s “Never Let A Serious Crisis Go To Waste”. He discusses much of what you cover in this post – market as infallible computer, neoliberal mindset, etc…

  3. Rayne says:

    Hey Ed! Nice to see you!

    While the format of the 95 theses composing the original Cluetrain Manifesto is a bit simplistic and cheesy, there are two critical points which may underpin any other more formal or complex definition of a market.

    The first thesis: Markets are conversations.

    This makes perfect sense; no market existed until the first two participants, a buyer and a seller (or two traders) began a conversation about the goods and/or services they were interested in exchanging. Granted, the conversation is obscured now by supply chain and distribution as well as search and comparison methodologies along with a passel of financial and economic terminology, but underneath all transactions is a simple human dialog.

    A: I would like that item.
    B: I want this amount for that item.
    A: I will/won’t pay this amount for that item.
    [transaction/no transaction]
    [repeat with different terms/or end]

    The second thesis: Markets consist of human beings, not demographic sectors.

    In other words, the ends of the network of exchange are human. The market begins and ends with humans, all conducting this same dialog. This thesis is almost inseverable from the third thesis, Conversations among human beings sound human. They are conducted in a human voice. We are approaching a point where these two theses may be proved in failures of algorithmically-driven trades where humans are nearly absent. The market becomes irrational, highly volatile and acting outside predictable ranges, failing to serve human interests.

    When economic theory gets too far away from these two premises, ignoring the fundamental dialog and the humans essential to the conversation, we should be pushing back or prepare for a failure based on irrationality.

    As for predicting the future based on knowing the position and motion of every particle in the universe: the system which can do this is computationally irreducible. It is computationally equivalent to a second universe — a rather inefficient approach to prediction in this perfection.

    • Peterr says:

      Well crafted, Rayne.
      .
      As for the health care illustration in the post, the key missing element is that this is not a simple two-actor transaction, but a complex set of transactions involving multiple actors.
      .
      Let’s start with me. Or you. Or anybody. I’m here, and I need health care.
      .
      This brings us to my/your/anybody’s employer, who provides me with insurance. If I don’t like the insurance offered, I am free (relatively speaking) to seek employment elsewhere, or otherwise try to negotiate with HR for alternative arrangements — other insurance, or a boost in pay in order to seek insurance myself.
      .
      The employer, in turn, negotiates with various insurance companies over what insurance to provide and at what cost. Deductibles, exclusions, limits, choice (or lack thereof) of health care providers, and everything else is up for grabs.
      .
      The insurance company, at the same time, is negotiating with hospitals, doctors, medical care networks, pharmacies, drug companies, and everyone who provides health care. “OK, that’s your Manufacturers Suggested Retail Price, but here’s what we’ll offer you instead. Give us that price, and we’ll give you a preferred place in our insurance coverage . . .”
      .
      Then, to close the circle, the health care providers deal with me, you, and everyone else. Some costs are dictated by the insurance coverage, while others are up for grabs — and if I don’t like it, I can go elsewhere. This is more commonly done with simple prescriptions — Pharmacy X will give me a deal on Drugs A-G, while Pharmacy B advertises a deal on Drugs H-K. The more complicated the procedure, the less likely the person will do much shopping or haggling == that’s why you have insurance, says the HR department, so that they can do the negotiating for you.
      .
      So the “health care market” has at least five categories of actors, with dozens or hundreds in some of these categories. Add in the government, both in terms of regulations imposed at various points and also in terms of providing insurance (Medicare, Medicaid, Tricare, etc.) or direct medical care (VA and DOD hospitals).
      .
      Each actor (or category thereof) has a very different set of incentives. Some seek to maximize financial profits in the short term; others seek to create a longterm stream of income (drug patents, for instance). Some are concerned primarily with getting healthy, and others with getting rich. Some seek to improve public health generally, while others have an incentive to treat symptoms rather than eliminate a disease (cf Big Pharma). This complexity is why Ken Arrow posited that we can’t look at healthcare policy in terms of simple market incentives — too many actors, with too many different conflicting goals.
      .
      Within this mess, there are a multitude of actors carrying out the market exchanges that fit within the textbook definition of a market, but when viewed as a system the conflicting incentives overwhelm the textbook — unless your textbook knows Ken Arrow.

      • Ed Walker says:

        Thanks for this excellent demonstration of the odd usage of the word interaction in the textbook definition. For Jevons, it’s pretty clear the interactions would be direct between buyer and seller. That is equally true of the earliest kinds of markets, and the French markets described by Harcourt. In modern economies, there are few direct interactions, only price-taking, which is the point I was trying to make in this post. In other parts of Samuelson and Nordhaus, there are indications that the interactions need not be direct, but there is no modification to the definition.

    • Ed Walker says:

      I agree that markets work in a human voice. In our consumer mode, we are price-takers, and our human voice is never heard. At the Green Market, where I go in the Summer to buy organic food directly from the growers, I am myself in a reasonably friendly mode, with banter and discussion of pricing when I get to know the seller. In our business modes we take on a different kind of persona, hopefully charming, but essentially setting out under impersonal directions from above. Interactions, yes, but three different behavior sets and there are plenty more. I think this is another way of saying, as peterr does, that things are a lot more complicated than Jevons thought.

      • Rayne says:

        A key challenge in defining a market is that it is much older and deeper than the transaction sets we label an economic system today. The market began as biological functions of reciprocity and cooperation between our primate forebears, evidence of which we can still see in studies of monkeys and even in non-primates(pdf). Though some of the earliest transactions were simple exchanges of essential materials, some were not — they were the exchange of services to fulfill a range of needs, like establishing identity, individual and group security, status improvement.

        Ex: primates grooming each other, to remove lice cooperatively (you’re my group member, I groom you//you groom me, I groom you//you groom me and I become your equal)

        A market is a sociological function, once it extends beyond the simplest two-party goods-based transaction system. Much of modern marketing builds on this; goods are not merely presented, but their intangibles are also offered.

        Ex: Apple’s iPhone 6 is the latest “cool,” offering little in the way of groundbreaking goods or services, but instead a refresh of identity.

        Some of the additional layers between Peter-the-healthcare-consumer and Doctor-the-healthcare-provider offer additional sociological function by sorting groups of consumers against groups of providers. Resistance to healthcare reform was in no small part bound up in sociological attributes, not pure economic behavior. (Ex: “My family has belonged to this medical practice for generations, I don’t want any change.” “I’m Catholic, I can’t support any abortion-related healthcare.” “I’m a Tea Party member, I must reject Obamacare—period.”)

        It’s the removal, suppression, or lack of recognition of the human biological and sociological component from markets which makes them more difficult to define — markets are human. Jevons tries too hard to simplify the market to a solve-for-X equation with clearly identified inputs and outputs. But it is the human element which frustrates Jevons; we both want a fair system, relying on perfect knowledge of the offerings in the exchange, but we are prone to cheat if we can utilize advantages without repercussions. What Jevons needs in place is a set of assumptions that taking unfair advantage of the system will result in punishment. Regulation, if you will, to establish the ground rules of the market.

      • jonf says:

        “I agree that markets work in a human voice. In our consumer mode, we are price-takers, and our human voice is never heard.”

        Why do you think the human voice in markets is never heard as consumers?

        I agree that if you walk into Apple today the price of the phone or ipad are fixed. But if volume should fall or increase, there could be price adjustments. (consumer voice heard?) That volume could fall bc Samsung came out with a better product or one less expensive or works better. Once consumers move over to Samsung, Apple will know it. That is what often happens in markets, even with few sellers.

  4. gmoke says:

    Don’t know if this helps but Ivan Illich notes where Aristotle found the first example of the law of supply and demand http://www.wholeearth.com/issue/2073/article/263/beauty.&.the.junkyard

    “But what is the economy?

    “I was helped in my understanding of this question by my reading of Karl Polanyi. He was instructed by Aristotle. The Politics had been read by Greek, Arabic, and Latin scholars for over two thousand years. The great modern European commentaries had long been written. But no interpreter had taken Aristotle at his word. They seemed to believe that he was either sneering at merchants or joking about them, speaking with tongue in cheek.

    “Aristotle observed something new and unheard-of in Athens. Some citizen merchants were using a previously unknown technique when they offered their goods in the market. Instead of selling these goods at cost plus profit, or keeping to the values established by treaty with a foreign supplier, these innovators let the price vary according to offer and demand. Aristotle was fascinated that such a transaction could take place and wondered how it worked. Polanyi was the first to recognize this.

    “He assembled a team of historians at Columbia University. Each studied a different society, trying to discover when prices first began to move according to supply and demand in ordinary times. All of them reported the same finding. The replacement of simple trade by this marketing technique, though practiced occasionally while being generally legally proscribed, was not part of the ordinary social life in any ancient society. Further, such an arrangement only became the form of common behavior at the time of Aristotle and after.

    “Here I began to see the first lineaments of what is today called the economy – a system resting on scarcity.”

  5. liberalrob says:

    I don’t think the definitions I have found so far are very useful.

    What do you mean by “useful?” You’ve found several definitions which you find lacking. The textbook definition is too narrow. The neoclassical definition is too idealistic. The Post-War/Cold War economists weren’t explicit enough. Modern works aren’t formal enough. So what is it you’re looking for, that you would consider “useful?”

    It sounds like you are looking for the Economics version of the Grand Unified Theory of Physics, the one law that explains life, the universe, and everything. Aim high I guess, I look forward to the results of your efforts.

    Personally I find the textbook definition pretty compelling. Is it interacting when you go to the grocery store and decide to buy one brand of crackers rather than another? Yes it is, because that determines the demand side of the pricing equation; you are interacting with the market via your choice. You get into an accident and your car needs body work. The insurance company negotiates with your body shop. Is that interacting? Yes it is; you chose that insurance company, and they chose that body shop. You need to see a doctor. There’s no interaction over prices. False! There is interaction. You made the decision to go to that doctor instead of another (or to buy one health care plan instead of another); the fact that you did not research what he would charge you and that you cannot haggle over price at his office does not mean there is not a market. Even if you had absolutely no choice of doctor, you still have the choice whether to go to a doctor at all. Markets need not be “free” to be markets by the textbook definition. Oh, are you looking for a definition of a “free” market?

    This definition implies that as far as ultimate consumers are involved, a market is an arrangement where prices are set by sellers, and buyers get to pick whether or not to buy and from whom among the reasonably available sellers. It is a reasonable description for transactions among merchants.

    First, define “merchant.” Second, I don’t see how you can say that a market is NOT an arrangement where prices are set by sellers and buyers make choices what to buy from the available sellers, from the perspective of ultimate consumers. In any reasonable sense I can come up with, “ultimate consumers” ARE merchants when it comes to interacting with a market; sellers offer their goods and we offer our money (which is symbolic of our productivity).

    There isn’t really a mechanism, and the whole thing doesn’t constitute a mechanism, and the term interacting seems inaccurate. There is, of course, exchange of goods and services.

    …which is, in fact, a mechanism! See the second definition at http://www.merriam-webster.com/dictionary/mechanism. That exchange of goods and services is precisely the mechanism of market transactions.

    You’d think a market economy operates by formal laws and in accordance with mechanical rules. You’d think it was a permanent thing, to be studied in the same way you’d study galactic movements or steel balls rolling down an incline. That seems completely wrong.

    It is completely wrong. The challenge of Economics as a science, as with all social sciences, is that the word “science” means you are able to establish theories that explain the behavior of the thing studied which are experimentally testable and produce consistent, reproducible results. But even before you get to Heisenberg, you run into all kinds of problems quantifying human behavior. Humans are not robots and they do not always behave in predictable, rational, reproducible ways; but that does not mean that there is no value in studying Economics and attempting to make the best possible attempt to explain and predict economic behavior in a general sense. It just means that the theories must always be understood to be fundamentally imperfect in a way that would be unacceptable in the “hard” sciences.

    • Ed Walker says:

      I put a link to the word “merchant”, using the UCC definition which seems quite comprehensive. In that usage, consumers are excluded from the definition, which is appropriate in the context of Jevons’ definition.

      You say you find the textbook definition of market compelling. It’s descriptive of something, I suppose. Just as your discussion shows, the term encompasses a wide spectrum of direct and indirect interactions, some of which are related to price determination, and others of which aren’t. I’ll address this further in another post. As to your dictionary definition, I’ll just say this. It isn’t a mechanical thing, in the first and most typical use of the word, and the underlying issues aren’t mechanical either.

      I’m not looking for any grand unified theory. I don’t think there is one.

      • liberalrob says:

        In that usage, consumers are excluded from the definition, which is appropriate in the context of Jevons’ definition.

        …which you don’t find “useful.”

        As to your dictionary definition, I’ll just say this. It isn’t a mechanical thing, in the first and most typical use of the word, and the underlying issues aren’t mechanical either.

        Mechanisms don’t have to be gears and axles spinning and transmitting physical forces from one place to another. Mechanisms are the means used to achieve ends.

        I’m not looking for any grand unified theory. I don’t think there is one.

        Then I don’t understand what you’re trying to do. Hopefully the next post will clarify it.

    • Ben Johannson says:

      First, define “merchant.” Second, I don’t see how you can say that a market is NOT an arrangement where prices are set by sellers and buyers make choices what to buy from the available sellers, from the perspective of ultimate consumers

      Price theory states firms have no power to set prices, prices are set for them via autonomous market interactions. You’re arguing that market pricing is an illusion and administrative pricing the reality, so throw the textbooks you’re reading out.

      • liberalrob says:

        Price theory states firms have no power to set prices, prices are set for them via autonomous market interactions.

        Who knew that there were market Calvininsts?

        You’re arguing that market pricing is an illusion and administrative pricing the reality, so throw the textbooks you’re reading out.

        I’m not reading any textbooks. Haven’t since 1990 when I escaped college. I wasn’t aware that I was saying anything about market vs. administrative pricing, only that it seems impossible to me to separate “ultimate consumers” from interacting with “the market.” How can there be a market that only has sellers and no buyers?

  6. liberalrob says:

    I see I missed where you linked to the legal definition of “merchant.” I would be leery of relying on legal definitions; what a term means in relation to the law is not necessarily equivalent to its definition in a non-legal context. In the case of the legal definition of “merchant,” it would not include all “ultimate consumers.” That being the case does not invalidate my argument, however. “Ultimate consumers” do interact with the market, via the mechanism of their buying transactions.

  7. wallace says:

    Dang it. And here I thought the price of watching Superbowl 2015 was related to how much bread I bought at Walmart.

    • bloopie2 says:

      The price of watching Super Bowl 2015 is that you will surely regret, in years to come, the wasted time. How many past Super Bowls are you glad you watched, and how many regretted? As the Bard said: “I wasted time, and now doth time waste me.”

      Full quote, per Wikipedia (is it believable)?

      “I wasted time, and now doth time waste me;
      For now hath time made me his numbering clock:
      My thoughts are minutes; and with sighs they jar
      Their watches on unto mine eyes, the outward watch,
      Whereto my finger, like a dial’s point,
      Is pointing still, in cleansing them from tears.
      Now sir, the sound that tells what hour it is
      Are clamorous groans, which strike upon my heart,
      Which is the bell: so sighs and tears and groans
      Show minutes, times, and hours.”

  8. bevin says:

    Karl Polanyi’s The Great Transformation, is, like Shakespeare, full of quotations

    “Our thesis is that the idea of the self-regulating market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his his surroundings into a wilderness.”

    “No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. In spite of the chorus of academic incantations so persistent in the nineteenth century, gain and profit made on exchange never before played an important part in human economy. Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life.
    “We have good reason to insist on this point with all the emphasis at our command. No less a thinker than Adam Smith suggested that the division of labour in society was dependent upon the existence of markets, or, as he put it, upon man’s “propensity to barter, truck or exchange one thing for another.” This phrase was later to yield the concept of Economic Man. In retrospect it can be said that no misreading of the past ever proved more prophetic of the future.”

  9. bevin says:

    Here’s another:
    “All types of societies are limited by economic factors. Nineteenth century civilisation alone was economic in a different and distinctive sense, for it chose to base itself on a motive only rarely acknowledged as valid in the history of human societies, and certainly never before raised to the level of a justification of action and behaviour in everyday life, namely, gain. The self regulating market system was uniquely derived from this principle….”

  10. bevin says:

    Finally:
    “… Adam Smith’s suggestions about the economic psychology of early man were as false as Rousseau’s were on the political psychology of the savage. Division of labour, a phenomenon as old as society, springs from differences inherent in the facts of sex, geography, and individual endowment; and the alleged proclivity of man to barter, truck or exchange is almost entirely apocryphal. While history and ethnography know of various kinds of economies, most of them comprising the institution of markets, they know of no economy prior to our own, even approximately controlled and regulated by markets.”

  11. galljdaj says:

    Missing Action, Equality between participants. Monopoly is systemic and being provided by Our Govt. That’s the only way the 1% could do what it has to gathering in all the resources! In Our old and absent Constitutional Law it was Illegal. Also absent is the RICO Laws, which controls the criminal acts between the 1% and Our Govt.

  12. TarheelDem says:

    Some random observations about markets:

    1. Historically markets were places established by polities (such as periodic markets) or governments (such as town markets) at which exchange (conversations and physical transaction) could take place. At a minimum the time and location were regulated by the polity. Other regulations followed to deal with local and practical issues of justice or to implement agendas of more powerful members (economically, politically, culturally) of the polity. If markets are considered to be emergent natural phenomena, they emerged with increasingly elaborated regulations built in. Some reference to economic anthropology might be of use on this score.

    2. From an information processing standpoint, what actually happens with price and quantity is that past prices and quantities (and forecast future prices and quantities) are fed backwards from the consumer purchase through the complex supply chain network. That information affects decisions of each node in the supply chain network about present price, quantity, or both. Is that within the scope of what we mean by the term “market”?

    3. “Free” market has come to mean freedom from interference of other non-interested parties in various aspects of the transaction. What this obviously does in most cases is increase the asymmetry of information between the parties to the transaction. That has critical impacts on justice. The worst example of this is the so-called labor market, for which I can find no defineable market mechanism at all, unless you want to call (as Becker likely would) patronage-seeking a market mechanism.

    4. Jevons’s list of what he means by a market have frequently become the axioms that protect the formal definition of market from challenge but are often ignored in further examination of the “market”. Moreover, they are routinely ignored in any policy discussions of markets and any adulation of the free market.

    To my mind, this exploration of a common and common-sense operational definition of market smokes out a lot of buried “and then a miracle happens” type of issues in how economists, policy analysts, and especially politicians talk about the economy and especially about the process of distribution of assets and rewards in societies.

    The other issue is having staked out economics as a descriptive social science, there is the frequent conflation of descriptive and normative rhetoric in economic discussions. Externalities are brushed away as worthy of analysis; it seems a good moment to start reintroducing those interfaces with natural resource, cultural, and political externalities as valid shapers of limits on the normative social demands of “efficiency” and “fiscal restraint” and the other policy acts of legerdemain to ensure that ordinary people don’t realize that they are being robbed with the fine print and the Church of the Free Market.

    • Rayne says:

      This:

      “…ensure that ordinary people don’t realize that they are being robbed with the fine print and the Church of the Free Market.”

      is going to take a complete revision of US’ B-school curriculum. B-schools have been little more than indoctrination systems over the last three decades assuring that all graduates conform to the Friedman/Chicagoist dogma preaching the unfettered free market (read: unregulated market) is efficient and best.

      The widespread propaganda vilifying George Soros offers a hint as to how intense the demand for conformity has been, in spite of the reasonable explanation Soros’ work on reflexivity offers about the 2008 crash and other bubbles ruptured.

      And then there are the Kool-aid dispersants like Larry Kudlow and most of CNBC who’ve been allowed to continue to disperse the Chicagoist propaganda to the public. Ditto talking heads on Sunday morning TV circuit — not too many permitted on air who’ll contest the Chicagoist dogma.

      • TarheelDem says:

        Indeed. We have a huge media capture problem that appears insoluble. And it is producing poor public judgements that then reinforce poorer elite judgements. Or as I describe it to my acquaintances: a march of folly.

  13. Jonf says:

    I am looking forward to your next post on this.

    I don’t have much to offer here. But I would say that on the aggregate level markets do allocate resources based on such things as price, quality and quantity. I also suspect that price is not a “once and done” arrangement but may occur over time. It also suggests to me that free markets refer to the allocation of goods and services and prices over time- at least to the extent of allowed regulations. We have all heard of the misallocations or shortages in communist countries of the past with ineffective central planning. The market was prevented from allocating in those cases and there was no means to determine price.

    • Ben Johannson says:

      Most prices in a modern economy are determined administratively on a cost-plus basis. Market pricing is largely limited to speculative financial assets, equity, etc.

      • Jonf says:

        Many, maybe most prices are set by monopolistic pricing. But there is ordinarily more than one producer, like Samsung and Apple. So the market still allocates those phones based on price, quality and availability. Even in full competitive pricing the goods or services will be allocated by the market. Over time the fortunes of a company will depend on their pricing and quality. If there is strong demand in South Podunk, they will get the product. If not, or they cannot pay for them, it goes elsewhere. Cost may have little or nothing to do with it. I think there are problems with it but that’s not for here.

        • Ben Johannson says:

          Price theory states that prices adjust instantaneously and continuoisly. Samsung and Apple typically vary their prices less than four times per year and those adjustments are determined administratively, not autonomously. This happened, for example, in 2012 when Apple chose to lower prices for its lackluster-selling iPhone 5. It retained its cost pricing for the phone and reduced the profit margin per unit. Cost-plus is the primary determinate for pricing of goods and services, not markets.

          • jonf says:

            No one said prices were adjusted instantly except in restricted circumstances. Monopolistic pricing means the monopolist has some control over his prices. The fact Apple adjusted its price is precisely what happens in these circumstances. Wanna bet it had not a damn thing to do with cost? Sometimes market share far outweighs what the accountant tells you. Whatever book you are reading, you should throw in the trash.

  14. chris sutton says:

    ..”free markets” asserts economic Ayn Randism…fact; Ayn Rand=”free markets” presupposed EQUAL access, including information regarding, for all. There were no “insider trading”, “front running”, secretive market information, financial monopoly
    of commodities, and certainly no run amuck “derivatives” generated against banks’ own fraudulently assimilated products. Let’s also remember Rand chose not to debate her own economic philosophies. Any discussion of “what market’s entail” should not be taken from time and place applicable, today.

  15. Klaus says:

    This article is thought provoking because it highlights the underlying hypocrisy of economic debates.

    But the unelected policy makers serving non-democratic institutions (The FED, WTO, IMF, NATO, World bank, etc) who act on such terms as ‘market’ understand your point and are attempting to make the ‘market’, the global market and hence do away with any inconsistencies.

    You will have no say in the matter.

  16. dutch says:

    There are no natural laws of human behavior, including what we might call economic behavior, e.g. buying, selling, borrowing, stealing, extorting, etc. No natural laws or equations describing them, only policies, rules, and traditions that change by consensus. The economy (society) operates as we choose it to operate, for the benefit of those we choose to benefit. Trying to define “market” is as pointless as defining “love”.

  17. Alan says:

    “Bernard Harcourt …explains that neoliberal theory extolling marvels of markets rises from 18th and 19th Century theories that markets are part of the natural order of things. One branch, related to the ideas of Friedrich Hayek, springs from Adam Smith’s metaphor of the invisible hand of the market, a form of spontaneous order, updated with “new models from computer science.””.

    I would read that as “in their mind” it springs from Adam Smith’s metaphor. And it is a metaphor; not a concept or theory. He only used it once in Wealth and his use is widely misinterpreted and abused as has been documented by numerous historians. Harcourt has a section in his book on “Readings of Smith” where he points out the numerous widely divergent readings. I’m not sure I entirely agree with Harcourt on this. Yes, there are lots of readings but economic historians and philosophers (i.e. people who actually bother to read Smith rather than merely selectively quote him out of context) are mostly at odds with neoclassical economists’ readings of Smith. As I understand it very few economics departments teach the history of economics as it is (mistakenly) not considered to be important.

    In his book on the financial crisis, Mirowski calls out Hayek on the information processing theory and on his use of Smith. He comments about economists “sounding off in the most illiterate registers concerning Karl Marx, Vilfredo Pareto, Hyman Minsky, Adam Smith and even John Maynard Keynes, because they were confident that no one would ever call them to task on their shallow pretenses.”

    Both Harcourt and Mirowski take some inspiration from Foucault’s writings around 1979/1980 on neoliberalism although both are critical. I think one of Foucault’s more interesting observations is how the notion of the market becomes a totalizing phenomenon. Becker and Posner aren’t writing about goods that you buy and sell. They are writing about crime and law.

    Also, I think one has to be careful with the notions of the market as a natural phenomenon. For Smith there were certain characteristics of humans to collaborate and trade and barter but there is no “invisible hand” in the sense it has come to be understood. The pursuit of self-interest can have both good and bad consequences. And government and regulation aren’t always bad (in fact, they are often essential to prevent bad things happening). For Hayek, Friedman and others there is a natural phenomenon but only at a certain level. Their whole conception of the market depends on a strong state that creates the conditions in which the ‘natural’ market emerges. As Mirowski point out in his book, their notion of ‘the market’ is beset by numerous contradictions.

    That’s one of the interesting observations I also take away from Harcourt that links up to other posts on this blog about surveillance etc. Notions of liberal markets have from the beginning been associated with notions of police, crime, control, authority, etc. In that sense, at least, Posner, Becker et al. aren’t new.

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