Home > Uncategorized > Myth of “the market”

Myth of “the market”

from David Ruccio

We’ve all heard it at one time or another.

Why is the price of gasoline so high? Mainstream economists respond, “it’s the market.” Or if you think you deserve a pay raise, the answer again is, “go get another offer and we’ll see if you’re worth it according to ‘the market’.”

CEOpay

And then there’s CEO pay, which last year was 271 times the average pay of workers. Ah, it’s what “the market” has determined the appropriate compensation to be.

“The market” explains everything—and, of course nothing.

Chris Dillow argues that invoking “the market” (e.g., to explain the gender disparities in pay for BBC broadcasters) serves to hide from view the role of power.

Talk of the “market” is therefore what Georg Lukacs called reification – the process whereby “a relation between people takes on the character of a thing and thus acquires a ‘phantom objectivity.’” It obfuscates the fact that wages are set by the power of one person over another. Such obfuscation serves a profoundly ideological function; it effaces the fact that the capitalist economy is based upon power relationships.

Not even neoclassical economists stop with references to the “the market.” That’s just the first step of the explanation. The next step is to analyze “the market” in terms of its ultimate—given or exogenous—factors determining supply and demand. Their story is that “the market” can finally be reduced to and explained by preferences, resource endowments, and technology. In other words, according to neoclassical economists, market prices—whether for gasoline, workers’ pay, and CEO compensation—reflect consumer preferences, households’ endowments, and human know-how, all of which are considered to be prior to and independent of the economy.

That’s the way formal neoclassical economics works. But mainstream economists are also content to let the myth of “the market” persist in the minds of their students and the proverbial person in the street because it protects markets from what they consider to be unwarranted regulation and intervention. “The market” is turned into an abstract entity that merely reflects human nature. And if anyone wants to change the results—to change, for example, the price of gasoline, workers’ wages, or CEO compensation—they face the daunting task of changing human nature.

But there’s another side to the myth of “the market.” It becomes symbolic of an entire system gone awry—and which therefore can be criticized and replaced.

Instead of “the market,” we might refer to individual markets—not just to markets for gasoline, workers’ ability to labor, or CEOs’ skills but to markets for different kinds of gasoline, different groups of workers, or CEOs in different industries. Or, alternatively, we might invoke the different roles producers, consumers, workers, corporate executives, government officials, and so on play in determining market outcomes. All of those individual markets and market participants might then be regulated to produce different outcomes.

But if it’s “the market” that is to blame, then it’s the entire system—not one or another market or market participant—that needs to be radically transformed.

If mainstream economists defend and celebrate “the market,” critics of market outcomes—of which there are many—can then move to a more systemic assessment, to become critics of the economy as a whole.

And once that happens, critics can then imagine and begin to create a different economic system, one that is not governed by “the market.” Such an alternative system might have markets, lots of different kinds of markets. But it would have a different logic, a different way of operating, with very different outcomes.

Such an alternative economy exists on the other side, beyond the myth of “the market.”

  1. July 29, 2017 at 2:35 am

    When candy bars were a nickel, gasoline was 30¢.

    Candy bars are now about $1.25. This is a 25 times increase.

    Using accounting techniques and ignoring kilocalories as a bridge to entropy, as well as the externalized costs and pain of the cancer epidemic etc.

    25 x 30¢ = $7.50/gallon in us dollars

    Noting this does not include contribution to the cancer epidemic or global environmental collapse.

  2. C-R D
    July 29, 2017 at 2:03 pm

    “In other words, according to neoclassical economists, market prices—whether for gasoline, workers’ pay, and CEO compensation—reflect consumer preferences, households’ endowments, and human know-how, all of which are considered to be prior to and independent of the economy.”

    This is true if and only if the market is Walrasian. The modern market is a convoluted power relationship in which almost all prices are manipulated. Do you really think that mainstream economists do not that?. We listen to them at our peril.

  3. July 30, 2017 at 8:52 pm

    Thing are worth when the ideology associates “market economy” with democracy… There begins orwellian world with a jungle society associated

  4. August 1, 2017 at 1:04 pm

    Economic anthropologists call markets frames. Framing is what people arrange when they want to isolate some area of life and the actions associated with it. This allows humans to remove for a time and only in parts entangled actions from their entanglements. Markets reduce market transactions to three distinct components: the buyer, the producer/seller, and the commodity. But framing transactions or concerns mobilizes objects or beings endowed with an irreducible autonomy. Frames thus always overflow (called externalities by economists). Complete framing is a contradiction in terms, whereas complete externalization is possible, as suggested, in the case of pure gifts. Markets are then special instances of gifting. They, like their components enter and leave for many reasons. Which makes markets inherently unstable. According to classical and neoclassical economic theory the perfect economy is a market. A market with the following:

    • existence of a perfectly qualified product;
    • existence of a clearly constituted supply and demand;
    • organization of transactions allowing for the establishment of an equilibrium price.

    These never operate as economists claim. These frames also require many forms of support not considered in textbooks. Such as property rights laws that define the right to use certain assets, to derive an income from them and to sell or transfer them definitively to a third party. Procedures of attribution of actions and of their effects are also essential. As is the strong arm of government to make certain the rules are obeyed. Money or some other quantifiable agency is necessary. After all the purpose of market frames is to make calculation (calculative frames) possible. This means an agreed metrology is required that allows quantitative correspondences between cause and effect. Something not often mentioned by economists is also require for market framing: economic theory.

    Even with this work and resources committed all markets fail, most after malfunctioning in many ways. They fail because they overflow. Either the walls break and let the outside in, or the inside continues to function, but with new priorities. Since the 1980s the latter occurs more frequently than the former. Arrangements continue to be labeled markets but are either missing major elements of the market frame, or have substituted non-market arrangements in many spots.

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