Not one of the free-marketeers who comment so copiously here cared to offer another name of a successful entrepreneur who had made their pile transparently and cleanly.

And this proves what, exactly? For what it’s worth, I can name plenty (this comes from having lived through two booms in the tech sector). I’m flabbergasted that you seem to assume that any single person who makes a large amount of money must have done so by some kind of corrupt practice.

Free-marketeers love to tell us that every time a transaction takes place, that because the parties are willing to agree to the price, that price must therefore be fair.

There are two kinds of fairness. One is this: did the parties involved make a free choice? This can be judged objectively by observing whether or not any kind of force, fraud, coercion et cetera was applied – we have laws against doing any of these things precisely because we can objectively identify them when they happen. The second is the subjective view of fairness – do you or I regard a transaction as having given equal value to its participants. The problem is that our view really doesn’t matter. You might think that I got ripped off by spending a sum of money on a particularly tasteless (to you) piece of furniture, but that’s a subjective judgement, and you are not the subject.

To be fair to them, economists have a dim awareness of the problem.

You think? I mean, really, you think that the hundreds of thousands of economists throughout history who have made it their lives’ work to study economics might have considered a thesis similar to your own? And yet, strangely, they don’t agree with it. How odd.

He might try to crack a deal with each of them individually, but more likely he’ll advertise at a price which he believes will get him the ten people he needs even though eight or nine of them would take less – there is an element of rent, or super-profit in the salary he pays (the price of labour is set by the marginal supplier, the one who least wants the work on offer). The entrepreneur knows it’s there, even if he doesn’t know how much it is.

Bad example. I don’t know of many software teams where every team member is paid the same rate. It’s very well-known in the business that there’s quite a wide variation in productivity between programmers and it’s worth evaluating each individually. Having been hired a few times myself, I’ve always been assessed individually (including psychometric testing and all kinds of other stuff) and I’m currently involved in putting together job specifications for new recruits, on a similar basis.

Basically, I think that you’re committing a rationalist error in assuming that there is some Platonic ‘correct’ price for everything – that in any given case, we’re always either paying more or less than the cosmically-determined ‘right’ amount for a product or service. The simple fact is that there is no Platonic price. The price is whatever you can get for something from whoever is willing to pay for it. It’s totally subjective. You might think that someone is overpaid or underpaid, but their employer doesn’t think that – and their opinion is the only one that counts. This is actually fundamentally important to a liberal economy, because it allows us to have different tastes. We may choose to pay ‘over the odds’ for something because we want the local shop selling it to stay open. If you believe in a Platonic price, you will point to this and say ‘aha, this person paid too much!’, but this would be entirely wrong. Most art is sold on the principle that is has value to the buyer, but probably has less value to the average person on the street. Should we say that there is something wrong with this?

Rob, one quibble:

You might think that someone is overpaid or underpaid, but their employer doesn’t think that – and their opinion is the only one that counts.

No, the opinion of the employer and the employee are the only opinions that count. Everything else is merely advisory.

If the employer is happy, and the employee accepts the rate, then all is fine. If the employee wishes a higher rate, they either negotiate or leave. Obviously at the moment, people will be less inclined to do this—the remarkable thing is that fewer employers than could are trying to implement pay cuts in a deflationary time, although that’ll happen if things continue.

Other than that, Ia gree completely, Mike’s decided to make a post about the principles of liberal economics and reject them entirely on favour of some medieval belief in a ‘fair’ price. There is no such thing unless you want to control everything, which is both inherently illiberal and, more crucially, doesn’t work.

Mike

This, of course, is horse-dung – the very same people in real life, like the rest of us, often say “I got a bargain” or “I paid over the odds for that” – like the rest of us, they have an idea of a price being ‘fair’ or ‘unfair’ – such belief being based in part on what we believe the “going rate” to be and for the rest, on how important the item in question is to us.

Of course we do. We have an idea of a notional market price for an item. We also have an idea of how much extra we’d have been prepared to pay to get an item.

If we get it below the rate we were prepared to pay, we got lucky. If someone wishes a quick sale and thus sells below the notional market rate, we also get a bargain.

If someone has no knowledge of what they’re selling, and decides the time spent researching or the cost of getting advice isn’t worth it, likelihood is that they’ll undersell something compared to the notional market value. An old painting, for example, is only worth a large sum if you can find the right buyer and know what it’s worth.

Any attempt at fixing a ‘fair’ price for a second hand item is doomed to fail, the artist got the money they sol the item for, etc.

To say that economists have a ‘dim’ awareness of the problem, and then go onto an example that uses marginal rates most effectively is to show your bias. Marginal rates were described, as you well know, by Ricardo centuries ago, and huge amounts have been written about them since.

Honestly. You know how markets work, you understand margins, you understand externalities, yet all you continue to do is carp on about their ‘evil’ but have no allternate suggestion of your own.

To answer your question in the title:
Aren’t markets evil? No, they’re just frequently misrepresented by the wilfully ignorant or the deliberately disingenuous with an axe to grind.

no, this is horsedung:

“Free-marketeers love to tell us that every time a transaction takes place, that because the parties are willing to agree to the price, that price must therefore be fair.”

I don’t really know who “free-marketeers” refers to (can you mean anybody who ever advocates markets? is Paul Krugman a free marketeer?) but most economist would point out straight away that notions of “fairness” are outside the scope of the claims they make about markets. Although the notion of voluntary exchange surely counts for something.

“But let us not mistake necessity for desirability.”

There is nothing necessary about markets, but if you are saying that markets are often the best available system, then I think it is “desirable” to choose the best available system.

Incidently, one way of formalising the notion of getting a bargain versus getting ripped off is to look at consumer surplus and producer surplus which is of course part of the standard economic tool kit. Not that you need to bother learning any economics before you explain how it’s wrong, of course.

[1] No idea why I chose software programmers – I accept the empirical correction.

the remarkable thing is that fewer employers than could are trying to implement pay cuts in a deflationary time

Psychology, innit: people don’t mind not getting new stuff, but hate having stuff taken away. Actually, this’ll be an interesting test of those kind of sticky nominal wages hypotheses: in all the other recessions we’ve had in living memory, inflation was high enough that real pay cuts were fairly easy to engineer by leaving wages flat.

On the original article: Luis at 4 says it all.

I don’t know who your names were – but what about James Dyson?

If I had seen your original comment, Mike, I might have suggested Michael Marks and Thomas Spencer, Alan Sugar, Jimmy Lai. Of course, I don’t expect entrepreneurs to be whiter than white, but with flaws like anyone else. The test is whether their business involves giving consumers something they want without using force or fraud to produce it. It should be noted that most areas of finance are utterly legitimate (in principle) areas of entrepreneurship too – the management of risk and investment is an essential component of allowing ordinary goods and services to be produced more effectively. So an awful lot of banking activity is useful and valuable even if the system as a whole is rigged to pay out more than it should. If government didn’t have a monopoly on legal tender, we might see that market behave a bit more rationally too.

“Alan Sugar”

Sexist egotistical prick.

I refer the honourable gentlemen to the post made on 14th June 2007 here:

http://d-squareddigest.blogspot.com/2007_06_01_archive.html

A person’s wealth is not a judgement of their moral character, it’s a judgement of how much subjective utility (expressed in money given to that person) that they provided to others. Lots of people bought Alan Sugar’s computers, satellite TV decoders and phones. We were never being invited to pass moral judgement over him.

A world in which earthly rewards are linked entirely to other people’s perceptions of moral worth would be frankly terrifying – not to mention the fact that we would never have got out of the stone age.

““Alan Sugar”

Sexist egotistical prick.”

And as we all know, Viglen PC’s won’t work with women:)

His personal views are utterly irrelevant to whether he makes his money by offering value to others.

I make axes and spears for a living. My mate Zog trades meat and skins for my spears and also has enough left over to trade for firewood Ug chops with my axes. I’m delighted with the fact that I get meat and wood despite the fact that I do nothing but make tools. Zog’s chuffed he has tools and wood simply because he spends his days out killing things and Ug has tools and meat simply by supplying something which quite literally grows om trees. All three of us think we have the best deal.

I now find that others are willing to trade for my tools and find demand is so great I can take on my cousin Grun to help and he no longer needs to forage for wood or hunt for food either.

If only we could make this work on a bigger scale.

Heh, if we are going to do the “name a good guy” thing, which I agree is utterly pointless as it misses the point entirely then I name John Spedan Lewis. Hey, I’m a market socialist, what did people expect?

I don’t buy Nestlé products as I, as an informed consumer, don’t support their overseas marketing policies; if enough did this, they’d change them, that people don’t shows that markets are amoral.

Mike seems to be conflating immorality and amorality. Ah well.

To address the substantive point, I agree with the wish to challenge this presupposition and frame: “Free-marketeers love to tell us that every time a transaction takes place, that because the parties are willing to agree to the price, that price must therefore be fair”.However, I think your counter-argument is both wrong in principle and hopeless in terms of an achievable alternative (practically or politically). It posits ‘markets bad’ as the response to ‘markets good’ – and you are trapped in ‘just because they are necessary doesn’t mean they are desirable’, which implies as little market as possible (which most liberals and social democrats would worry about, from the perspective of liberty, as well as a workable argument of economics).

This seems to me an important issue of the current crisis, but where the ‘markets good vs bad’ discussion will prevent a creative progressive account.

So I want to make the social democratic case for markets (in their appropriate place) and against market principles being applied where they should not be. That requires a pro-market account of where they are to be valued (which you reject) as well as an argument about their limits. (The French Socialist Lionel Jospin – remember him – once proposed the soundbite ‘Yes to the market economy, no to the market society’. That put him to the left of the third way enthusiasms at the time, but he was right, leaving open the issue of how to define the boundaries).

The key market libertarian claim is that market distributions are just in themselves (arising from free exchange) and so it is illegitimate to challenge them. (Taxation is theft/confiscation). (This does depend on establishing the legitimacy of property rights: There is some division between libertarians who may support a radical one-off egalitarian redistribution – then no intervention – and those who believe the current distribution can be justified).

The appropriate challenges to this could involve the following.
THE ORIGINS OF MARKETS
- Markets are not primary to governance and society: they do not exist prior to government in some pre-political state (as failed states show). They are created by the establishment of political order and the rule of law. And all ongoing transactions depend on a high level of governance and public institutions. (This is more obvious in the case of a hedge-fund trader than a carpenter). Libertarian minimal/low tax arguments often involve arguing for free riding, eg maintaining tax havens then using the threat of exit against all democratic states.

THE SPHERE OF MARKETS
- In a democratic society, the scope and role of the market is to be decided politically. A key progressive achievement has been to argue that certain things need to be removed from the sphere of the market to the sphere of equal citizenship: the vote (late 19th century), universal education, healthcare (not in the US yet). Both the functioning and the legitimacy of markets has depended on this political discussion. All democratic societies have been mixed economies, of different types (and the difference between the US, Japanese, Swedish, German models is one of degree to some extent). None has ever accepted the pure libertarian argument, but different balances have been struck in different cases.

- I think your mistake is to note the amoral nature of market transaction, and so be anti-markets in principle. But market exchange is fine for many things: household groceries, distributing newspapers, books, music and alternative forms of entertainment among those who want to read them; etc, etc. In these cases, we often want public intervention to help make markets fairer and more competitive (eg monopolies and mergers), in the interests of businesses and consumers.

- Partly drawing on Michael Walzer’s arguments about ’spheres of justice’, I think there might be much to done around the public argument for “markets in their place” (but not everywhere) looking at the spheres where the amorality is inappropriate, because a different set of principles to market exchange are appropriate. (Most people’s intuitions and current public consensus includes the sale of people – slavery, but also the sale of kidneys or body parts, even ones which are not essential to life; the excessive commercialisation of childhood; personal and family relationships; the sale of public office; the sale of places at university (but not currently at private elite schools). Some things which used to be thought inappropriate violations of non-market norms (Sunday trading) are now widely accepted. Some prohibitions on market exchange (current drug laws; the sale of cup final tickets) might be sustained or challenged.

This framework helps to identify powerful campaigning cases to be made (political funding, working hours, the commercialisation of sexual activity) against developments which risk violating these norms. But the argument is that the market should not apply in this case, because there is a more appropriate norm. If all market exchange is amoral or evil, then that’s all there is to say. But the problem most people would have with WH Smith stocking Playboy branded stuff for 11 year olds is not about the amoral nature of pencil case sales in general. It is about a specific set of problems about childhood, gender, sexuality and commerce.

MARKETS AND PUBLIC FUNCTIONS

- It is right now very obvious that if some core public goods are to provided by markets (banking functions; electricity, water, key public utilities) there needs to be regulation. Often, this is thought to be because competition is difficult, so regulation must provide a framework to protect consumers and citizens. But it is also because there is a de facto public guarantee – if the banks can not be allowed to fail (in the public interest) – then there is clearly a public interest in preventing their being a one-way bet (where rewards will be taken, but losses socialised), and it is inconsistent to argue for total deregulation and then get the begging bowl out for a bailout.

- It is also now very clear (including to eg the Economist and the Financial Times) that market capitalism is environmentally unsustainable in its current form. There are different responses: one is a Marxist/Deep Green one (capitalism did eat itself and collapse from its own contradictions, destroying humanity); another is a range of mainstream centre-left and centre-right responses (we will only be able to continue with markets if there is national and international governance to place limits on the use of resources). Beyond the fringes, the debate is about what rules and limits

In some ways, I think you replicate an important mistake of the early Fabians in your blanket antipathy to markets. They had a powerful moral critique of the outcomes of the market (eg the WorkHouse system of Poor Relief) and there was much merit in that. But they chose to focus as much or more not on the immorality of some market outcomes but on the inefficiency of markets (their wasteful distribution of resources: a favourite example was the inefficiency of two or three milkmen going to the same street). They were wrong about that specific point, and more broadly in prioritising the technocratic over the moral claim: they underestimated the way markets distribute information and the problem of replicating that in planning. (A very high level of planning can be necessary or desirable in certain circumstances – for example, in world war two, this society was engaged in defending against a totalitarian threat, and collectively decided to make that an overwhelming social priority. That is a different situation to seeking to prioritise or meet a much more complex set of needs, interests and preferences, as in peacetime).

Sunder – this is an interesting case you put forward and I will have to look into it in some detail. But it is worth noting that your initial premise is highly contested (even amongst libertarians):

“- Markets are not primary to governance and society: they do not exist prior to government in some pre-political state (as failed states show). They are created by the establishment of political order and the rule of law.”

See – Better Off Stateless: Somalia Before and After Government Collapse: http://www.peterleeson.com/Better_Off_Stateless.pdf
The second chapeter of: http://www.iea.org.uk/record.jsp?type=book&ID=438

P.J. O’rourke’s anecdotal account of markets in Somalia in All The Trouble In The World

Sean Gabb’s discussion is also quite interesting on this: http://www.libertarian.co.uk/lapubs/histn/histn051.htm

What the evidence seems to suggest is that market institutions spring up fairly spontaneously, but there main weakness are widespread violence which they have never been especially good at dealing with (although Leeson offers one account of a stateless justice system).

More generally, though I agree. I don’t believe in the market society. I believe in the consensual society – the free society. If institutions can be freely chosen and there is the possibility of exit and alternatives, then they are more likely to be just. The problem is that democracy can only ever be a very rough approximation of that consent and that representative democracy seems to tend towards authoritarianism if not kept in check by other institutions.

Its difficult to fully express the what I feel about this post while staying within the illiberal comments policy. So, I shall merely limit myself to an expression of concern for the author.

[14] Many thanks, Sunder. I was of course being provocative on purpose: I would accept the argument that markets are amoral rather than immoral with one caveat: as I said at the end of my post, the market-place is necessarily transactional as opposed to being a site where we can enter into relationship with each other. This itself seems to me to be sufficient reason to seek out alternative ways of doing things, and then considering the balance between costs and benefits (as the social democratic model always has).

The real question is whether Jospin’s formula is doable. If we have a bias toward the market in economic matters, will this not also project its ideological power onto social relations?

However, we must part company when we come to your notion that markets are some form of guarantee of liberty. Clearly they are not: whether we consider China to-day or Venice in its hey-day a few centuries ago, it is perfectly possible for market economies and authoritarian freedom-denying government to co-exist. As much of what you have to say makes clear, politics is determinant in the last instance.

I am not in favour of expanding the State into areas currently operated by the market, with a few exceptions of which housebuilding is probably the most obvious – as you imply, markets are much better at meeting desires than needs. The main thing I want to see is the expansion of the “third sector” whether in charitable, co-operative or some other form of legal dress because this form of activity has sociability (relationship rather than transaction) at the heart of what it does – which neither the marketplace nor the State can offer.

I am glad, too, that you mention environment sustainability. It goes without saying that planet Earth cannot sustain its present human population – let alone the peak predicted for forty years’ time or so – in a lifestyle like that of the Western middle-class to-day. Greater material wealth is simply not a political option: the future will (hopefully) belong to those politicians who can develop and argue for a framework that improves the quality of our lives, and a key part of that will be re-balancing relationships and transactions.

It goes without saying that planet Earth cannot sustain its present human population – let alone the peak predicted for forty years’ time or so – in a lifestyle like that of the Western middle-class to-day

Assuming you do really mean ‘middle’ as in ‘median average’, I’d take that bet.

Welcome back Malthus, or had you ever left?

Mike, the “third sector” is as equally in need of regulation as is the “free market” – it is just another kind of market, and organisations that operate in it may have poorer governance than the ordinary joint stock company. It may, however, produce a more stable outcome, because free markets are metastable (indeed that is because they are often operated from an amoral position) – through competition they can slide off into either low price with poor quality, or ripping us off (making excessive profit, e.g. by becoming an oligopoly).

Q: Aren’t Markets Evil? A: No

I am fully in agreement about China. Authoritatian societies can use markets without enabling political freedom. I am not one of those (on the US right, for example) who believe that markets generate political freedom. There will be some consequences for the nature of the society. The market is no guarantee of liberty. The point was the mirror one: can we identify any society with no or very limited market exchange which has preserved political liberty? I can’t.

It might be because the clever way to do this has not been thought of, or been possible to introduce, but many people will obviously be sceptical about that.

If that is the case, we should be more positive about markets where they are appropriate. I do not feel alienated by every experience I have of popping to the shop down the road. Why should I?

And does anybody here really think that markets are not a good way to, for example, choose what we should wear?

I am fully in agreement about China. Authoritatian societies can use markets without enabling political freedom.

But if authoritarian societies do use markets they do increase personal freedom.

Modern China is a lot freer than Mao’s China, although both are authoritarian.

If A tells B and C to give him tax money and to work on a dam construction project for a wage set by A, they are less free than if A tells B and C to give him tax money and to work for whomever they like for a wage negotiated between themselves and whoever they choose to work for.

If you study, for example, the history of Caribbean slavery, the slaves favoured better access to the local markets than whatever level they had at the moment. And they generally preferred time to earn money and buy food to rations supplied by their owner.

Returning to the OP, I am tempted to ask if anyone can provide an example of anyone engaged in politics, who has always been entirely honest and open.

t would be equally rational to hold that in every transaction one of the parties is defrauded – it’s just that we don’t know which.

If it really is impossible for two people to freely agree on “the fair price”, or for any of the rest of us to work out what it should have been, I don’t see how the government can set that price for them.

[23] Neither do I – which is why I didn’t suggest that it should.

My two thoughts here are it is silly to talk about market immorality without balancing it with state immorality and failure . Additionally the market emerges from people and is not (only )imposed on them which is not given much weight .

Better than Bureaucrats
Many people who have made a great deal of money have behaved unethically , taken risks worked hard spotted opportunities or been lucky . Usually all the above . Politicians have a worse balance tending towards sloth cowardice and dishonesty .Bureaucrats , having no judge but other bureaucrats are probably the most morally corrupted by their surroundings .Only the truly vilest dissimulating invertebrate snake slithers to the top.( As Orwell noticed , the beetle kind of man…)
Price is not Ethical
Price keeps the score but is not the game. Nothing useful can be said about it alone .
Sunder Misunderstands
Sunder is wrong in that markets can and do exist outside and prior to the state , they cannot exist prior to a level of trust and peace and will self-organise rules over time .The state may be the most obvious agency for enforcing the rules , but not necessarily . Markets then , are not in themselves moral but they do require an external or public morality to function at all .The state does not . Markets are in the gross way morally better and over time we will see this even in China ( It may be a long time )
Law Is Not Enough.
Sunder`s conception is disproportionately theoretical as you would expect. The rule of law is not enough. One does not extend trade credit on the basis of a possible court appearance. One does not believe specs on the basis we can sue . We can make no long term supply agreements on the basis a gun boat might be sent . For this reason trade guarantee exists to promote trade in Africa .It is decidedly imperfect
Patterns of trust and cooperation that evolve over time are of great value .Often these will be encoded , for example into Common Law (now under assault ) .
Rules Unknown To Players
NoSacred Cow
Real rules are quick silver and complex , grounded in a civilisation and will only be disrupted by the clumsy state .The participants do not see the global picture , the state almost nothing .The real world of transactions is a far more heterogeneously human and activity than I recognise here. In the setting of Premium (In Insurance ) the extent of cock up illogic and skulduggery of all sorts is legion . Even if over time the cycle le of soft and hard markets oscillates to those in it the markets imperfections are blindingly obvious . As a Sacred cow it is a non contender
The Honesty problem
.Honesty is encouraged as reputation is valuable but first cheat is an ever present danger and all markets struggle with the need for freedom and trust as essential prerequisites . The state may have role here but it is currently unaware of its limitated ability to perform such a role hence the parasitical mess that is the FSA
Note the state and its familiars tend to corruption and have only a tangential interest in any supposed ‘good’ anyway
Long Term and Short term.
Education
Rewards decisions and effect s may take place over very differing time periods. Take education . Given what I have said about the bushy variousness of the market while it may well be that given a demand there will eventually be a supply there may be numerous reasons why that supply takes years to arrive. We would not be wise then to leave the supply of adequate education to the unaided market
Financial Infra Structure
Insurance is essential for any new productive activity but capacity may come and go and in undeveloped economies the fluctuations in price may be impossible to trade in. For this reason tariffs are often set in developing economies so as to ensure a supply . This is expensive and ultimately far far less efficient than a market but the need for certainty over along term trumps cheap
Time Lags
Eventually it is not at all unlikely that rules will evolve that prevent the market acting in such a way as to destroy its customers but that may not be in time. Here the state may usefully apply rough rules acting as a guardian of the long term . If it does so without the advice of those in the business though it will very likely get it wrong as Brown has so spectacularly shown .Its actions will always have unpredicted and harmful effects as well as good
Summary
Capitalism has increased living standards , tended to promote trust and civil relations and eventually distributed reward more fairly . Reaching this point may take a very long time indeed though ( to long by centuries for blacks slaving on Sugar Plantations ) and it was obviously right for the state to intervene in early industrial society . I see a role for the state as described but there is an over riding problem in that bureaucracies will seek to protect and expand their power .They are far harder to remove than suppliers and buyers in a market. The default positioning therefore is to distrust any argument for more state control . We certainly need less now

Mike, if you write a post on Liberal Conspiracy claiming that markets are evil and that there is no guarentee that the results of a market transaction will meet your definition of fairness, without saying anything about any alternative, you can hardly have expected this to be taken as anything but an argument in favour of government regulation and control of market outcomes.

If you did not make this argument explicitly, you made it implicitly, which is a traditional way to get people to accept arguments without examining them closely.

[28] I think you’re fairly new here, “ad”. It’s a problem with trying to develop an argument over time in this medium that some readers will have been with you since the off, while others arrive later. I’ve been arguing for some time in favour of the expansion of the “third sector” – non-market, non-State activity – of which blogs like this are an example. I agree that I might have made it plainer in my original post.

Just to recap – I’m arguing

(i) that ordinary language use supports the notion that while market prices are “freely” arrived at – although of course oligopoly suppliers are price makers, not price takers – such prices are not necessarily, or even normally “fair”. My critics basically think that the idea of a “fair” price collapses to the market price and/or that my ethical standards are too high!

(ii) business practices reflect the inequality of power between suppliers and consumers. This leads in extreme cases to outright fraud, and more generally to an attitude of “don’t get caught” – in other words, market apologists accept that there is a trade-off between greater material wealth and lower ethical standards and where we disagree is whether this is a price worth paying. It will seem more attractive the more satisfied you are with a transactional life, and the less relative value you place on sustaining and nurturing long-term relationships. It may be that the older one gets, the higher the value you accord to the latter. Whether that is so or not, there is a trade-off to be made between economic liberty and functioning community (which can be most clearly seen in labour market operations – I deliberately chose to look at markets more generally, though).

One other point I meant to add to my last comment. It would be perfectly possible to defend markets on the grounds that whilst each individual transaction is unfair, this is cancelled out in the aggregate – all the prices which are too low are offset by those that are too high. This strikes me as a far sounder defence of the role of markets, and the fact that no one offered it against my original thesis is, at least for me, further evidence that marketeers can’t, or don’t want to, separate analysis from ideology.

And, for the record, once again – I do think markets are necessary. So are sewerage systems.

Funny you say you have been developing an argument about markets Mike . I usually quite enjoy what you have to say , but , no offence , you seem to me ,to be weaker here. Conservative Policy is to replace the state with charities in Welfare provision where possible. Good thing ? I think so

Only a clown would argue against a market as a means for the distribution of resources. Crony capitalism, though, is a different kettle of fish.

[32] So people who defend the NHS are clowns in your eyes, Aaron?

Mike. You want to increase the number of non-state actors. Good, so do I. You want to increase the number of charities and co-operatives providing services. Good, so do I. You accept that markets are a necessary evil, are flawed, but are ultimately the most efficient method of distributing scarce resources.

Is that all correct? Because if we want more social enterprises and co-operatives, they’ll have to be operating within the market, as anything else creates inneficient oligopolies.

Effectively, you’re a market socialist. You’re just making the error that’s most common on the right, of assuming that markets and capitalism are synonyms, when they’re not. I favour social enterprises and cooperatives (see my mentioning John Lewis, above) over privately owned or joint stock corporations.

To me, the biggest hurdle towards a fair society is difficulties in market entries, inherited wealth (and indeed companies), oligopolies, restrictive practices and abuse of patent/copyright law. A tax and inheritance system that favours private ownership and demutualisatioin is a serious issue as well.

The old mutual building societies operated, well, within the marketplace. It was their demutualisation that seems to have caused the most problem, combined with a barrier to entry that wasn’t present when they were set up. Worth noting in the US that the two corps that caused the initial problems were effective oligopolies with state support controlloing over 50% of the US mortgage resale market. That isn’t a competetive market. That’s part of the crucial problem.

My critics basically think that the idea of a “fair” price collapses to the market price and/or that my ethical standards are too high!

Well, yes. You should apply your ethics to your purchases, as I do to mine. This has prompted the rise in the availability of organically grown food, etc.

If enough people want something, then there is a gap in the market and money to be made. If you recognise such a gap and no one filling it, you should set up in order to do so. If you cannot do so, then there is a barrier to market entry that needs to be dealt with.

Sorry that us “apologists” have an answer to everything, but as you ought to know, one of the key issues in economics is to investigate and attempt to solve the areas of market failure—an economist who denies such things happen is an economists you can ignore as an ideologue who should never have passed the first year.

in other words, market apologists accept that there is a trade-off between greater material wealth and lower ethical standards and where we disagree is whether this is a price worth paying.

No, because a) there’s not many “apologists” on here, just people who accept the basics and look to solve the problems and b) higher ethical standards are a public good that markets can and will provide if stacked the right way—look up information on externalities and pigouvian taxes/subsidies, etc, something I’ve mentioned many times in the past that I’m in favour of, as are many liberal economists.

Meh, two interruptions typing this comment,a nd now it’s 2am. Complete aside, Ad may or may not be new here, irrelevent. Most traffic to an individual post won’t come from regular readers, it’ll come from one off readers, especially search engines. If a post is part of an ongoing argument or a continuation of a debate, say so and link to previous arguments, if a commenter takes only what’s on this post and pokes holes, it’s the original authors fault, not the commenter. If you link to previous arguments that cover the holes, then it’s the commenters fault. Blogging etiquette, useful because it saves you repeating yourself…

G’night all. Remind me to come back to the subject of pigouvian taxes/subsidies at a later date someone? They really are a very good way for the left to harness markets to provide what we’re looking for. Well, until such time as we can move beyond a scarcity based economy.

[32] So people who defend the NHS are clowns in your eyes, Aaron?

See Alan Millburn is back. Which side is New Labour on now then ?

Well, yes. You should apply your ethics to your purchases, as I do to mine. This has prompted the rise in the availability of organically grown food, etc.

No-one cares about that much now

Thanks Mat – a very thoughtful response. Of course I should’ve provided links – this wretched blogging isn’t as straightforward as it looks! (And I’m learning by doing so I’m bound to get things wrong…)

I think that a society in which markets work in the way that economics textbooks want them to is about as likely as a crime-free society, and for much the same reason. The imperfections you rightly mention will I think always be with us – people will always use whatever means they can lay hold of to secure unwarranted privileges for themselves.

However, that’s not my main point. I just don’t think that the theoretical assumtpions of ceteris paribus, perfect information and “economic rationality” stand up in the real world. Neither do economists, actually: they just say that these simplifications can, first help us to understand how economic activity works, and secondly can be subsequently relaxed to return us to reality. The first of these is purely a thought-experiment and the second an act of faith.

“Fairness” is about much more than ethical shopping though. I suppose a fair transaction is one that increases the self-esteem of both parties, where such self-esteem is based an honest assessment by each of motives and needs. This suggests that fair transactions can be seen as a limit case – most transactions will be unfair, however freely entered into. The implication of this is a paradox: economic growth both increases welfare and decreases it through transactional unfairness. Because the latter cannot be measured (at least, with the tools as they have so far been developed) it is not possible to measure the effect of growth on welfare. The best argument economists could make would I suppose be to say that fairness should be abstracted from, since the fact that people freely enter into unfair transactions itself shows that fairness is a good that people only say they want, but show by their actions that they don’t value.
And this is indeed what liberal economists largely do say – that the increasing wealth of the whole justifies increasing inequality.

I also think it’s important to distinguish between the offer of co-ops and of charities. The latter operate in those areas where no market price exists – where the supply and demand curves of theory don’t meet: in effect, they offer goods or (more usually) services at below cost price. I would say that where the proposal is for a state subsidy to cover the gap, this is to be supported or rejected on a pragmatic, case-by-case basis. The test would be: does the state subsidy distort the charity’s original purpose (as it has with our larger housing associations)? can the state provide the service cheaper directly?

Co-ops offer the possibility of being “fair” suppliers in the sense I outlined above. However, they only offer the possibility (nor are they unique in doing so) – they need to be set up in a way which builds constant vigilance into their business model. And, of course, as with all suppliers, they can do little or nothing about the debilitating effect of transaction-based satisfaction on the lives of the people who engage with them. But that is perhaps a discussion for another time.

Why would an individual who has a good idea for making money want to set up his company as a co-op ?

[32] So people who defend the NHS are clowns in your eyes, Aaron?

They are actually. There are more equitable and more effective system out there (the Dutch system is a recent exemplar) and they all use markets more than the NHS. If we had even a mixed system of social insurance with government subsidy, a lot more people could be living than under the present system. About the only reasonable argument in favour of keeping the NHS is the potential turmoil of widescale reform and the likelihood of our government getting its claws even further into medicine if given the excuse.

[39] Yes, no one is able to work out how to get there from here.

[38] People may have other motives for starting an enterprise than mere (or sheer) greed.

How do you know a private company has been started for greed? What if they are raising the money to live reasonably, then build a church, donate to charity or support their family? Self-interested does not mean selfish.

Self interested /selfish what does it matter Shakespeare wrote for money people`s true motives are mingled and no-one`s business . I woud l not worry overly about the inner soul. Furthermore unless a private Company can make supernormal profits ina new sector there is insufficient temptation to enter it . You might call it greed but its offsets risk.
(If the system relies on people`s altruism then why not leave it alone , there are plenty of charities already.)

[41] Self-interested does not mean selfish – but where does one end and the other start? When New Mania says he would not worry overly about the inner soul he gives a good account of why the world is as it is.

I suppose a fair transaction is one that increases the self-esteem of both parties, where such self-esteem is based an honest assessment by each of motives and needs.

How would you apply this concept to transactions with the State? It seems the obvious question to me, as so much of public policy is about what the state should tell people to do…

New Mania says he would not worry overly about the inner soul he gives a good account of why the world is as it is.

I commune with god about my many failings on occassion I meant I would prefer the government kept its grubby fingers to itself