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

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…

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

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.

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.

No-one cares about that much now

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

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.

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

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).

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.

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

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.

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.

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?