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Well Prabhu, let me take a short crack at a rather long question:
You first ask, "what purposes?"
My first point would be to criticize my own sloppy use of the word
"markets." In throwing out such a word for an infinity of mediating arenas
I make it seem as if there is one thing--a unique ontological verity--that
rightly deserves the representational term "market." This is, of course,
not the case at all. So when I attempt to answer the question "for what
purposes?" I am forced to start making a long list of conditions and
attributes that will withstand criticism as I proceed to say to you: "see,
for this specific purpose, a constellation of conditions and attributes
under the description of a 'market' would seem to be an effective way for
two or more people to exchange future net value." And what purposes might
be well served under that description of a market? If one trusts
individuals to know their own best interests, if one is convinced that
their respective income and wealth position offers them roughly equal
abilities to withdraw (to change their mind) from a prospective deal, if
one is sure that their agreement in this bi-lateral arrangement carries
insignificant implications for all others not party to the transaction, and
with a few other conditions thrown in for good measure, then the PURPOSE to
be served by this transaction is one of REVELATION of their relative
interests in proceeding with the exchange. Notice that the purpose is
revelation, not exchange. Exchange of ownership follows revelation. Most
of us think (because we tend to teach it this way) that price is the cause
(antecedent) of exchange in a market. Wrong, price is the effect (result)
of revelation and, possibly, a completed transaction.
So, settings and circumstances that seem to fit an acceptable description
of a "market" serve the purpose of revelation first, and possible exchange
second. Do we always trust or believe in the realized revelation? Of
course not.
So when I said "agreeable" I simply meant that under a long list of
conditions, what we might agree as a "market" transaction serves the
process of revelation and exchange in a reasonably "agreeable" way. It
works and we see little reason, in this particular setting, to dispute
it. When I visit a restaurant I am conducting an exercise in revelation
and most probably exchange. This approaches an acceptable description of a
"market" and the purpose to be served here is one of making both
transactors (me and the chef/owner) agreeably better off.
Your paragraph on "government" as an instrument is, I fear, in need of some
refinement. Parliaments are instruments for law making. Courts are
instruments for law making, law clarifying, and sometimes the overturning
(invalidating) of laws made by others (say parliaments). The Environmental
protection Agency is an instrument for another purpose. The Food and Drug
Administration is an instrument for another purpose. But of course the
Catholic Church is easily seen to be an instrument for yet another
purpose. So we see that one does not clarify things much by saying that
government is an instrument. We must ask: which parts of government, each
with its own purpose, is an instrument for this particular task?
The reason I wish to pick on you a little here is that you are well on your
way to an unhelpful but durable dichotomy in economics--there are markets
and then there are governments. This dichotomy is incoherent and cannot be
allowed to rule the conversation. The reason was suggested above. There
is no such thing as THE market--there are an infinity of arenas in which
revelation and exchange occurs, each one uniquely defined by the legal
structures within which it is embedded. And "government" must be unpacked
as well.
Doing so helps us see that the restaurant "market" is a particular
construct in which the agriculture department (government) plays a major
role in the production and certification of the commodities on offer there,
the health department (government) plays a major role in the standards of
cleanliness in the kitchen there, the labor department (government) plays a
major role in the labor conditions there, the immigration department
(government) plays a major role in who shows up to apply for work there,
the environment department (government) plays a major role in what happens
to the garbage that appears at the back door on Thursday mornings, etc.,
etc., etc. If we think that restaurants (or other markets) just appear
from the morning mist then we do not see the economy as it is.
Sorry, this is already too long.
Dan Bromley
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Daniel W. Bromley
Anderson-Bascom Professor of Applied Economics
331 Taylor Hall, University of Wisconsin
Madison, WI 53706
(T) 608.262.6184 (F) 608.265.3061
HOME PAGE: http://www.aae.wisc.edu/bromley
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