The term “market” evokes imagery of a medieval city center or town square filled with merchants peddling food or wares and haggling over prices with interested customers. I used to enjoy going to the farmer’s market in New York City’s Union Square when I lived in Manhattan. Many of the farmers came from the area where I grew up, about 70 miles north of the city. It was interesting to see how the prices aligned throughout the day.

A market depends on the conditions of voluntary exchange where buyers and sellers are free to accept or reject the terms offered by the other. Voluntary exchange assumes that trading between persons makes both parties to the trade subjectively better off than they were before the trade.

Markets also assume that competition exists between sellers and between buyers. Economic models of markets are based on perfect competition, where no seller or buyer can control the price of an “economic good.” In this vision of a somewhat Utopian economic system, the acts of individuals working in their own self-interest will operate collectively to produce a self-correcting system. Prices will move to an “equilibrium point” where producers of economic goods will supply an adequate amount to meet the demand of consumers willing to pay that price. Unless someone was cheated, both parties end the transaction satisfied because the exchange has gained them some advantage or benefit.

An important condition is the “effective demand” of consumers – do the buyers of economic goods have sufficient bargaining power – mainly money. Consumers must have the desire, plus the money to back it up. Central to any market is a mutually accepted means of payment. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for currency from buyers. Any medium of exchange will depend on trust in the monetary mechanism as buyers and sellers must readily accept and part with it for a market to function effectively.

Money has had a long history of being things, most notably gold. Gold has striking physical attributes: it doesn’t rust, it doesn’t chip, and it can be melted into a variety of shapes. Other metals, such as silver and platinum, have also served as money. The supply of these money types did not grow sufficiently to support modern economies, so governments have provided fiat money that lubricated market transactions and expanded their economies tremendously.

It is interesting that societies gravitate towards the use of some symbolic entity to facilitate these transactions. At its most basic level, money can be anything that a buyer and seller agree is money. At times, commodities such as rice or tobacco and even alcohol have served the roles of money. Market enthusiasts often overlook the importance of the currency, focusing instead on the behaviors of market participants.

The pros and cons of markets are hotly debated today. Some believe markets are an ideal system to organize society. They often cite Adam Smith’s famous “invisible hand” as the God-given mechanism that organizes a harmonious society based on market activity. Others believe markets are prone to failure and give rise to unequal conditions and challenge democratic participation.

One of the best explanations of the strengths and weaknesses of the market system comes from The Business of Media Corporate Media and the Public Interest (2006) by David Croteau and William Hoynes. They point to the strengths of markets such as efficiency, responsiveness, flexibility, and innovation. They also discuss the limitations of markets as well. These include enhancing inequality, amorality, failure to meet social needs, and the failure to meet democratic needs. Below is a summary of some of their key ideas.

The market provides efficiency by forcing suppliers to compete with each other and into a relationship with consumers that requires their utmost attention. The suppliers of goods and services compete with one another to provide the best products, and the competition among them forces them to bring down prices and improve quality. Firms become organized around cutting costs and finding advantages over other companies. They have immediate incentives to produce efficiencies as sales and revenue numbers from market activities provide an important feedback mechanism.

Responsiveness is another feature of markets that draws on the dynamics of supply and demand. Companies strive to adapt to challenges in the marketplace. New technologies and expectations, incomes, tastes, and consumer preferences require companies to change their products, delivery methods, and retail schedules. Likewise, consumers respond to new conditions in their ability to shop for bargains, find substitute goods, and adopt new trends.

Flexibility refers to the ability of companies to adapt to changing conditions. In the absence of a larger regulatory regime, companies are able to produce new products, new versions of products, or move in entirely new directions. In a market environment, companies can compete for consumers by making changes within their organizational structure, including adjustments in production, marketing, and finance.

Lastly, markets stimulate innovation in that they provide rewards for new ideas and products. The potential for rewards, and necessities of gaining competitive advantages, drive companies to innovate. Rewards include market share, but also increased profits. They point out that without competition, firms avoid risk, an essential component of innovation as many experiments fail.

Croteau and Hoynes also point out serious concerns about markets that economists do not generally address.

The tendency of markets to reproduce inequality is one important drawback to markets. While some inequality produces contrast and incentives to work hard or to be entrepreneurial, a society with a major divide between haves and have-nots will tend towards dystopia, a “sick” place. Thomas Piketty’s Capital addresses this issue head-on and warns that capital gravitates towards more inequality, and the trickle-down effects tend to lead to a slower and slower drip. Neo-elites benefiting from the rolling back of the estate tax have advantages that others don’t have. Croteau and Hoynes use the metaphor, “one dollar, one vote,” to refer to the advantages the rich have over the poor, as they have many more dollars and, thus, many more votes.

The second concern they have about markets is that they are amoral. Not necessarily immoral, but rather that the market system only registers purchases and prices and doesn’t make moral distinctions between, for example, human trafficking, drug trafficking, and oil trafficking. The commerce in a drug to cure malaria does not register differently from a drug that provides temporary physical stimulation. Markets do not judge products unless it registers changes in demand. It does not favor child care, healthy foods, or fuel-efficient cars unless customers make their claims in currency.

Can markets meet social needs? This concern has been a pressing question for the last thirty years as market enthusiasts often forwarded privatization as an effective strategy to replace government services – for some of the reasons listed above. However, many services and sometimes goods should probably be provided by some level of government – defense, education, family care and planning, fire protection, food safety, law enforcement, traffic management, roads, and parks.

Can markets meet democratic needs? Aldous Huxley warned of a society with too many distractions, too much trivia, seeped in drugged numbness and pleasures. Because markets are amoral, they can become saturated with economic goods that service vices rather than public spirit. In this case, competition may result in a race to the lowest common denominator rather than higher social ideals. Rather than political dialogue that would enhance democratic participation, the competition among media businesses tends to drive content toward sensationalist entertainment.

Comedian Robin Williams once quipped, “Cocaine is God’s way of telling you that you are making too much money.” Markets are a robust system of material production and creative engagement, but they create many inequalities, often with products and services of dubious social value. How a society enhances and/or tempers market forces continues to be a significant challenge for countries worldwide.

Summary

The term “market” refers to an arrangement or mechanism that connects sellers and buyers to negotiate and facilitate transactions. Historically evoking imagery of town squares and farmer’s markets, markets operate on voluntary exchange, competition, and effective demand, relying on mutually accepted currency for smooth functioning.

David Croteau and William Hoynes, in The Business of Media: Corporate Media and the Public Interest (2006), highlighted the strengths of markets, such as efficiency, responsiveness, flexibility, and innovation. They note that markets foster competition, drive innovation, and adapt to changing consumer needs. However, they also critique markets for enhancing inequality, being amoral, failing to meet social needs (like education, healthcare, and public infrastructure), and undermining democratic participation.

Concerns include markets’ reproduction of wealth inequality, lack of moral judgment in transactions, and inability to address societal needs effectively. For instance, markets prioritize profit over the equitable distribution of essential goods or services. Additionally, markets can encourage sensationalism and trivial pursuits, detracting from higher democratic ideals. While markets are vital for material production and innovation, balancing their influence with social and ethical considerations remains a global challenge.

Citation APA (7th Edition)

Pennings, A.J. (2015, Oct 4) Markets: Pros and Cons. apennings.com https://apennings.com/dystopian-economies/markets-pros-and-cons/

Hypertext Links in APA Style

Union Square Greenmarket: GrowNYC. (n.d.). Union Square Greenmarket. Retrieved from https://www.grownyc.org/greenmarket/manhattan/union-square

Pennings, A.J. (2010, Aug 30) Smith Effect 1: Markets, Government, and the Rise of Information Technologies. apennings.com https://apennings.com/dystopian-economies/the-smith-effect-markets-and-bureaucracy/

Piketty, T. (2014). Capital in the Twenty-First Century. Retrieved from https://www.hup.harvard.edu/catalog.php?isbn=9780674430006

Croteau, D., & Hoynes, W. (2006). The Business of Media: Corporate Media and the Public Interest. Retrieved from https://www.sagepub.com

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Anthony J. Pennings, PhD is a Professor at The State University of New York (SUNY Korea) and a Research Professor at Stony Brook University. Previously, he taught at St. Edwards University in Austin, Texas and was on the faculty of New York University from 2002-2012. He also taught at Victoria University in Wellington, New Zealand and was a Fellow at the East-West Center in Honolulu, Hawaii.

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Category: digital media economics, dystopian economies
Tags: Adam Smith > Croteau and Hoynes > invisible hand > market fundamentalism > Robin Williams > Thomas Piketty

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