Originally, a kind of place where buyers and sellers gathered and agreed prices by a noisy process resembling a street-auction, with all the participants in ear-shot of one another. In modern times, the concept of market is extended by analogy to refer to a “social space” where products are sold and prices agreed in a way approximating the “ideal” conditions of the ancient marketplace – but in reality sales are transacted at widely separated times and places. “As Cournot says, ‘Economists understand by the term Market, not any particular market place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality easily and quickly.’ [Recherches sur les Principes Mathématiques de la Théorie des Richesses, ch. IV] “Or again as Jevons says: - ‘Originally a market was a public place in a town where provisions and other objects were exposed for sale; but the word has been generalised, so as to mean any body of persons who are in intimate business relations and carry on extensive transactions in any commodity. A great city may contain as many markets as there are important branches of trade, and these markets may or may not be localised. The central point of a market is the public exchange, mart or auction rooms, where the traders agree to meet and transact business. In London the Stock Market, the Corn Market, the Coal Market, the Sugar Market, and many others are distinctly localised; in Manchester the Cotton Market, the Cotton Waste Market, and others. But this distinction of locality is not necessary. The traders may be spread over a whole town, or region of country, and vet make a market, if they are, by means of fairs, meetings, published price lists, the post-office or otherwise, in close communication with each other.’ [Stanley Jevons, Theory of Political Economy, ch. IV] “Thus the more nearly perfect a market is, the stronger is the tendency for the same price to be paid for the same thing at the same time in all parts of the market: but of course if the market is large, allowance must be made for the expense of delivering the goods to different purchasers; each of whom must be supposed to pay in addition to the market price a special charge on account of delivery.” [Alfred Marshall, Principles of Economics, 1890, Book 5, Chapter 1, On Markets] “A market” is therefore an extended social formation in which the needs of people are met by the labour of other people through a network of exchange relations connecting everyone who is part of the given market. “Market” is also used with the more generalised meaning of “effective demand” – i.e., the presence of people both willing and able to pay for a given commodity. Aside from being a means of effecting the exchange of products, a market functions to assign a price to the product each person brings to the market. Adam Smith explained how the market determines price as follows: “... market price will be liable to great fluctuations, will sometimes fall a good deal below, and sometimes rise a good deal above their natural price. In the other species of industry, the produce of equal quantities of labour being always the same, or very nearly the same, it can be more exactly suited to the effectual demand. While that demand continues the same, therefore, the market price of the commodities is likely to do so too, and to be either altogether, or as nearly as can be judged of, the same with the natural price. ... “... fluctuations affect both the value and the rate either of wages or of profit, according as the market happens to be either overstocked or understocked with commodities or with labour; with work done, or with work to be done. ... “But though the market price of every particular commodity is in this manner continually gravitating, if one may say so, towards the natural price, yet sometimes particular accidents, sometimes natural causes, and sometimes particular regulations of police, may, in many commodities, keep up the market price, for a long time together, a good deal above the natural price.” [Adam Smith, Wealth of Nations, 1776, Book I, Chapter 7] From the time of John Stuart Mill onward, bourgeois economists gave to the market a much greater power than did Adam Smith in the determination of price. Whereas for Adam Smith, there is such a thing as a “natural price” or “value”, to which market price “gravitates”, for later economists, is it solely the market which determines price. For example, in the words of Alfred Marshall: “[There is a] growing belief that harm was done by Ricardo’s habit of laying disproportionate stress on the side of cost of production, when analysing the causes that determine exchange value. ... the conditions of demand played as important a part as those of supply in determining value ... “The larger the amount of a thing that a person has the less, other things being equal (i.e. the purchasing power of money, and the amount of money at his command being equal), will be the price which he will pay for a little more of it: or in other words his marginal demand price for it diminishes. “His demand becomes efficient, only when the price which he is willing to offer reaches that at which others are willing to sell....” “There is then one general law of demand: -The greater the amount to be sold, the smaller must be the price at which it is offered in order that it may find purchasers; or, in other words, the amount demanded increases with a fall in price, and diminishes with a rise in price. ... “The price will measure the marginal utility of the commodity to each purchaser individually ...” [Alfred Marshall, Principles of Economics 1890, Book 3 Chapter 3] In more recent times (Kenneth Arrow for example), the conception of market is more developed still, being conceived of as a network of economic agents who send messages to one another (with a finite transmission time) and compute their response (with finite computing power) and the result is a chaotic and dynamic process resembling the activity of futures speculators on the money markets, far removed from nineteenth century concepts of equilibrium. Exchange of labour is the most basic form of labour cooperation, so the formation of a market is the first step towards the formation of a society; thus market-places develop into towns and nations are built on the basis of common markets. “The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere. “The bourgeoisie has, through its exploitation of the world market, given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.” [Communist Manifesto, Chapter 1] The most controversial thing about markets may be, however, the tendency among neo-liberal or “economic rationalist” politicians to “deify” the market, to invest it with powers for providing for human good that it does not have. In Wealth of Nations, Adam Smith famously said: “... he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.” [Adam Smith, Wealth of Nations, Chapter 2, Book 4] Only the most vulgar economist would argue, however, that the market can solve every social problem, and it is not just a question of the state having to look after the old and sick: “Capital undertakes only advantageous undertakings, ... The highest development of capital exists when the general conditions of the process of social production are not paid out of deductions from the social revenue, the states taxes ... but rather out of capital as capital. This shows the degree to which capital has subjugated all conditions of social production to itself, on one side; and, on the other side, hence, the extent to which social reproductive wealth has been capitalised, and all needs are satisfied through the exchange form;” [Grundrisse, Part 10] The Great Depression ended forever the idea that the market would always find a point of equilibrium in which everyone’s needs could be met. John Maynard Keynes’ General Theory of Employment, Interest and Money, which appeared in 1935, showed that even in a depression, there was no wage so low that it could eliminate unemployment. Keynes explained the origins of unemployment and depression in terms of aggregate demand – the total spending of consumers, business investors, and public agencies. Because consumers were limited in their spending by the size of their incomes, Keynes held that were not the source of business cycle fluctuations; the dynamic actors were business investors and governments. In depressions, the thing to do was either to enlarge private investment or to create public substitutes for private investment deficiencies. In mild economic contractions, monetary policy in the shape of easier credit and lower interest rates might stimulate business investment and restore the aggregate demand caused by full employment. Severer contractions required deliberate public deficits either in the shape of public works or subsidies to afflicted groups. After World War II, Western governments all affirmed their commitment to Keynesian economics to limit the damaging effects of market fluctuations and limit unemployment. When Keynesian mechanisms exhausted themselves in the late-1960s, they were supplemented with the Monetarist methods of Milton Friedman. Nevertheless, the aphorism that “the road to hell is paved with good intentions” has merit, and any thoughts of simply “abolishing” the market in favour of planning should be entertained with caution. For example, Trotsky explained how the outcome of the period of “Military Communism” in the USSR during which the market was suppressed: “The program of the Bolshevik party adopted in March 1919 said: ‘In the sphere of distribution the present task of the Soviet Government is unwaveringly to continue on a planned, organised and state-wide scale to replace trade by the distribution of products. “Reality, however, came into increasing conflict with the program of “military communism”. Production continually declined, and not only because of the quenching of the stimulus of personal interest among the producers. The city demanded grain and raw materials from the rural districts, giving nothing in exchange except varicoloured pieces of paper, named, according to ancient memory, money. And the muzhik buried his stores in the ground. The government sent out armed workers’ detachments for grain. The muzhik cut down his sowings. [Revolution Betrayed, Chapter 2] Trotsky then tells, on the other hand, of the outcome of the introduction of the market in the young Soviet Union: “The market, legalised by the NEP, began, with the help of an organised currency, to do its work. As early as 1923, thanks to an initial stimulus from the rural districts, industry began to revive. And moreover it immediately hit a high tempo. It is sufficient to say that production doubled in 1922 and 1923, and by 1926 had already reached the pre-war level-that is, had grown more than five times its size in 1921. At the same time, although at a much more modest tempo, the harvests were increasing. “Beginning with the critical year 1923, the disagreements observed earlier in the ruling party on the relation between industry and agriculture began to grow sharp. In a country which had completely exhausted its stores and reserves, industry could not develop except by borrowing grain and raw material from the peasants. Too heavy “forced loans” of products, however, would destroy the stimulus to labour. Not believing in the future prosperity, the peasant would answer the grain expeditions from the city by a sowing strike. Too light collections, on the other hand, threatened a standstill. Not receiving industrial products, the peasants would turn to industrial labour to satisfy their own needs, and revive the old home crafts. The disagreements in the party began about the question how much to take from the villages for industry, in order to hasten the period of dynamic equilibrium between them. The dispute was immediately complicated by the question of the social structure of the village itself. ... “The scattered character of the peasant economy, inherited from the past, was aggravated by the results of the October revolution. The number of independent farms rose during the subsequent decade from 16 to 25 million, which naturally strengthened the purely consummatory character of the majority of peasant enterprises. That was one of the causes of the lack of agricultural products. “A small commodity economy inevitably produces exploiters. In proportion as the villages recovered, the differentiation within the peasant mass began to grow. This development fell into the old well-trodden ruts. The growth of the rich farmers far outstripped the general growth of agriculture. The policy of the government under the slogan “face to the country” was actually a turning of its face to the kulak. Agricultural taxes fell upon the poor far more heavily than upon the well to do, who moreover skimmed the cream of the state credits. The surplus grain, chiefly in possession of the upper strata of the village, was used to enslave the poor and for speculative selling to the bourgeois elements of the cities.” [Revolution Betrayed, Chapter 2] This passage brings out sharply the following fundamental fact: the market is the very soil on which bourgeois social relations in their entirety and bourgeois social consciousness arises. From the establishment of markets, a long period of time may pass before giving rise to capital, but such a growth is inevitable. In the last decades of the Soviet Union, there was much discussion about how, if at all, socialism could be combined with the market, about “market socialism”. For example, Mikhail Gorbachev put it this way in his 1987 book Perestroika: “... the management system which took shape in the thirties and forties began gradually to contradict the demands and conditions of economic progress. Its positive potential was exhausted. It became more and more of a hindrance, and gave rise to the braking mechanism which did us so much harm later. Methods for extreme situations were still being used. “The dogmatism here stimulated the development of a ‘spend-away’ economy [planning method in which growth is achieved by building more plants and employing more workers, rather than by improvement in production methods], which gained great momentum and continued to exist until the middle eighties. Herein lie the roots of the notorious ‘gross-output approach,’ [planning which emphasised increasing gross output rather than quality of the real level of demand] which has until recently dominated our economy. “It was as in these conditions that a prejudiced attitude to the role of commodity-monetary relations and the law of value under socialism developed, and the claim was often made that they were opposite and alien to socialism. All this was combined with an underestimation of profit-and-loss accounting, and produced disarray in pricing, and a disregard for the circulation of money. “In the new conditions the narrow democratic basis of the established system of management began to have a highly negative effect. Little room was left for Lenin’s idea of the working people’s self-management. Public property was gradually fenced off from its true owner - the working man. This property frequently suffered from departmentalism and localism, becoming a no man’s land and free, deprived of a real owner. Ever increasing signs appeared of man’s alienation from the property of the whole people, of lack of coordination between public interest and the personal interests of the working person. This was the major cause of what happened: at the new stage the old system of economic management began to turn from a factor of development into a brake that retarded socialism’s advance.” [Perestroika, Mikhail Gorbachev, 1987] In 1932, Trotsky explained the problem thus: “If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of the union, that could forecast the results of their interconnections – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. ... “The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable degree, realised through the market. The regulation of the market itself must depend upon the tendencies that are brought out through its mechanism. The blueprints produced by the departments must demonstrate their economic efficacy through commercial calculation. The system of the transitional economy is unthinkable without the control of the ruble. This presupposes, in its turn, that the ruble is at par. Without a firm monetary unit, commercial accounting can only increase the chaos. “The processes of economic construction are not yet taking place within a classless society. The questions relating to the allotment of the national income compose the central focus of the plan. It shifts with the direct development of the class struggle and that of social groups, and among them, the various strata of the proletariat itself. These are the most important social and economic questions: the link between that which industry obtains from agriculture and that which it supplies to it; the interrelation between accumulation and consumption, between the fund for capital construction and the fund for wages; the regulation of wages for various categories of labour (skilled and unskilled workers, government employees, specialists, the managing bureaucracy); and finally the allotment of that share of national income which falls to the village, between the various strata of the peasantry. All these questions by their very nature do not allow for a priori decisions by the bureaucracy, which has fenced itself off from intervention by concerned millions. “The struggle between living interests, as the fundamental factor of planning, leads us into the domain of politics, which is concentrated economics. The instruments of the social groups of Soviet society are, should be: the Soviets, the trade unions, the cooperatives, and in first place the ruling party. Only through the intersection of these three elements, state planning, the market and Soviet democracy, can the correct direction of the economy of the transitional epoch be attained. Only thus can be assured, not the complete surmounting of contradictions and disproportions within a few years (this is utopian!), but their mitigation, and through that the strengthening of the material bases of the dictatorship of the proletariat until the moment when a new and victorious revolution will widen the arena of socialist planning and will reconstruct the system.” (The Art of Planning, from The Soviet Economy in Danger, Trotsky, October 22 1932). Trotsky summed up the position with the market in Revolution Betrayed as follows: “Money cannot be arbitrarily “abolished”, nor the state and the old family “liquidated”. They have to exhaust their historic mission, evaporate, and fall away. The deathblow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude towards every excess minute of labour, and our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust, money will turn into mere book-keeping receipts for the convenience of statisticians and for planning purposes. In the still more distant future, probably these receipts will not be needed. But we can leave this question to future generations, who will be more intelligent than we are”. [Revolution Betrayed, Chapter 4]
Posted on: Thu, 08 Jan 2015 21:41:13 +0000
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