by From Terry Hathaway – http://www.paecon.net/PAEReview/issue97/Hathaway97.pdf Watson (2018) shows that within neoclassical economics the shifting definition of the market has led to three conceptualisations of the market that are rolled into one another; the descriptive concept, the analytical concept, and the formalist concept. The descriptive concept can be seen in Smith where the idea is of “the market literally as a marketplace, with all the hustle and bustle of people going about their business” (ibid: 21). The analytical concept is the most common economics textbook account and is used to describe market-clearing dynamics. It stems from neoclassical thinking about partial equilibrium in a single product market. Finally, the formalist concept is the concept deriving from general
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from Terry Hathaway – http://www.paecon.net/PAEReview/issue97/Hathaway97.pdf
Watson (2018) shows that within neoclassical economics the shifting definition of the market has led to three conceptualisations of the market that are rolled into one another; the descriptive concept, the analytical concept, and the formalist concept. The descriptive concept can be seen in Smith where the idea is of “the market literally as a marketplace, with all the hustle and bustle of people going about their business” (ibid: 21). The analytical concept is the most common economics textbook account and is used to describe market-clearing dynamics. It stems from neoclassical thinking about partial equilibrium in a single product market. Finally, the formalist concept is the concept deriving from general equilibrium neoclassical models. However, as Watson notes, “nobody can relive their everyday economic experiences and imagine themselves in the context captured by the formalist market concept in the same way that they can in the context captured by the descriptive market concept. General equilibrium models have a curious dual characteristic of being irreducibly products of the mind but simultaneously impossible to call to mind in any familiarly recognisable form” (ibid: 28). In essence, as White (as quoted in Swedberg, 2009: 121) explains, the central problem with neoclassical definitions of the market is that “there does not exist a neoclassical theory of the market – [only] a pure theory of exchange”.
Seeking to move beyond the standard economic definition, non-neoclassical authors have reached for alternative abstract principles by which “market” can be defined. Weber (1978: 635) offers a broad definition that emphasises the existence of alternatives, writing that “a market may be said to exist wherever there is competition, even if only unilateral, for opportunities of exchange with a plurality of potential parties”. Block (1990: 50-51) instead uses a more restrictive definition based on the separation of actors, arguing that “the term market should be reserved for situations in which relatively independent actors come together to make economic transactions of limited duration.”
What is missing within all these definitions is the thing that Cournot stripped out – the role of place in a marketplace. Place is essential to markets as it is where buyers come looking for, and expecting to find, goods and services; what marketplaces do is centralise exchange. Centralisation, in turn, is what facilitates competition between sellers. One element of this facilitation is that centralisation keeps information costs low for sellers, thereby enabling their competition over custom – within a marketplace rivals are easily identifiable and their pricing and business strategies are clear. The place need not be physical, and increasingly isn’t. eBay, for example, is an electronic market that works to centralise economic exchange by being a place for individual sellers to promote and sell their goods.
Furthermore, unlike in neoclassical understandings the market is not a singular mechanism or institutional set-up – as a place it can be formally and informally instituted in many different ways. Pricing, for example, can occur through haggling, posted prices, auctions, etc. As such, being able to set the rules of a market and to extract tribute for access to a market provides a source of power within the economy – it’s in this light that we should consider many of the new digital markets like Amazon, Deliveroo or UberEats.
A market, then, should be defined as a centralised place of exchange with multiple sellers. Applying this definition, however, renders markets a much more marginal part of contemporary capitalism. While exchange is central to capitalism, the vast majority of exchange does not take place in a market. For example, the primary organisation responsible for food distribution – the supermarket – does not count as a market, as it’s a centralised place of exchange with only one seller; its offerings are akin to a menu rather than a market. Similarly, the “labour market” is not a market at all, with most labour instead being provided through contractual relations (i.e. ongoing relationships) with firms. When individuals are “on the market” for labour – when they are actively looking for a job – and seeking a job through direct applications (Granovetter, 2018: 11) they will engage in a series of discrete one-shot competitions against different self-selecting and relatively tiny pools of applicants who consider themselves capable of doing the job and who find the contractual terms being offered sufficient; there is no centralised place of exchange with labour.