On Markets

by James Hanley

In my experience “discussing” libertarian ideas with liberals I’ve noticed that the term “free markets” is a real bugaboo. Whether it’s the smug question, “what is a free market,” posed as a would-be stumper or the spittle-flecked scream “there’s no such thing as a free market!” some liberals seem to think this is a devastating critique of libertarianism. On the other side, libertarians are known to gather in large groups (individually, of course) and break into a fevered chant of “free (clap clap) markets! (clap clap) free (clap clap) markets! (clap clap). So let me talk about all this in a roundabout way. In this post–the first of two, I think–I want to discuss the concept of markets, without worrying about the word “free.” if the second post gets written, then we’ll tackle the “free” concept. But for now, just markets. And to make my position clear up front, this is not a libertarian post. It’s not even a political post.

So, start with just markets, without the qualifier “free.” What is a market? Blaise P. claims

markets exist only because regulation makes them possible,

and a little later,

Barter may have existed [before government]. Markets didn’t.

This is a new one on me, the idea that exchange doesn’t become a market until it’s regulated. If it were true, then plausibly the concept of “free market” would be an oxymoron (depending on our definition of free, and how much regulation it takes to eliminate “freeness”). But I don’t think it is true. Let’s use a dictionary definition of market, to better understand this:

An actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter.

Markets include mechanisms or means for (1) determining price of the traded item, (2) communicating the price information, (3) facilitating deals and transactions, and (4) effecting distribution. The market for a particular item is made up of existing and potential customers who need it and have the ability and willingness to pay for it.

Consider what’s included and what’s not included in this definition. First, the word “free” is not included. The definition isn’t trying to make a claim about “free markets,” but just about what a market, in general, is. Notice also that the word “regulation” is not included. A market is just about people exchanging things based on prices and willingness to pay those prices (i.e., it excludes gift exchange). Finally, notice what word is included; barter. Where there is barter, there is a market. (And prices do not require money–the price of a chicken could be a peck of potatoes.) In other words, exchange of value for value is a market.

In the thread linked to above, I made the claim that markets existed before regulation. To clarify, both Blaise and I are talking about third-party regulation, or more precisely (since private mediation also counts as third-party regulation), government regulation. Of course such pre-governmental markets were barter markets, because monetary exchange is distinctly a government-created thing. But markets they were nonetheless, because value was exchanged for value.

For example, there is no clear dividing point between my neighbor’s front lawn and mine and that part of my lawn is pretty small (and I’m not a regular mower of my lawn), so he offered to mow it whenever he mows his, in exchange for a beer each time he did. Just like that. a miniscule market popped into existence. Not only is it not regulated, the government isn’t even aware it exists. And consider, I could give my neighbor two (value-regulated-by-government) dollars for mowing my lawn, with which he could buy his own bottle of beer, or I could just give him a beer. Is there a distinct enough difference there to say one is a market exchange and one is not?

Another example is the existence of trade routes among native North Americans prior to the European invasion (see image above). There was no third-party governance of these exchanges, for the most part. Two members of the same tribe might be subject to some kind of punishment if they committed fraud or theft against each other, but that was generally the extent of the regulation, and of course there was no third-party regulation even for fraud/theft when the exchange was between members of different tribes. And yet the trade market was extensive.

Keep in mind that formal government is at most about 10,000 years old, being a consequence of the development of agriculture. (Agriculture created food surpluses, which were co-opted by strong men as a means of control; as compensation for that control, the strong men also created public works and regulations to keep the societies orderly.) But modern homo sapiens as a species is behaviorally about 50,000 years old. There is no logical reason to think that trade did not take place in those 40,000 years prior to the development of formal government.

In fact there is good evidence that rudimentary markets exist outside even the human species. Primatologist Frans de Waal has shown that chimpanzees exchange food for grooming (which removes small critters from the chimps’ hair, protecting their health). And as biologist Robert Trivers famously demonstrated in The Evolution of Reciprocal Altruism, exchange in the form of cleaning services has evolved independently multiple times between unrelated fish species. “Cleaner” fish will swim into the mouths of predator fish and nibble off the nasty residues that could lead to infection. It’s an exchange of food (and the sacrifice of an easy meal) for health service, much like with the chimpanzees.

The overall point here is that exchange is so valuable that it develops naturally, with or without any external regulation. Of course for the same reason–others having things we find valuable–theft also develops naturally. Nature has no moral values. But of course humans do, and mostly we see trade as superior to theft because theft normally leaves one person less well off (it is possible someone could steal that broken tv off my porch, inadvertently doing me a favor, but that’s not the norm), whereas trade normally leaves both parties more well off (although that’s not necessarily true in all cases).

And exchange of value for value is a market. Yes, it’s a very broad term. But we can’t clarify discussion by unilaterally narrowing the definition down to what we find convenient. We have to work within the confines of the general definition and add qualifiers to the term. We might be able to talk about “free” markets (or maybe not–that will be the focus of the second post, if I write it), and we can certainly talk about third-party regulated markets (and within that we can subcategorize into government-regulated and privately-regulated markets), and we can even talk about government-created markets (exchange of SO₂ emission allowances on the Chicago Board of Trade, for example; a market that didn’t even exist in rudimentary form until created by the Clean Air Act Amendments of 1990). But those are all sub-categories of the general term.

So can we agree on that basic beginning point? That whenever two or more individuals exchange value for value they are engaging in a market? If not, I suspect we can’t even talk, because some basic agreement about fundamentals is necessary to engage in reasoned discussion.