The Market System

The Market System: What It Is, How It Works, and What To Make of It

Copyright Date: 2001
Published by: Yale University Press
Pages: 304
  • Cite this Item
  • Book Info
    The Market System
    Book Description:

    In the wake of the collapse of communism, we hear much about the victory of the "market system." Just what is the market system? This clear and accessible book begins by answering this question, then goes on to explain how the market system works and what it can and cannot do. Charles E. Lindblom, writing in nontechnical language for a wide general audience, offers an evenhanded view of the market system. His analysis of the great questions that surround the market system is sometimes unexpected, always illuminating: Is the market system efficient? Is it democratic? Does it despoil the environment? Does it perpetuate inequalities? Does it debase personality and culture?Big choices are yet to be made about the future of the market system, observes Lindblom. He outlines what these choices are and how they will affect not only our economic well-being but also our social and political lives. For market systems organize or coordinate more than just the flow of commodities, he shows. They influence human behavior in all its dimensions.

    eISBN: 978-0-300-12908-3
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. [i]-[iv])
  2. Table of Contents
    (pp. [v]-[viii])
  3. 1 Market System Ascendant
    (pp. 1-16)

    The massive social changes with which the twentieth century gave way to the twenty-first have written the preface to this book. Much of the world began an unexpected transformation. Communist systems are abandoning central planning of their economies and struggling to establish the market system in its place. China freed its farmers to produce and sell for profit rather than under instruction from the state. It began moving industry out from under the system of state-prescribed targets and quotas. Less buoyant, Russians try to swim in the same tide, both their Berlin Wall and their economy having come down in...

  4. Part One: How It Works
    • 2 Society’s Coordination
      (pp. 19-34)

      Having presented the market system as a method of social coordination, I need now ask: What does social coordination (or organization) consist of? How is it accomplished? Coordination is a big concept. It will open the way to show the broad effects of the market system on society rather than confine its effects to that segment of society called the economy.

      For the time being, let us rid ourselves of the idea of an economic system. Pretend that we have never heard of any such thing. Also drive out of our minds concepts usually used to explain the market system,...

    • 3 Market-System Coordination
      (pp. 35-51)

      The market system is a mammoth coordinator through mutual adjustment and is especially adapted to the difficulties of coordination in the face of scarcity. Many of us—even some economists—believe that the market system coordinates economic behavior and only economic behavior, as though there exists some identifiable area of behavior called economic, which is the only behavior that the market system can coordinate. That belief has to be abandoned. The fact is that the market system coordinates an enormous range of behavior, just what variety we do not yet know. Again, think society, not economy.

      Although even Cro-Magnons traded...

    • 4 Bones Beneath Flesh
      (pp. 52-60)

      The market system is not a place or a thing or even a collection of things. It is a set of activities of distinctive pattern. Certain customs and rules are required to make a market system, and to the degree that they are observed, a market system exists. Think of them as constituting the skeleton of the market system.

      To identify these customs and rules is to throw various lights on the market system. They illuminate, for example, how it could have come into being and why participants play the roles they do. The lights also reveal the tight connections...

    • 5 Enterprise and Corporation
      (pp. 61-83)

      In market-system coordination, everyone gets into the act. Among those coordinated there are no inactive or passive nonparticipants. Yet, as I have said, entrepreneurs and enterprises, the largest of which are corporations, are the kingpins. What are the powers of these market participants? How are they controlled? I think we can do better than such popular formulations as that corporations today rule the world (they do and they don’t), that enterprises are governed by irresponsible rapacious executives (often the case but of less significance than might first appear), that, for good or bad, corporations have displaced the market system (a...

    • 6 Maximum Reach
      (pp. 84-96)

      What is the maximum domain, scope, or reach of the market system? At this maximum, which of a society’s tasks or processes can be coordinated by the market system? In recent times, proposals have abounded to organize through the market system various activities earlier assumed to be beyond market scope—the operation of prisons is an example. Whether it makes sense to try to expand or constrict the market system depends on an understanding of what it can and cannot do. Can it, for example, organize collective efforts or only individual efforts?

      Clearly it is possible to coordinate the disposal...

    • 7 Chosen Domain
      (pp. 97-108)

      Wisely or foolishly, societies—more specifically those masses or elites that make policy—choose not to use the market system as fully as they might. They turn instead to other methods of coordination, or they mix the market system with the others. Public education in most societies is not organized by market demand, although teachers are recruited through the market system. Many societies also try to keep child labor—or narcotics or judicial decisions—out of the market system. Why do societies curb the use of the market system? It is not hard to find good reasons, and some poor...

  5. Part Two: What To Make of It
    • 8 Quid Pro Quo
      (pp. 111-122)

      The market system works well enough to induce societies—East and West, North and South—to make increasing use of it. Its great accomplishments lead many of its enthusiasts to overlook the dark side apparent to its critics. Yet who can deny that most market systems, among them the most wealthy, leave great numbers of people in poverty? Or that they blight many lives and destroy many communities?

      In this group of chapters I want to examine selected attributes of the market system that are especially pertinent to anyone’s evaluations of it. Is the market system efficient? Does it support...

    • 9 What Efficiency Requires
      (pp. 123-139)

      Despite what we have said about the rule of quid pro quo, all over the world a pattern of market-system success seems clear. Although some market societies—Paraguay, for example—leave most people in poverty, the highest standards of living for masses of people are found only in the market societies. To Adam Smith the market system accounted for the “wealth of nations.” His explanation, once derided in some circles, seems confirmed by the collapse of communist systems, whose central direction of economic life increasingly lagged behind the market systems in output and standard of living. In the third world...

    • 10 Market-System Efficiency
      (pp. 140-146)

      In the real world, how are efficiency prices established? Strictly speaking, they are only approximated. How approximated? By interchanges in markets in which, as in the game in the gym, participants can endlessly engage in favorable exchanges. As in the game, it is required that the presence of many buyers and sellers constrains monopoly and that no one has the power to fix prices—that is, government desists on the whole from price fixing. To the degree that these conditions are met, market systems give rise to and make use of efficiency prices.

      That is a core claim for market-system...

    • 11 Inefficiencies
      (pp. 147-165)

      Some attributes of the market system point to great exceptions or limits to its claims to efficiency in the production of services and goods. I shall not attempt the whole list, for many have already been mentioned and some are too familiar to need discussion. Let us look with a cool mind at the most fundamental—and most illuminating. These are inefficiencies that stir strong emotions and rhetorical excess.

      Perhaps the most telling market inefficiency is that, although efficiency requires that all benefits and costs be weighed regardless of where they fall, market participants weigh only their own. Of course,...

    • 12 Too Little, Too Late
      (pp. 166-177)

      Suppose there were no spillovers, no compulsory terminations, no monopoly, no price fixing, no ignorance and irrationality in choice, and no motivational failures. Could the market system then achieve a high degree of allocative efficiency? One might think so, but the answer is no—unless, of course, efficiency is simply redefined to make the answer come out yes. There remains a barrier to efficiency, for the market system can operate only within a limited domain. Many efficient allocations consequently lie beyond its capacity.

      The principal limitation on its domain, we already know, is that it can coordinate only those allocations...

    • 13 Freedom?
      (pp. 178-192)

      As I read and listen to what people say about the merits of the market system, whether in scholarly publication or the heat of argument, a key claim is that it gives a society not only efficiency but freedom.

      To determine the attributes of the market system that bear on freedom or liberty, we had first better say something about what these great words mean. Even in the most tyrannical of societies, life showers everyone with more freedoms or liberties than can be counted. We are all free to do countless things of little or no impact on others: to...

    • 14 Personality and Culture
      (pp. 193-211)

      I do not hear of anxieties about the effects of the market system on personality and culture from as many voices as declare that it makes us prosperous and free. Yet for some observers of the market system, concerns about personality and culture are intense.

      At his touted best, market man is blessed with a multiplicity of choices of career and life style. He is informed on the burdens of each of the choices he might make, and he is free to choose. Admirable! But is he ever at his best? For 150 years many critics have said no. Not...

    • 15 Persuading the Masses
      (pp. 212-225)

      There develops in market systems a distinctive or pivotal form of interaction to which we have given only passing attention. It bears on efficiency, freedom, and personality and culture. Entrepreneurs—think of them again as market elites—greatly engage in unilateral communication to influence mass. It is a pattern of interaction far removed from the celebrated “competition of ideas” of democratic theory, for mass cannot reply. The pattern represents not an attempt to enlighten the masses but to induce them to buy what market elites are in a position to sell.

      Now if it were consequently true that consumers buy...

    • 16 Necessary to Democracy?
      (pp. 226-235)

      Like political democracy, the market system establishes mass control over elites. They constitute the twin alternative methods by which millions of people can exercise popular controls over those relatively few people—entrepreneurs and government officials—who actively make the proximate decisions.

      The two are of course intertwined. And it is widely believed that a democratic nation-state is impossible if not linked with a market system. If there is no market system, then there is no democracy. In this chapter we shall try to find out whether that is true.

      So far in history, no democratic nation-states have existed except those...

    • 17 Enterprise Obstructions to Democracy
      (pp. 236-250)

      Whether market elites did or did not historically make a contribution to minimal democracy and do or do not continue to do so, they blight a fuller democracy through their assault on the mind. The market system holds democracy down to a low level in other ways too, obstructing a more genuine yet feasible democracy.

      If genuine democracy requires, by definition, at least a rough equality of political influence or power among citizens in their attempts to control elites, then any significant economic inequality among citizens is an obstruction to democracy. Inequalities in income and wealth create inequalities in opportunity...

  6. Part Three: Thinking About Choices
    • 18 Alternative Market Systems
      (pp. 253-264)

      In France, market and government elites cooperate more intimately than in the United States, where they more often look on each other as adversaries. Or contrast Japan’s long inattention to environmental pollution—it was once the “most polluted nation in the world”—with Britain’s government-business cooperation to curb it. From multiple causes, new forms of market system emerge, sometimes hardly winning the attention of policy makers, sometimes their deliberate creation.

      In the twentieth century, while policy makers were concerned with other choices on their agendas, the place of the market system in our lives was changed in deeply consequential ways...

    • 19 An Alternative to the Market System?
      (pp. 265-278)

      Within a market system, we can see—and I have noted—some alternative forms of it. These will continue to develop as each nation copes in its own way, with such problems as spillovers, corporate power, and inequality. But is there in our time an alternative to the market system as a whole? A choice between market system and . . . ? Well, that is our question. What is the present alternative, if any? Do societies face such grand choices as the old ones between capitalism and socialism or between market system and command system?

      As an overarching method...

  7. Notes
    (pp. 279-290)
  8. Index
    (pp. 291-296)