What is a Market?

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From the Archives : Originally published June 30th, 2002
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Category : Fundamental





Evaluation, production, saving, investment, and innovation are requirements for man's survival and growth according to his nature as an individual, rational human being.


The fundamental means of survival available to a group are the same as they are for one person. The only significant differences arise from the degree of complexity with which the actions of production and exchange are performed.


The individual acting alone can exchange one state of affairs for another, but only through the expense of his own energy. Within a free society, he can exchange the product of his effort (his property) for the products and services of others, gaining enormous benefits through the division of labor, specialization, and the innovation of others.


Thus, a market economy makes survival easier, but through a more complex means than any one person can achieve alone.


Referring to our earlier example of Crusoe, he couldn't have survived by acting only as the carpenter on his island, but there are many people who make a decent living building houses.


Given knowledge as elementary as Crusoe's, and if protected from coercion by others, people attempt to trade their property by voluntary consent to their mutual advantage.


They evaluate the products and services offered for trade, and based on their ability to strike a bargain, choose those that are deemed most needed or desirable. On each side of the trade, one person exchanges something judged to be of lesser value for something judged to be of greater value.


The fact that value is subjective - that people value things differently - both drives people to trade and makes it possible for both sides to profit. For instance, a farmer may value a load of horse manure rather differently than the resident of a studio flat.


As more and more people associate and get involved in the process of exchanging their surpluses, trading becomes more complex. The interaction of numerous individuals, the social device of production and trade through free association, is called a market.


The subjective nature of value, along with the fact that differences in perception of value drive the trade process, seems like a simple concept but was in fact introduced and formalized by Ludwig von Mises. Adam Smith and other classical economists thought that trade must be of equal value.


Resources:


  • Methods of a Wall Street Master by Victor Sperandeo.
  • Mises.org a website devoted to the Austrian School of Economics, a school of economic thought founded by Carl Menger (Feb 28, 1840 - Feb 26, 1921) with his work Principles of Economics published in 1871.



Mike Hewitt

Editor

DollarDaze.org



 



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Mike Hewitt is the editor of www.DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies.
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