End of the Market

* Book: The End of the Market. The rise of the service economy and the death of the market-clearing price

URL = https://sites.google.com/site/theendofthemarket/home

Introduction

From the Preface:

"The End of the Market examines how the idea of the market-clearing price eventually emerged in the final decades of the 19th century after more than 2,000 years of debate. It was finally defined in a book by a Cambridge University professor published in 1890. This was an event that history has largely ignored. But its impact has been enormous. The idea of the market-clearing price freed human beings to get on with the business of producing and consuming without pondering excessively, if at all, about the true value of what they were doing.

Without it, mass production and long-term investment would have been impossible. It distributed goods and surpluses in a way that provided sufficient incentives for people to make decisions about whether to consume today or to save for tomorrow through the impersonal mechanism of the market. Trillions of daily decisions that otherwise would have been difficult or impossible were simplified to the extent than an average 7-year old could make most of them. You just compared prices and chose.

And it allowed governments and corporations to intervene in human affairs on an unprecedented scale.

Without the idea of the market-clearing price, many of the great events of past 100 years would have been impossible.Stalin would have been unable to master the largest country on earth and Franklin Roosevelt to launch the New Deal. Nazi Germany couldn’t have developed the capacity to launch a continental war of conquest and a programme of genocide. Mao Zedong might have seized power in China, but it would have been impossible for him to retain it. And the US could not have put people on the moon on 1969 without the efficiencies the idea of a market-clearing price allowed.

There had been visionaries before. But the market-clearing price allowed dreams to be turned into reality by encouraging the discovery of new technologies that freed a growing proportion of the world’s population from the mundane task of simply producing sufficient things to survive. It wrecked many human lives, but it saved many more. For this, the market-clearing price, the distilled essence of every human aspiration, should not be lauded. It has no ego and no imagination.

There had been megalomaniacs before. But the idea of the market-clearing price empowered them to mobilise human energy and material wealth for destructive purposes without parallel in human history. Price, the apotheosis of rationality in a rational world, is responsible, but cannot be blamed. It has no conscience and can have no soul.

The market-clearing price is now such an obvious and pervasive idea that it seems ludicrous that so much, both good and evil, should be laid at its door. Violent events, wars and revolutions, scar our memories and stir our emotions. Technology, which has obviously changed the way we live, seems a much more exciting topic. Ideas stimulate our minds. But prices? Surely they are as significant in human history as advances in shopping and much less interesting. Economists who grappled with the concepts that eventually led to the crystallisation of the idea of the market-clearing price didn’t do much to help. They are the authors of some of the most incomprehensible books ever written.

For centuries, thinkers investigated what prices were using every philosophical and scientific technique at their disposal. For those who thought of themselves as economists, the issue, however, was like an untreated toothache: a persistent irritation but not life-threatening. What mattered were production, consumption, investment and saving and counseling leaders of nations and business about the best way of increasing all of them quickly. This was the route to fame and fortune, not theorising about what price was and did. More often than not, economists simply gave up wondering about price completely and got down to the practical issues of commerce and government. And when the concept of the market-clearing price eventually emerged, it was almost immediately rejected as a matter worth worrying about because it was regarded as being essentially uncontrollable, probably misleading or both. Humanity had an uncomfortable relationship with price in the 20th century. At times, we convinced ourselves we could do without it entirely, but the century ended with us all under its thumb.

But The End of the Market is not primarily an account of the origins and implications of the market-clearing price. It is about how it has now been deposed due to the rise of the service economy, the source of the majority of income, wealth and employment in every advanced economy on earth.

Like the discovery of the market-clearing price 120 years ago, this startling fact has also gone largely unnoticed. And yet it is at the very heart of the economic crisis that developed in 2007/08. The fall of the market-clearing price as the key factor driving human affairs has implications so far-reaching it is almost impossible to overstate them. In death, as in life, the market-clearing price, or its absence, will utterly change every aspect of life for everyone, everywhere." (https://sites.google.com/site/theendofthemarket/1-preface)

Contents

Chapter 1 The irresistible rise of the market-clearing price The End of the Market begins with the history of the search for the origins and meaning of prices. The cast includes Aristotle, Jesus Christ, the Prophet Mohammed, Thomas Aquinas, Adam Smith, John Maynard Keynes and Milton Friedman.

Chapter 2 The renaissance of value End of the market shows how economic theory of all schools fails when applied to services, now accounting for 80 per cent and more of the GDP of most advanced economies. In intangibles, value is created solely through human interaction at the level of the individual rather than through insitutions like corporations and markets. The theory of value is reconceptualised with only two factors of production: the relationship, where value is created, and the process, which supports value-creation.

Chapter 3 Economic growth in service economies The End of the Market examines the broader implications of the new economic ideas emerging as a result of the rise of service economies and value-creating communities in which a growing proportion of people in advanced economies work.

Chapter 4 The business organisation in service economies The End of the Market investigates the implications for businesses supplying services.

Chapter 5 The role of the state in service economies The End of the Market addresses the issues facing the state in advanced economies where services account for the majority of output. Seeking to regulate unstable service economies and struggling to avoid massive waste in its own activities, the modern state needs to focus on process activities and provide the basic infrastructure that individuals need to create value in economies where services are dominant.

Chapter 6 Concluding Thoughts The End of the Market concludes with a meditation on the implications of the rise of service economies and suggests that the liberal era in which society was supported by enforceable rights is coming to an end and a new era where intuitively-defined communities bound together by obligations at the level of the individual will be the engine for economic and social progress." (https://sites.google.com/site/theendofthemarket/home)

Summary of Theses

by Edmund O'Sullivan:

"*The emergence of the market-clearing price as the central factor in economic affairs was followed by a steady decline in the contribution tangible good production made to economic output. By the end of the first decade of the 21st century, more than 80 per cent of GDP in many advanced economies was accounted for by services (intangibles-- Chapter 1).

• The economics of intangible production and consumption invalidates the role of price in stimulating production, consumption, saving and investment in service industries (Chapter 2)

• Value in intangible production is created through interactive relationships at the individual level among participants in service markets (Chapter 2).

• Technology has led to the separation of the process -- the tangibles and mechanisms that support value-creation – from the relationship at the individual level where value is actually created in services (Chapter 2).

• In intangibles, markets and industries necessary for the production and consumption of tangibles are being replaced by intuitively-defined communities within which individuals interact to create value (Chapter 3).

• Companies producing intangibles will face a growing calculation problem because of the decline of the validity of price as a stimulant of service production and consumption (Chapter 4).

• Companies producing services with horizontal structures, minimal centralised decision-making and no external financial liabilities will have a competitive advantage compared with competitors that do not (Chapter 4).

• The separation of process from relationship in value-creation in service industries will encourage companies to focus on one of the two critical skills in service value creation (Chapter 4).

• Governments will face increasing challenges in creating value in the service markets they participate in and should concentrate on the process elements of service value-creation (Chapter 5).

• The rise of service industries raises questions about ideas of social and economic progress that have been dominant for two centuries (Chapter 6)"

(http://theeconomicrealms.blogspot.co.uk/2012/12/the-end-of-market.html)