Introduction

The theoretical foundations of what has come to be called “market fundamentalism” suffer from an internal contradiction that renders it useless as a basis for economic policy. This is not a problem of abstraction or reliance on simplified models. It is the ubiquitous presence of the simultaneous assumption of uniformity and diversity. A simple example will illustrate the contradiction. Consider an airline ticket. Initially, it represented the provision by an airline to transport by air from point A to point B at a stipulated time and date in exchange for a posted fare. The service provided for a meal (usually rubberized chicken), transport of accompanying baggage and the right to sit in a seat. If you buy an airline ticket today, you may have to pay separately for the air transport, for the baggage transport, for the meal if you want one and even for the seat!

What is the “market” for airline tickets in which supply and demand is presumed to determine price? To answer that question it is necessary first to define the “commodity” that is being purchased in the market. As the example makes clear, the market is undefined until the commodity traded in the market is specified. Is there any economic basis for considering the separate services that now accompany air transport as separate commodities? And, more importantly, is there any economic basis for considering that the prices determined in separate markets are determined by a competitive process? Or are they, as Piero Sraffa has suggested in one of the most overlooked parts of his famous book, “joint products,” which may be identified but for which there may be no separate production and thus no separate supply curve and no possibility of market or market price?

Prices and Markets: Theory and History from Smith to Schumpeter via Petty

This real-world example has a detailed theoretical history that is often ignored. Proponents of the superiority of market mechanisms consider a major benefit in what may be summarized as diversity.