Where markets stop being a mechanism

The usual argument about markets is about degree: how free, how regulated, how much correction for this failure or that externality. It is worth having, but it hides a prior distinction of kind. Some goods are allocated badly by a market. Others are changed into different goods by being priced. Most bad thinking about what markets are for confuses the two.

Start with what markets do well, because the categorical claim is worthless coming from someone who thinks markets are a scam. No central authority can gather what millions of people know about scarcity, preference, location and timing. A moving price compresses much of it into a signal that changes behavior without anyone understanding the system behind it. Societies that suppress markets outright do not escape the failures; they trade them for shortages and political allocation dressed as planning.

Usefulness is not wisdom. A market answers effective demand, which is desire backed by money, and a price is accurate information about purchasing capacity under current conditions. It says nothing about need, justice or whether the distribution behind it deserved to exist. Nor is any market natural: property law says what can be owned, contract law says which promises bind, courts and currency come from the state. The dispute is never rules against freedom but which rules, and for whom. All of that is still the argument about degree.

The categorical claim is different, and it is where the limit sits. Certain goods take their meaning from equal standing rather than from willingness to pay, and pricing them converts them instead of allocating them inefficiently. Justice available in proportion to wealth is a different institution wearing the name. Citizenship that can be bought stops being citizenship. Testimony that can be purchased is perjury. Each good was constituted by its independence from the bid, so the bid replaces it instead of distorting it. Michael Walzer called these blocked exchanges; Michael Sandel calls the effect corruption. The useful move is to turn the observation into a test.

The test is not how competitive a proposed market will be but what the good becomes when someone declines to pay. If they go without something they wanted, a market is probably the right tool and the remaining argument is about degree. If the good itself changes character for everyone, buyer and non-buyer alike, it was never a commodity.

This does the work that “market failure” cannot. Market failure is a diagnosis internal to the model: the price was wrong, the externality went uncounted, so fix the inputs and the market will work. That is right for groceries, freight and phones. It is wrong for a court, and applying it there produces people proposing to correct the price of justice. The problem was that a price existed at all. Where that is so, the market is not a mechanism in need of adjustment. It is the failure itself, arriving on schedule and looking like efficiency.

Sources

• Michael Walzer, Spheres of Justice (Basic Books, 1983)
• Michael J. Sandel, What Money Can’t Buy (Farrar, Straus and Giroux, 2012)