What is a market?

Oddly enough, this is a question that most (not all, but most) economic textbooks don’t answer. Even more oddly, neither do most (again, some, not all) online dictionaries of economics.

I’ll restrict myself to just a couple of sources here, but if you are an economics student, have fun looking up your favorite textbook and let me know if it contains a definition of a market.

The Economist has a website called “Economics A-Z terms”, and the page for all things economics beginning with the letter M doesn’t have a definition of the market. A search on springer.com for “market” yields a lot of results about features and aspects of markets, it doesn’t actually define the term itself. I know Pindyck and Rubinfield have a definition, on the other hand – and this is an excellent textbook, by the way, and there are some others besides. But long story short, it is a topic that seems to have remained curiously undefined. Especially curious considering the fact that we spend such a long time talking about aspects of markets!

The field of law, on the other hand, does define markets, and does so very thoroughly indeed.


But the reason I bring this up today is because of an excellent post by Tim Taylor over on his blog recently, the title of which is “Thomas Sowell: Why “The Market” is a “Misleading Figure of Speech”. The post is a rumination on Thomas Sowell’s take on, well, the market.

“The market” is another such misleading figure of speech. Both the friends and foes of economic decision-making processes refer to “the market” as if it were an institution parallel with, and alternative to, the government as an institution. The government is indeed an institution, but “the market” is nothing more than an option for each individual to choose among numerous existing institutions, or to fashion new arrangements suited to his own situation and tastes.

https://conversableeconomist.wpcomstaging.com/2021/09/03/thomas-sowell-why-the-market-is-a-misleading-figure-of-speech/

So as per Sowell’s take here, the market is what each individual fashions to suit her own needs at a particular point of time. If I’m hungry, for example, I’m in the market for a meal. Now, that could mean that I choose to use Zomato or Swiggy to order food online and have it delivered home. It could also mean I spending some time in my kitchen rustling up a meal for myself. Or it could be I going to a restaurant and having a meal. Or something else altogether, including something that literally doesn’t exist until I invent it!

The market is simply the freedom to choose among many existing or still-to-be-created possibilities. The need for housing can be met through “the market” in a thousand different ways chosen by each person–anything from living in a commune to buying a house, renting rooms, moving in with relatives, living in quarters provided by an employers, etc., etc. The need for food can be met by buying groceries, eating at a restaurant, growing a garden, or letting someone else provide meals in exchange for work, property, or sex. “The market” is no particular set of institutions.

https://conversableeconomist.wpcomstaging.com/2021/09/03/thomas-sowell-why-the-market-is-a-misleading-figure-of-speech/

It’s an interesting take, and as Tim Taylor himself says later on in the post, if the definition of a market is “nothing more than an option for each individual to choose among numerous existing institutions, or to fashion new arrangements suited to his own situation and tastes”, that applies equally to government institutions too.

This is a bit of a nuanced take, but I’d actually go a bit beyond and ask if Sowell’s definition can be taken to mean that government itself is nothing but one of those numerous existing institutions. And whichever society in a particular place came up with some form of government first – well, that society was simply fashioning a new arrangement suited to that society’s own situation and tastes. This gives me the mischievous ability to drive both capitalists and socialists up the wall, for can I not then say that the government is nothing but another form of a market?


But that gentle leg-pulling aside, there is an important distinction between government and markets, as Tim himself points out:

Perhaps instead of thinking about government vs. the market, it’s more useful to think about government as embodying the set of ground-rules under which markets then operate.

https://conversableeconomist.wpcomstaging.com/2021/09/03/thomas-sowell-why-the-market-is-a-misleading-figure-of-speech/

So even if both were to be institutions that serve our needs (and can indeed therefore be thought of as “markets”), some markets are more equal than others. Governments get to embody (and indeed enforce) the set of ground rules under which markets operate.


And not to get all meta on you, but as public choice economists would rush to tell you, there also happens to be a very real market whose sole reason for existence is to influence the market we call government into making rules that suit, well, some forms of markets more than the others.

Yes, that is a long sentence, but an important one!