sourceType:: book author:: john mcmillan sourcePublication:: book ref:: noteTitle:: reinventing the bazaar; a natural history of markets; john mcmillan. (book)

reinventing the bazaar; a natural history of markets; john mcmillan. (book)

#refs

Started reading around [[2024-01-06]]❌ after I returned ref_the-coming-wave_mustafa-suleyman to the athenaeum. I renewed this and now have a month to read it.

Preface

The five elements to a well-structured, workable market that works properly:

• Information flows smoothly
• Property rights are protected
• People can be trusted to live up to their promises
• Side effects on third parties are curtailed
• Competition is fostered

The only natural economy

[[dutch-clock-auction]]❌

What is a market

What is “a market”? a market for something exists if:

• there are people who want to buy it and
• there are people who want to sell it

They will engage in a “market transaction”. What are the details of that? A market transaction is said to have occurred when:

• Participation in the exchange is voluntary / Decision-making is autonomous
  • both buyer and seller are able to veto the deal
• The buyer and seller control their own resources
• Their choices may be constrained by any rules of the marketplace
• “Competition” is not strictly required, but it does enhance choice (“no, i’ll shop elsewhere”)

Market Transaction:

An exchange that is voluntary; each party can veto it, and (subject to the rules of the marketplace) each freely agrees to the terms

Market: the forum for carrying out such an exchange

Types of transactions that are excluded from this definition / are “nonmarket activity”:

• Unpaid work inside households
• Government activities, like building roads, schools, police
• Business taking place inside/within firms

Czech Vaclav Havel, president of the country as communism was being dismantled:

Though my heart may be left of center, I have always known that the only economic system that works is a market economy. This is the only natural economy, the only kind tha tmakes sense, the only one that leads to prosperity, because it is the only one that reflects the nature of life itself. The essence of life is infinitely and mysteriously multiform, and therefore it cannot be contained or planned for, in its fullness and variability, by and central intelligence.

Market design

Market design is important to ensure smooth transactions. Markets are social constructs and should be well-built:

• Mechanisms that organize buying and selling
• [State-set] laws and regulations for property rights and contracting [this needn’t be state-set, necessarily. See ethereum]
• The market’s culture: self-regulating norms, conventions, etc.

Transaction costs and market dysfunction

What a good design should do:

• keep transactions costs in check, including:
  • the locating of potential traders
  • comparing alternative vendors/buyers
  • verifying the quality of goods
  • negotiating the details of a transaction
  • contract enforcement

transactions costs, in the extreme can cause market dysfunction. they are costly in excess of the value produced by the transactions.

Failures of markets re: transaction costs:

• information re: alternatives is so low that buyers are locked in to one vendor
• transactions are so costly that all benefits of the trade are swamped

In complex markets for multifacted products, like computers or cars, have many challenges that simpler items like food:

• information must flow freely to lubricate negotiations and a breadth of what can be contracted
• trust is required: especially with regard to confidence about the quality of goods with “hidden characteristics”. but also in long-running transactions where a promise must be kept over time. A robust platform is needed to satisfy the requirements of modern, complex-item market.

Government’s role in market design

definition of property rights is foremost. but other laws and regulations are important, too.

Croesus, king of Lydia/Turkey issued gold and silver coins with purity he guaranteed. ensuring fidelity of money helped spread commerce across the region.

Underdevelopment of poor countries results from markets not doing their job properly

Markets develop similarly to natural selection of complex structures: through trial and error, through market participants’ daily actions.

History of markets and culture

Culture developed alongside markets. Writing and mathematics originated around 3,000 BC to record economic information in the fertile crescent. marks baked into clay recorded tallies of goods, which were then used by tax collectors and merchants.
The Agora market in Athens was site of cultural events: religious festivals, political debates, theatrical performances, sporting events.The various crafts each had their own sections or special buildings.

for much of the 20th century, (mostly communist) governments attempted to replace markets with central planning, but it failed basically every time. Prompted a re-look at markets.

“Folk football” evolved for hundreds of years. Eventually, governing bodies formed to codify these rules rather suddenly in the later 1800s. Formal designs overlaid on evolved patterns.
Markets are similar - they evolve spontaneously, driven by participants. But (according to the author) they can’t reach their full sophisticated potential until some top-down authority implements formal rules.

Markets are the most effective means of improving or sustaining people’s well-being and getting out of poverty. When they work well they are antipoverty engines. Poor countries often have poorly functioning markets; either from overzealous government intervention or else just badly designed markets.

Russian joke that came about when the state abruptly stopped controlling the economy (and didn’t leave it with a good design):

Q: How many people does it take to change a light bulb under communism? A: Five: one to hold the light bulb, four to rotate the table he is standing on. Q: Under capitalism, how many does it take? A: None, the market will take care of it.

Triumphs of Intelligence

In World War Two prisoner of war camps (in Rwanda), markets sprung up trading Red Cross food rations, cigarettes and clothing. Some prisoners held stocks of food which smoothed out prices throughout the delivery schedule. Others acted as middlemen buying in one part of the camp and selling in others. There was a rudimentary financial system with some providing credit to others.

Improvised markets highlight:

• Markets are resilient. they pop up anywhere they can
• Markets generate gains from trade. buying and selling creates values (how?)
  • answer to the above: markets + division of labor and specialization. Individuals in the economy are better off, have access to goods they wouldn’t have otherwise, at better costs, than without trade.
• Markets have a way of breaking out. when livelihoods are on the line, people find ways to create or improve markets.

——

thought of on page 44 [[2024-01-14]]❌ 20:47: if you had perfectly information-flowing, matching market - say on the internet with AI and whatnot - it almost seems like something would be lost. like the perfect automation would make it sterile or remove personal experience or something. but no, people are still people. as the end-point agents in the market, they still direct the spirit of it. their desires and …well really just their desires. so in theory, human desire is what shapes the (otherwise perfect and automated) market.
so what about human desire? what if the perfect AI and automation system could effect that, as well? what if it naturally would, even if it didn’t want to? this is the realm of advertising. shaping human desires (and thus shaping the market) - my god, whoever first thought of this must have really felt that they were hitting on something brilliant! it’s total control over the whole system.