What is a Market Economy?
By Arnold Kling
In the “Acharnians,” Dicaeopolis is in Athens and complaining about the war and how he is “longing hopelessly for peace, loathing town and homesick for my village . . . where you don’t hear cried of “Buy my charcoal,” “Buy my vinegar,” “Buy my oil.” My village doesn’t include the word “buy” in its vocabulary but simply produces all that’s needed — with not a “buy” person in the offing.” (7, Paul Roche, tr.)
Dicaeopolis here is complaining about all the people in Athens trying to sell him things. Realistically, did these people who were trying to sell him charcoal, vinegar, and oil get those goods through plunder? Or did they grow and produce those things?
Dicaeopolis could have complained about finding sellers of goods in Moscow in 1950, but that does not mean that he would have been in the midst of a market economy.
For more pushback against my view, see Gavin Kennedy, who writes
My own research (unpublished) on the ‘Pre-History of Bargaining’ supports Adam Smith’s speculative assertion on the longevity of the said propensity, and its earlier evolution from teamwork for unequal shares of meat from kills to reciprocity behaviour (what I call quasi-bargains) evident not just among humans –and presumably the hominids before them – and in the behaviours of primates.
I am reading just now a most valuable book bordering on these issues, edited by Paul J. Zak, Moral Markets: the critical role of values in the economy (Princeton University Press), which develops themes contributing to an understanding of the social-evolutionary importance of humans establishing the criteria by which fairness and unfairness is mediated in primate and human relationships.
But criteria of fairness and allocating shares within a small group don’t necessarily get you to long-distance, voluntary trade. Instead, the most natural thing to do with your rules for sharing meat is to apply them when you raid the next village as rules for sharing plunder.
It could be that my views of economic history are colored by ignorance. But one thing that is going on is that I have a very strict definition of a market economy.
1. Are most goods and services you consume (a) produced in large part by strangers; or (b) produced by someone in your household, clan, tribe, or village?
2. Think about goods or services that had to travel a long distance. If something was imported from a long distance, did it travel to you (a) guided solely by the price system; or (b) somewhere on the way was it moved by imperial command? If something ever was distributed as plunder or collected as tribute, then the fact that it eventually wound up for sale in a market does not make it a market economic transaction.
3. Do workers (a) labor by choice, with the ability to freely change occupations; or (b) is some important production done by subjects of authoritarian rulers, slaves, serfs, or members of a restricted caste?
To satisfy a strict definition of a market economy, one has to be able to answer (a) across the board. You need a wide trading system that takes advantage of specialization and comparative advantage. Moreover, the trading system must be based on approximate parity of political power, rather than on coercive exploitation.
Now, think about ancient Egypt, the Incas, Greece, Rome, the Muslim empire, the Silk Road, the Spanish empire in the New World, the early European empires in India and the Far East, or the antebellum South in the United States. Were there markets and was there trade? Absolutely. Did they meet the strict definition of a market economy? My sense is no.