How Markets Work
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How Markets Work

Supply, Demand and the ‘Real World’

Robert E. Prasch

An accessible and enjoyable look at the way the market REALLY works! How Markets Work presents a new and refreshing introduction to elementary economics. The venerable theory of supply and demand is reconstituted upon plausible and defensible assumptions concerning human nature, the law, and the facts of everyday life – in short – the ‘Real World’. The message is that markets differ in ways that matter. Starting with a brief survey of property and contract law, the lectures develop several ‘ideal types’ of markets – such as credit, assets, and labor – while illuminating the similarities and differences among them. Care has been taken to ensure that the reformulations presented are accessible to students and compatible with a variety of non-mainstream traditions in economic thought.
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Chapter: Lecture I: Property, contract, and the theory of exchange

Robert E. Prasch


LECTURE I Property, contract, and the theory of exchange The English economists have taken the laws of private property for granted, assuming that they are fixed and immutable in the nature of things, and therefore needed no investigation. But such laws are changeable – they differ for different peoples and places, and they have profound influence upon the production and distribution of wealth. John Commons (1893 [1963], p. 59) Wealth, in a commercial age, is made up largely of promises. Roscoe Pound (1922 [1982], p. 133) ECONOMICS AND THE “THEORY OF THE MARKET” While some changes have been evident over the last several decades, the above observation by John Commons remains largely accurate. Typically, and naively, most economists adhere to Jean Baptiste Say’s dictum: “Political Economy recognizes the right of property solely as the most powerful of all encouragements to the multiplication of wealth, and is satisfied with its actual stability, without inquiring about its origins or its safeguards” (Say, as quoted in Ely, 1914, p. 63). To Say and most economists after him, property rights are a fixed and unproblematic set of laws or rules. This failure is exacerbated by textbook presentations of market relations that take the definition and meaning of a “commodity” to be given and self-evident. This lack of concern for specifics is aggravated when an abstract good, by tradition termed a “widget,” is used to illustrate the “essence” of the market process. In this pedagogy, the student’s attention is then...

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