The Truth About Markets by John Kay
The Truth About Markets by John Kay
Kay provides a good introduction to markets; were I teaching econ 101, I'd have everyone read this. He represents the material mostly in text form, which hinders his task as some of the material makes sense to people with a background in econ/finance or general history, however he leaves some items without historical context (US savings and loan scandal). A quick graph and context blurb would explain far easier.
The history of the world, said Carlyle, is but the biography of great men. Perhaps, but the history of the market economy is not. There was no Paul Revere to summon the Industrial Revolution, no leaders to rank with George Washington and Thomas Jefferson. The few heroic figures in my account are inventors of new machinery, like John Kay. Who invented agriculture, insurance and banking, or corporations? No one did; they evolved. Adam Smith, the revered founder of modern economics, chronicled the market economy; he did not invent or design it.
It seems at first sight extraordinary that Mr. Christie and Mr. Sotheby should by chance have stumbled on the same device that Vickrey discovered two centuries later with the aid of clever mathematics. But it is not. Christie and Sotheby were inheritors of a long saleroom tradition which had tried different auction rules, abandoned some, and developed others. Social and economic institutions are adaptive: less appropriate institutions are displaced by more appropriate ones.
An economist specializing in game theory is in the wilderness with a friend when they see a bear approaching. The economist pulls out his laptop and starts to compute an optimal strategy. His friend calls out in alarm: "Run, there's no time to waste!" The economist smiles complacently, "Don't worry, the bear has to work it out too."
This theory -- mercantilism -- was believed by most economists before Smith and his contemporaries, and expounded in books with titles such as England's Treasure by Foreign Trade. It is a widely held thesis in DIY economics today although it enjoys broadly the same scientific status as the phlogiston theory of heat or the Ptolemaic explanation of how the sun orbits the Earth.
Neoclassical economics is imperialist: many of its practitioners are openly contemptuous of other social scientists, and believe the job could be better done by economists. The contempt is often reciprocated.
If you ask an economist to study the behavior of horses, they would sit at a desk and ask 'What would I do if I were a horse?'
The analysis of economic behavior requires us to look at actual choices of firms and households, not simply to impose assumptions on their behavior. It is time to study horses.
The phenomenon of self-regarding, self-perpetuating selection mechanisms is common in the public sector but can equally be found in private sector monopolies. The Western equivalent of the sign demanding that workers of the world unite is found in the meaningless sloganizing and mission statements of large corporations.
A wasp has been named after (John) Gutfreund, Eruga Gutfreundis: 'she stings and paralyzes the insect, and then lays her egg on its back. The hatched larva feeds off its host's blood for about six months before devouring the money spider.