"Extending the market mechanism to all domains has the potential of destroying society."
--George Soros

The Market Theory of Economics:
The Self Equilibrating Model

The Pure and Perfect Market
The purpose of this exercise is to introduce you to an outline of the economic theory deployed by modern-day finance ministers, monetarist economists, bankers and their transnational associates- to both legitimate and give voice to their activities. The so-called self-equilibrating market model is at the very basis of marginal value theory.

As you can see via the arrows in the diagram below, this is a feedback system- but of a simple linear and monist sort. By definition, according to this system, supply and demand are the sole determiants of price; all price movements are accounted for entirely in terms of their relationship. For this we must posit a 'pure and perfect market' such that nothing transactors do or leave undone individually can effect the market.

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Crucial to the system is the ratio of Demand to Supply: D/S. Any disturbance of this ratio must result in a price movement.- which will in turn give rise to an equilibrating feedback both to the numerator and the denominator. For example: increased demand will tend to drive up P; the increased P will tend to choke off D and stimulate S. The second half-loop from P to S or D will be opposite in sign from that of the first half-loop. It will thus move to restore the original balance beteen S and D. Hence we have here the invocation of a 'perfect' system, wherein the several movements of the market are reduced to a simplistic balancing act, since equilibrium points are assumed to exist.This latter assumption is illustrated by concave supply curves- i.e., costs rise with increased sale of production.

Assessment of the Model
This model is a perfectly balanced, elegant, mathematical, quasi-scientific economic hypothesiswhich has the added feature of being very easy to understand. But does it work?

It does- but only according to its own closed logic- and therein claims status as a theory as follows: any price pattern admitted that does not tend to equilibium is regarded as polluted. This is equivalent to stating that the results of any bona fide experiment which refutes a theory must itself be considered invalid- so that the theory might stand!
Thus, 'market imperfections' must be omitted from the self-eqilibrating model since they attack directly the hypothesis of 'the pure and perfect' market. They would simply invalidate its rationale and indeed its very idiom. The impact upon price of other subsystems must be ruled out for the same reason. Any serious modern economic thought must recognize the existence of several subystems, not just one; each of which have varying effects upon market activities. We shall take a look at some of these subsystems in our next section.

In spite of the self-equilibrating model's claim to theoretical legitimacy, history tells a different tale: since the implementation of this reductionist model by the international BIS in the mid 70's as the global dominant revenue economy (explained above in our tutorial), only bank interests and their corporate and government associates have benefitted.

Most of the attendent hardships on the citizens of the world- poverty, racism, homelessness, unemployment, pollution-- can be traced directly to the effects of deploying this so-called 'pure and perfect market theory'.

Conventional economic theory today is the story of our economy told in terms of profit as dominant revenue. The revenues of other factors of production have been revamped and denatured to the idealized logic of the profit motive and presented in marginalist terms. However, in our mixed economy (coming up next), profit has ceased being the dominant revenue. Actually, we now live in a pluralistic economy without a single dominant revenue.