the market mechanism to all domains has the potential of destroying
Market Theory of Economics:
The Self Equilibrating Model
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.