Market Theories

The idea of the market has been around since humans first began to trade each other, but not until the last few centuries has it been seriously analyzed as an integral part of society and its functions. What is it? Why does it work the way it does? And what does it provide? All among many questions that where sought out by theorist after theorist. As the answers to these questions surfaced, one dilemma still loomed over the free market: government regulation. Some have argued against any interference, while others argue for complete regulation, as well as all the arguments in between which range through the extremes. Through the analysis of market theorists Adam Smith, Karl Marx and John Keynes, I will create an argument as to why the market should not be regulated and then produce similar results as to why the market should be regulated. Considering the current economic and market structure, I will choose the argument I feel is needed now for our market system.

Adam Smith was an advocate for the idea that the market could function entirely without government intervention. "Emerging society should be based on the free exchange of goods and labor" Smith argued, so that everyone has the opportunity to fairly and equally exchange their goods and services. He stated that the market was autonomous and run by individuals who pursued their own economic interests. (Bertram, "Smith). This natural desire of people to exchange to better their conditions was what Smith claimed to self-regulate the market. The pressures of the marketplace direct the selfish activities of individuals...into socially responsible paths" (Heilbroner&Thurow p.29). Smith claimed this to be the central motive for market actors. All individuals who enter into the market work for their self-interest, they look to profit through the series of free and fair exchanges. The logic of the market turns self-interest into collective good, according to Smith; "the workings of the competitive system transmute self-regarding behavior into socially useful outcomes" (Heilbronor&Thurow p.29). Self-interest is checked by the competition of the market. It is through competition that self-interest becomes the mechanism for regulation. Competition ensures that the right prices are set, the right amount is produced, and that it is readily available when needed. This system of self-interest and competition create the automatic self-regulating mechanism because individuals will always compete against other actors to better their needs and self-interests. "A society of competitive, profit-seeking individuals can assure its orderly provisioning through the self-regulating market mechanism." (Heilbroner&Thurow p.32). This will halt the emergence of monopolies and a dominance in production because there will always be competition, which will never allow for one business to dominate amongst all others within the same industry. Smith assured that the state was not needed to guarantee a positive outcome because of the self-regulating mechanisms of competition and individual hardship. Individual hardships is a mechanism that makes the market serve the need of the people. When there is individual hardship, the market shifts to compensate; if something fails people will look for a new outlet into the market (Bertram, "Smith"). Looking at the ideology of Adam Smith, markets have self-regulating mechanisms and thus do not need to be regulated. Competition keeps monopolies and dominance absent from the market, while individual hardships direct the market to provide society with what is needed.

Although Smith provided us with the first analysis of the market system and its functions, there have been theorists who have expanded from his basic understanding of the market. Many have argued that the market is unsustainable as is and needs to be regulated, just as the opposite has also been argued. Referring to the ideas of Marx and Keynes we will see why the market is a system that relies on regulation. Marx developed a materialist conception of society; a societies economic structure is the core of the mode of the nature of that society. The mode of production defines society and from this, social classes arise (Bertram, "Marx"). Marx stated that historical actors are not individuals, but social classes constantly locked in conflict; he "saw history as a continuing struggle among classes" (Heilbroner&Thurow p.33). He believed that when capitals bring together the elements of labor it will result in conflict, specifically due to the class struggle between laborers and capitalists and therefore is inherently unstable. "Marx also saw the a powerful force in the accumulation of capital and wealth" (Heilbroner&Thurow p.33), but noted that this accumulation could only come about through exploitation. Workers created an item of value, but did not receive the full value of the item back, instead part of the capital was kept by the capitalist and needed in order to expand the business. Marx noted that an increasing number of laborers will only have their labor to offer to the market; "he is a free bargaining agent who enters the market to dispose of the one commodity he commands - labor-power" (Heilbroner p.153). He acknowledges that laborers can leave the market at anytime, but realizes that it is not ideal or really a considerable option for most. Where Smith saw competition as a regulating mechanism, Marx saw it as a powerful productive force; a mechanism to maximize the exploitation of workers. If workers are not exploited to their full capacity then a business comes under risk of failing due to competitors, but if workers do become fully exploited it creates a bigger divide in the class struggle conflict. A growing exploitation and alienation of laborers creates a deepening class struggle within the system; a divide so significant that the government won't be able to rise above a narrowly drawn class interest in order to save the capitalist system (Bertram "Marx"). "The cure for capitalism's failings would require that a government would have to rise above the interests of class alone--and that was to assume that men could free themselves...of their immediate economic self-interests" (Heilbroner p.164). Eventually the number of workers who will only have their labor to offer will increase and the number those who "have" and "have not" will reach an unsustainable equilibrium. Marx acknowledges that the process of accumulation is anything but steady and definitely not self-regulating, there will be constant obstacles that arise due to production, labor, surplus and recessions.