Several disciplines, among them economics, political economy, philosophy, ethics, and, as of the late twentieth century, sociology, anthropology, and geography, rely on the notion of a market to establish a nexus between those who wish to purchase a commodity and those seeking its sale at a mutually acceptable price or exchange value. While specialists in the latter three fields concern themselves with markets in the sense of trading places observable in the less developed economies of the world, modern economists are principally concerned with an explanation of pricing under different market conditions. For the philosophers of Greece, in particular Aristotle, exchanging an article for money was considered “unnatural.” In Politics he observed that there is a double way of using every article. “There is its wear as a shoe and there is its use as an article of exchange” (I.9, 1977, pp. 39–41). The “natural” use of an article is for consumption, while its exchange for money is an improper or “unnatural” use. Clearly, the distinction the philosophers made between value in use and value in exchange in a market is a reflection of the contempt they had for mercantile activities.
The influence of the Greek philosophers on intellectual thought and human behavior was eclipsed by the fall of the Roman Empire in 476 CE. Their teachings were not rediscovered until translations were made from Aramaic sources by early Christian scholars in the twelfth and thirteenth centuries. Church scholars (the Scholastics) reinterpreted Greek ethics and philosophy to meld them with the Catholic Church’s doctrines, including that of the “just price” as the market outcome that results from the moral behavior of both buyers and sellers, so that the resulting exchange value serves the common good. The central role of the “just price” derives from the papal bull Unam Sanctum (1302), enunciated by Pope Boniface VIII, which not only reflects the authority of Christian doctrine, but also implies the political priority of the state, vis-à-vis the family and the individual. Throughout the Middle Ages the dominant perspective about human behavior was that it should be guided by the goal of salvation.
By the mid-sixteenth century Church doctrines were challenged by the rise of nation-states and divine-right monarchies in England, France, Spain, and Holland. Their belief was that a nation’s stock of gold was an index of its wealth and power, which led several of their thinkers to a theory of foreign trade that identified a favorable balance of trade (i.e., an export surplus) as the cause of national wealth. Merchant activity in foreign trade was thus accorded social status above artisans and manufacturers, while agricultural labor placed last. Interest in trade also promoted quantitative concepts and techniques, such as William Petty’s Political Arithmetic (1690), to explain social phenomena. The logic of explaining prices in terms of the physical costs of producing goods thus replaced the subjective perspective inherent in the medieval notion of just price and its counterpart, the “just wage.” The rise of the European nation state is thus intimately related to the development of political economy, and ultimately of capitalism.
The view of the market that followed in the eighteenth century originated in the Scottish Enlightenment and was envisioned as the outcome of multiple individual choices adapting to evolutionary changes to promote maximum happiness for the greatest number of individuals. This optimistic vision underlies Francis Hutcheson’s (1694–1746) System of Moral Philosophy (published posthumously in 1755), whose teachings influenced David Hume’s natural order philosophy, which explored its beneficence to human freedom and happiness that is fully manifested in a market economy. Hume’s work greatly influenced Adam Smith, whose Theory of Moral Sentiments (1759) explores the complementarity between sympathy and self interest that is central to the functioning of a market economy: In The Wealth of Nations Smith observes, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self interest” ( 1977 Vol. 1, p. 10). Thus, Smith viewed the functioning of markets as the outcome, on the one hand, of the innate capability of humans to engage in moral behavior socially, while also serving their self interest.
Smith’s starting point in The Wealth of Nations (1776) was to link the functioning of the economy to the division of productive labor as the basis for economic progress in raising the economy’s standard of living. Increasing division of productive labor (by which Smith means labor that results in a vendible product), favors the expansion of markets, encouraging still further division of labor, while promoting a larger proportion of productive workers in the population. The market price of every commodity oscillates in accordance with the proportion actually brought to the market. Thus, the market price tends to converge to a price that pays the wages of labor (at their natural or subsistence level, the profits of capitalists (which competition pressures toward zero), and the rent of land (which tends to increase as population growth necessitates the use of inferior soils). The increasing division of labor enhances productivity and thereby ensures economic progress, broadens markets, and enhances the well being of each of the three great social classes: laborers, capitalists, and landlords.
Notwithstanding the optimism inherent in the invisible hand doctrine, the thesis that market wage rates tend toward the subsistence levels anticipated the pessimistic worldview of the nineteenth century that led Thomas Carlyle (1795–1881) to describe political economy as the “dismal science” (Critical and Miscellaneous Essays 1849, p. 84). While Smith attributed downward pressure on wages to the relatively greater bargaining power of employers, many who followed him, the English Economist Thomas Robert Malthus among them, attributed the tendency toward subsistence wages to the combined effect of population growth and rising food costs in consequence of diminishing returns. Classical thinkers were thus fully cognizant that the market allocates income shares among workers, capitalists and landowners, as well as goods among households. These forces led the English economist David Ricardo to offer the theory of comparative advantage to explain the gains inherent in international trade, which encourages improvements in productive technology and international division of labor, which will enhance worker productivity and the rate of profit, and help the working class to participate in the gains from trade.
The advent of the “marginal revolution” led by William Stanley Jevons in England, Carl Menger in Austria, and Leon Walras in Switzerland (who published almost simultaneously in the 1870s), introduced a subjective perspective as an alternate to the classical cost of production view of exchange value, which predicated values on the utilities that consumers placed on their purchase. Because it is their objective to maximize their total utilities, consumers reallocate their commodity holdings until they achieve a set of values that represents an equilibrium state from which no further improvement is possible. This is the vision that led subsequently, principally in the work of Leon Walras (1834–1910) and Vilfred Pareto (1848–1923), who jointly founded the Lausanne School in the twentieth century, that when viewing an economy in its entirety there is a tendency for all of its sectors to move toward simultaneous (i.e., general) supply and demand equilibriums in each of its commodity and factor markets. This is an outcome that lends itself toward representation in a group of simultaneous equations from which Walras demonstrated that it is possible to derive a mathematical solution for market outcomes, given the necessary data. In practice, of course, markets establish actual quantities and prices through the interaction of demand and supply.
An alternative to explaining market outcomes exclusively in terms of marginal utility, which built on the mature classical tradition of John Stuart Mill, and which is known as neoclassicism, emerged in England with the publication of Alfred Marshall’s Principles of Economics (1890). Its distinguishing feature is its eclecticism, which joined marginal utility as underlying the demand side of market behavior (which he pioneered independently of the English economist and logician William Stanley Jevons [1835–1882]), with the classical cost of production explanation of the supply prices of output. By maintaining the interaction of demand (or utility) and supply (or cost or production) in determining prices, Marshall emphasized the central importance of the time periods during which competitive industries are able to make adjustments to consumer demands. In the short run, when inventory has already been produced, costs of production are relatively less important in setting prices than are consumer demands. The short run, during which investment in fixed plant and resources are in place, outputs can be varied by changing inputs of labor and raw material so that costs of production become equally important as demand in establishing prices. In this period the number of firms in an industry becomes expanded or contracted in response to profits or losses, so that in the long run, when all inputs are variable, competitive prices will tend toward equality with the costs of production incurred in response to consumer demands. Thus, Marshall’s focus (unlike the French economist Léon Walras’s [1834–1910] general equilibrium) for explaining prices was on “short causal chains” of partial equilibrium to explain what happens in commodity and factor markets.
With the publication of Marshall’s eighth edition of Principles of Economics in 1920, the basic supply and demand framework for conceptualizing market behavior and outcomes, along with the vision of economics as a moral science, was established in the United Kingdom and the United States. The only important addition was the subsequent recognition by scholars Edward Chamberlin and Joan Robinson that the commodities sold in most markets are fundamentally differentiated from competing products via advertising, packaging, design, and sales locales. The latter give individual firms a degree of control over selling prices that renders their markets monopolistically competitive. In other industries, the increasing returns that are inherent in large scale production cause firms to expand so that a few large firms (i.e., oligopolies, many of which are multinational firms) dominate markets in which prices deviate from competitive cost of production prices in consequence of both product differentiation and competition among few (rather than many) large firms. Globalization and electronic communication, along with the apparent widespread political preference for privatization and profit driven decision making, suggests an emerging overlap in the behaviors and outcomes in markets worldwide.
There is, however, an important difference between economies that have become privatized since the decline of communism in 1989 in the former Soviet bloc, and American and Western European capitalism. The transition from collectivism to market-oriented decision making has been accompanied by reductions in output, increased unemployment, and rising prices.
SEE ALSO Economics, Classical; Economics, Neoclassical; Market Clearinghouse; Market Economy
Aristotle. 1977. Politics. Trans. H. Rackham. Loeb Classic Library, Vol. 21. Cambridge MA: Harvard University Press.
Bromley, R. J. 1974. Periodic Markets, Daily Markets, and Fairs: A Bibliography. Melbourne: Produced by the Dept. of Geography, Monash University, for the International Geographical Union Working Group on Market Distribution Systems.
Carlyle, Thomas. 1849. Critical and Miscellaneous Essays. Philadelphia: Carey and Hart.
Marshall, Alfred.  1920. Principles of Economics. 8th ed. London: Macmillan.
Petty, William. 1899. Political Arithmetic. Vol. 11 of The Economic Writings of Sir William Petty, ed. Charles Hall. Fairfield, NJ: Augustus M. Kelley.
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"Markets." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/markets
"Markets." International Encyclopedia of the Social Sciences. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/markets
Manorial lords levied a rent on each stall-holder in exchange for the right to trade on a particular day of the week. Markets usually served the population within about 10 or 12 miles, which was as far as a laden horse-drawn cart could journey to and fro in a day, whilst allowing time to trade. However, some markets became famous for the sales of special produce, drawing merchants from further afield.
Markets usually took place in the main streets where traders erected their stalls or pens for animals or other livestock. Such streets often show their function by their spaciousness and were given names such as Market Place, Market Street. Other places carried names such as Butter and Hen Cross, Cattle Market, Haymarket, or Lace Market. In larger towns, markets were held in different locations on different days. During the Middle Ages, the naves of many parish churches frequently served as covered markets. However, the unseemly conduct of some traders led to the discontinuation of this practice and the erection of special market halls.
By the 20th cent. markets had become associated with the sale of either fresh local produce or cheap mass-produced goods.
Ian John Ernest Keil
"markets." The Oxford Companion to British History. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/markets
"markets." The Oxford Companion to British History. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/markets