The Market System: What It Is, How It Works, and What To Make of It [Hardcover]

Charles E. Lindblom (Author)

Book Description

ISBN-10: 0300087527 | ISBN-13: 978-0300087529 | Publication Date: April 1, 2001

In the wake of the collapse of communism, we hear much about the victory of the 'market system'. Just what is the market system? This clear and accessible book begins by answering this question, then goes on to explain how the market system works and what it can and cannot do. Charles E. Lindblom, writing in nontechnical language for a wide general audience, offers an evenhanded view of the market system. His analysis of the great questions that surround the market system is sometimes unexpected, always illuminating: Is the market system efficient? Is it democratic? Does it despoil the environment? Does it perpetuate inequalities? Does it debase personality and culture? Big choices are yet to be made about the future of the market system, observes Lindblom. He outlines what these choices are and how they will affect not only our economic well-being but also our social and political lives. For market systems organise or coordinate more than just the flow of commodities, he shows. They influence human behaviour in all its dimensions.

Editorial Reviews

From Publishers Weekly

Ever since the worldwide collapse of Soviet-style communism, the triumph of the "market system" has been spoken of as a fait accompli, while the market has been touted as a panacea for every social ill from failing schools to Third World poverty. Lindblom (Politics and Markets: The World's Political-Economic System) explains what this "market system" is, details how it works, makes a strong case for its advantages and keenly outlines some of its limitations. Exploring the relationship between markets and democracy, for instance, he points out that while it's true that all democratic societies have market systems, we can't conclude that markets always foster democracy, because many antidemocratic societies also have market systems. Addressing nothing less than the nature of cooperation in human society, his discussion spans history, philosophy and political theory, an unusually multidisciplinary approach for an economics text. Lindblom, a professor of economics and political science at Yale University, also explores the relation of the market system to efficiency, ethics, social equality, power, the natural environment and culture. Posing bold questions such as "[I]s there in our time an alternative to the market system... ?" Lindblom provides refreshingly few definitive answers, making his the most mild-mannered economics book published in some time, as well as one of the most cerebral. (Apr.) Forecast: Admirably clear and penetrating, this book deserves to find a broad audience interested in an intellectual approach to economics. Unfortunately, since the title sounds dull, the author is little-known to general readers and the book is hard to categorize, it may not achieve the sales it deserves.
Copyright 2001 Reed Business Information, Inc.

From Booklist

The collapse of the Soviet Union and the end of the cold war have made the terms communism and capitalism seem obsolete. Instead, we have the "market system." Russia's deteriorating, gangster-driven economy has been labeled a market system. So has Britain's so-called third way. At the same time, the excesses of globalism and the growing power of corporations, the depletion of natural resources and the degradation of the environment, challenges to welfare, and unprecedented prosperity have all been attributed to the market system. Lindblom's goal is to reconcile these discrepancies. A professor emeritus at Yale University, Lindblom neither "celebrates" nor "deplores" the market system; he hopes to have us understand it. He defines the market system as the organization or coordination of "activities not through governmental planning but through the mutual interactions of buyers and sellers" and explains that it encompasses labor, agricultural, capital, consumer, and business markets. As Lindblom makes these abstractions more concrete, he also catalogs the benefits and liabilities of the market system. David Rouse
Copyright © American Library Association. All rights reserved

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Product Details

• Hardcover: 256 pages
• Publisher: Yale University Press (April 1, 2001)
• Language: English
• ISBN-10: 0300087527
• ISBN-13: 978-0300087529
• Product Dimensions: 8.6 x 5.8 x 1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (7 customer reviews)
• Amazon Best Sellers Rank: #708,301 in Books (See Top 100 in Books)

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35 of 37 people found the following review helpful:

5.0 out of 5 stars Interesting reflections on the market system, September 28, 2001

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J. Grattan "Ideas can move the world" (Lawrenceville, GA USA) - See all my reviews
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This review is from: The Market System: What It Is, How It Works, and What To Make of It (Hardcover)

Professor Lindblom approaches his study of the "market system" in a rather circumspect manner but ultimately the book informs. The first part of the book is largely instructive. He defines the market system as "a system of society wide coordination of human activities not by central command but by mutual interactions in the form of transactions." Coordination is for both "social peacekeeping" and cooperation. Markets are an arena for mutual adjustment and not simply or even mostly for competition as some would contend. He contrasts the flexibility of markets with the rules and authority of a command system. The state under girds the market system by providing for liberties, property and contract rights, policing, infrastructure, a monetary system, etc. The author furnishes the analogy: if the market system is a dance, the state supplies the dance floor. He is especially wont to point out the interpenetration of the market system with society and the polity. The market system is not some purely economic formulation like, say, the law of supply and demand.

A key claim by purists is that the market system establishes efficiency prices, or the correct price based on the free interactions of all buyers and sellers. The author squashes that notion. There are any number of inefficiencies and compulsions that undermine claims of efficiency. Among them are so-called spillover effects or externalities, transaction termination, manipulation of buyers, inequality of resources, inequality of market position, arbitrary pricing by monopolies or governmental interference - to name a few. In addition, the author identifies "prior determinations" as distorting efficiency prices. Custom, laws especially those of inheritance, and historical accident distribute assets and skills that distort and taint current market transactions.

The author spends some time examining the quid pro quo basis of the market system. The general rule for entering the market system is that any request for benefits or goods is invalid without an equivalent market offer. Traditional societies have generally acknowledged at least some claim to society's output by virtue of membership. But market systems turn inhumane quid pro quo into a moral virtue. The author points out that the concept of community allows for "love thy neighbor," but in market societies one has no neighbors. Critics contend that the market system affects personalities rewarding small-mindedness, cunning, and deceit over wisdom. Yet the author is more inclined to view market behavior as an example of role ethics and not to be deplored.

Perhaps the major concern of the author concerning the market system is the disproportionate power granted to elites in a market system and the subsequent impact on freedom and democracy.
Clearly entrepreneurs and corporations and to some extent governmental elites are the movers and shakers of market systems. Market and political elites constantly bombard the public in one-way communication with their messages for purposes of controlling and manipulating the public's market and political behavior making a mockery of the much proclaimed "consumer sovereignty." Elite control and hierarchical arrangements are made to seem natural in an ostensibly democratic society.

Governments offer any number of inducements to corporations: tariff protections, loans, cash and land grants, purchase of goods, patents, tax concessions, information and research services, subsidized advertising, etc. School systems are geared to corporate needs. But those concessions to market elites are clearly a case of the exercise of political inequality.

In addition, it is problematic for democracy when rights usually conferred on real, living citizens are granted to institutions such as the fiction that corporations are legal persons. He contends that institutions should be constrained to pursue assigned purposes and no others. For corporations that would include rights to buy and sell and manage a workforce. As it is, corporations play the role of oversized, unfairly empowered citizens. Utilizing public funds, that is, sales receipts, and organizational resources, corporations engage in overt political and philanthropic activities at a level that overwhelms normal citizen participation and influence.

If the market system distorts democracy, why is it that no democratic state has turned away from the market system? According to the author the assault on the public's mind by market and political elites has produced "a remarkably high degree of conformity of thought endorsing or accepting the market system."

Free-market ideologues tout the freedom of the market system. But in the face of "distracting and obfuscating" communications from elites, is it possible to exercise free choice. Some have suggested that such manipulation actually degrades mental acuteness, and though sympathetic the author finds that to be an overstatement. The unfreedom of workplaces also brings into question the claim of the market system as being freedom enhancing. In the author's words: "People at the end of the 21st century may look back with astonishment on our era's discrepancy between democratic principle and autocratic practice in the corporation."

In the end, the author though noting the considerable problems of the market system remains confident that the market system can best deliver the benefits to society as first defined. He points out that every market society can choose varying degrees of control over spillovers, monopoly, corporate powers including political powers, managerial authority in enterprises, investment, and distribution of income and wealth. Purchase, subsidy, tax, and related devices can be used by the state to make the market system livable.

Undoubtedly, free-market types will not find much to enjoy in this book. Others may contend that the author was unwilling to drive the final nail into a system that he clearly finds to be problematic. But the book is a very interesting study of the market system.

15 of 15 people found the following review helpful:

4.0 out of 5 stars A Calm but Caring Exploration, March 13, 2002

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James R. Mccall (Libertyville, IL USA) - See all my reviews
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This review is from: The Market System: What It Is, How It Works, and What To Make of It (Hardcover)

"Think society, not economy." Thus Lindblom, our author, urges the reader to think about the market system in a more inclusive context than we ordinarily are wont to do. To what end?

Well, the subtitle of this book is "What It Is, How It Works, and What to Make of It." As he says early on: "For at least 150 years many societies have been trapped in an ill-tempered debate about market systems. Now we have an opportunity to think about these systems with a new dispassion and clarity. Market ideologues have learned that there is little to fear from communism... For their part, socialist ideologues have realized that aspiring for a better society is not enough. They have to face the complexities of constructing one."

One way of bisecting the population is by distinguishing those who see an imperfect world and want to perfect it from those who see an imperfect world and want to live in it as well as its imperfections allow. Charles Lindblom, a professor of economics and political science, is of the first sort. His viewpoints become clear as the book goes along, and he makes no bones about the imperfections of the various market systems and their supporting political systems. At the same time he is not an ideologue, and does not fall into the trap of yearning for a utopia of the right, or of the left.

Basically, he sees the market system as inducing cooperation and preempting violent interaction over a vast range of social interactions. That these take place mostly with money as intermediary does not remove them from the social sphere: it is, he claims, a false distinction to place economic interactions in some separable sphere from social interactions. The real distinction that the market system makes is quid pro quo: interactions between people involve an exchange - of goods for money, of favor for favor, of dinner at your house for (maybe much later) dinner at my house. But the invention of money and credit has made possible society-wide cooperation (the chain of cooperators to get this computer to my desk runs into the millions, or the hundreds of millions, of cooperating humans). For this the market system gets full credit.

But, as we know from the history of the Industrial Revolution (still going on in speeded-up form in some parts of the world), unfettered capitalism (the unregulated market system, in our terminology) is a harsh sorter-out of its participants into a few big winners (the entrepreneurs), a large number of more-or-less-contented employees, and a large number (although, unless the society is in imminent danger of revolution, not so large as the second group) of "losers" for whom the system offers little but grinding toil and early death.

Excepting such as Robert Nozick and Ayn Rand, most people feel the government has a legitimate role in curbing the excesses of the market system and protecting the citizens from each other within it. For it is a particularly transparent sophistry that all participants in the system come to it as roughly equally competent. To consider just one sort of inequality: many participants cannot do the arithmetic (don't even know that there is arithmetic they should be doing!) that would tell them whether they are getting a reasonable value when they buy something on time. Nor, say, do they understand the savage rate of compounding that credit card debt, left unattended, incurs.

The great political schism of our time is not religious, but free-market vs. government intervention. It can take a vast number of forms, and debate can get bogged down in symbolically important issues of little practical consequence while other more important effects are ignored. It is the virtue of this book that it adopts a more neutral terminology ("the market system") and is able to discuss and evaluate a vast range of issues on which sides are taken without demonizing one side or the other.

The weakness of this book is its inconclusiveness. It can't be helped. One can read a book about welfare reform, for example, and come away convinced of the author's prescription, because he has carefully stage-managed his argument to minimize or hide difficulties. Lindblom does not have that luxury: every issue really does have two sides. His general views are not in doubt: the market system is a very good thing; it needs government controls; government can, does, and should use the market system when it can it further the collective goals of the society.

But: how much freedom, of what sort, is enough? Is a command political system that employs market incentives just about as good as democracy? What possible alternatives are there to a market system? What can be done about corporations, these vast engines of production that are increasingly out of the control of the political system?

I enjoyed this book, although I'm not sure what I now know that I didn't already tacitly know. There were a few epiphanies, but they went by so quickly that I suspect I could profit much from a second reading. There are no pictures, charts, or bold-faced claims: the book has no visual aids to highlight its points. The prose is calm, and the arguments for or against a position are spare, with little or no supporting evidence. One reason for this is the high level at which the points are discussed: Lindblom is not making policy, but rather pointing out the wide range of possible answers to many of the vexed questions of the day. One cannot doubt the truth of most of what he says. The question is, what is one to do with it?

If one is a person of the second type, the answer is, nothing. But reformers should be given pause: Perhaps, after reading this book they may be persuaded to make their solutions less sweeping, in keeping with a new appreciation of the subtlety and richness of the problems of organizing a society around a market system that is intertwined with a political system.

10 of 11 people found the following review helpful:

5.0 out of 5 stars The Market System: Understood Properly!!!, February 12, 2002

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Tansu Demir (Springfield, IL) - See all my reviews
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This review is from: The Market System: What It Is, How It Works, and What To Make of It (Hardcover)

The main objective of Lindblom in this book is to elucidate the market system, not only in relation with the economic system but also in relation with the "social system", about what it does mean, how it does work, and what the alternatives it does have. Though the author is a supporter of the market system, he clearly demonstrates the efficiencies and inefficiencies, and accomplishments and failures of the market system in some important points for the society as a whole. At a point of time in history in which the alternative systems, including socialism, to market system have collapsed and the market rhetoric has pervaded all spaces of civic discourse, especially that regarding public sector management, Lindblom presents an excellent account of the market system that I believe will be very helpful to anybody who is interested in applying the market model to the public sector, and to anybody who believes (sometimes blindly) that the State is an impediment to the effective and efficient functioning of the market system.

The book is grouped into three parts. In the first part titled "How It Works" Lindblom examines the dynamics of the market system that lead to "great accomplishments". In the second part titled "What to Make of It" the author focuses on the operating rules of the market system, the relationship of the market system with and impact on democracy and culture. In the third part titled "Thinking About Choices" Lindblom envisages the alternative system to the market system that is expected to solve the problems of the market system. I will try to summarize some important points below.

To Lindblom, "a market system is a method of social coordination by 'mutual adjustment' among participants rather than by a central coordinator" (p. 23). To better grasp the role of the market system in coordinating the society, the author advises us to focus on and think the society, not the economy. In the market system, millions of people think and act without a great mind's planning and intention (say, central planning bureaucracy in socialist systems). "The market system is not a place but a web, not a location but a set of coordinated performances" (p. 40). The important point Lindblom tries to accomplish is that "it is a mindless and purposeless market system that accomplishes the great tasks of social cooperation" (p. 40). The market system wheel is rolled by intended and unintended behaviors of the individuals, but it creates an efficient functioning that was dreamed but could not yet have been accomplished by centrally intended systems such as socialist system. Lindblom approaches social coordination and "peacekeeping" in close relation to each other. Because of scarcity, according to the author, there is an inherent danger that people find themselves in fight to each other for determining who will get what and in what amount. "The market system", with the help of its formal and informal rules, "produces patterns of behavior that themselves reduce mutual injury and keep peace in the society, quite aside from inducing people to obey the law" (p. 44). Although "the market system makes societies peaceful, but that is not necessarily efficient, equitable, or humane" (p. 44), Lindblom cautions.

Lidblom believes that although enterprises and corporations are of critical importance in the market system in making proximate decisions (that transform inputs into outputs), he adds a caution that "the more the coordination by corporate management, the less by the market system", and he goes on to say that "The corporation is indeed an alternative to the market system" (p. 78). Why? Because the corporation can become an "island of command in market sea", by vertically integrating its production and by horizontally diversifying its mix of goods and services In these cases, multilateral cooperation among participants in the market system transforms itself into the unilateral hierarchical decision making of corporate managers, a form of decision-making that is more different than the market system's mutual adjustment, more similar to the central planning system's top-down decision making. This is a very important point that attracts our attention to the vital role of the State in ensuring the proper functioning of the market system and assuring fair competition.

Lindblom examines a large number of operating rules that lead the market system to producing efficient results in the domain in which it is mainly responsible and able to. This operating rules ranges from "quid pro quo" to "efficiency prices". Though generally market system is seen "completely" efficient as compared to "witch government", Lindblom demonstrates how the market system creates and feeds inefficiencies (negative spillovers, income inequalities are some among many others) and fails in many points that necessitate the State intervention to keep the "civilized" society get across the road.

One point in the book that impressed me deeply is how the market system, through its elite, creates (that I can call "anomalies in democratic system") what Lindblom calls "undemocracy". Lindblom also wages an effective critique on "granting the enterprise a citizen's rights (corporation as citizen) and demonstrates (with examples) how this "grant" can give (or gave) way to serious problems for the democratic system. In sum, Lindblom believes that "a society has to pay heavily for its market system in some loss of democracy (p. 250).

The inefficiencies and dangers of the market system constitute no reason, according to Lindblom, to abandon the market system. The alternative to the market system is not radically different from the market system itself today in function, but it is a state-supported market system that is oriented to detecting the problems and providing the solutions that the market system fails to do.

This book is supra-excellent that I cannot portray within limited lines. I believe that Lindblom is a great mind and a beautiful writer. Highly recommended for anybody who thinks that s/he knows the market system very well.