Saving "the Market” out of Cambridge: “Prices”

 

Suppose Mom ready for the weekly grocery shopping. Setting off, she has the “Irish potato” among other products in mind.

            Question: No. 1. Would she purchase potatoes in a “fixed quantity,” no matter what? ②How close a substitute is “Irish meat” to the potato? ③How many “substitutes” are there in the market, for that matter? ④How often does she measure the utility value of potatoes in the quantity of “meat” or any other product? ⑤Does she have loyalty to any of the sellers in town?

           The respective answer in order: ①No, not quite. It depends; ②Very remote if ever; ③Definitely indefinite; ④Never, if ever; ⑤Usually not, but we don’t know for sure about her whim. No matter which, “unsure” is everywhere identical to a “no” if in a theoretical proposition.  

             Now we check out some key points of the market. No. 1. We assume an independent homogenous product because otherwise we cannot even name “the product,” far from making a hypothesis thereon. For instance, there are big apple, small apple, miniature, hybrid, first cousin, second cousin, one-day premature, approximately ripe, 36.5-hour overripe, Whole-Food-like, 1/100 corrupt, 1/10,000 bug-gnawed, Golden Delicious, Pinky Lady, Fuji…and you name it.

             ② Prices in the market are always and everywhere in the legal “unit of account” such as the US dollar (the sign $, not the bill). In other words, the dollar is the universal value metric; never the product potato, the faceless capital, the wage rate, the leisurely hour or something else as in the PPF, the indifference curve, the work-leisure map, and the like. ③The demander, or “potential buyer” in vernacular, shops around before making the purchase and with the very action puts the potential sellers of the community in competition.

             Vice versa on the side of potential sellers of Irish “potatos.” (We are not spelling bees anyway.)

             True but trivial, “let the sunshine in”: ①There is only one price between a buyer and a seller; ②The selling quantity, whether “nominal” or “real,” on the credit side is identical to the buying quantity on the debit so as to clear the individual exchange. There is only one quantity; ③See I told you so, the market is “cleared” in collective as well.

             Happy ever after!!!

             ??? Wait a second, where is the price? Well, a price is everywhere, but the price is nowhere even in the accounting week not to mention month, quarter, year, or perennial. All that jumping around is “prices.” The cross-over price: Don’t even dream of it. In the best flattery to an Oracle of Cambridge, “The equilibrium price is everywhere except for in the market.”

             As student in economics on the sidewalk of Cambridge, we know for sure that the one price of the individual exchange is “supposed” to represent the marginal cost to the buyer and the marginal benefit to the seller. The buyer chooses the product over everything else including the “beloved-most liquidity.” The seller prefers “liquidity” to all the other opportunities but only for the sake of “supply” in the following period.

             After all, money is useless, farthest from “utile,” until we get rid of it, as least according to Paul Samuelson and William Nordhaus (Economics, 19^th ed. in fine).