What is a market? What is government?

We often speak in terms of markets and government without really understanding what we’re saying.

What is a market?  Individuals interacting voluntarily with each other through prices.

What is government?  Individuals interacting with each other through political power.

There are many other ways individuals interact.  A family is one example.  Our friend network is another.  Churches, home owners associations, PTA, work groups, trade groups, the drivers in the group of cars around us on the freeway are still more examples.

I think it’s useful to understand what motivates and facilitates our interactions in these various  structures.  As mentioned above, in markets prices are the coordinating medium.  There are other factors too, but prices are the linchpin.

That’s why markets work well for getting people in the extended order, that is the billions of people we don’t personally know in the world, to cooperate on so many of the things we use daily to improve our lives.  This is the meaning of the Adam Smith’s famous quote:

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 own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

The coordinating medium in government is different than markets.  It’s driven by elections, the structure for government decision-making (i.e. the constitution and/or generally accepted norms) and force.

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3 thoughts on “What is a market? What is government?

  1. Pingback: Adam Smith: A moral philosopher | Philosophy lessons and philosophers quotes

  2. Pingback: What is “the market”? II | Our Dinner Table

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