The Market

By the term “market”, economics designates the process through which, in the division-of-labour economy based on private property in the means of production (the market economy), production is steered into those channels in which it best serves the satisfaction of the consumers’ most urgent wants.

The consumers are sovereign. By buying or by abstaining from buying, they decide upon the profit or loss of the entrepreneurs. Profit and loss direct the control of the means of production into the hands of those who know how to employ them most expediently in the service of the consumers. In the market economy, ownership of the means of production is, as it were, a social mandate that is withdrawn from the mandatary if he fails to comply with the respective instructions of his principals, the consumers.

A business is profitable if it serves the best possible provision of the consumers. It is unprofitable if the consumers prefer a different employment of the means of production concerned. To construct an antagonism between profitability and productivity is meaningless so long as one remains within the framework of the market economy and does not call into question the sovereignty of the consumers. Whoever describes a profitable business as unproductive sets his own opinion of what ought to be produced and consumed above that of the parties to the market. He presumes to know better than they do themselves what benefits the consumers. In doing so he gives his personal judgement a form that makes it appear as a universally valid truth and rule of life. When he demands that the government take coercive measures in order to enforce productivity against mere profitability, he tacitly assumes that the judgements of all men concerning what is productive and what is not coincide, and that his own view will also be that of the authorities.

In describing the processes of the market it is customary to speak of the free play of economic forces. Another image often used to characterise the market is that of automatism. To a supposedly blindly operating automatism one opposes the conscious intervention of the wisely planning authority. Such metaphorical turns of phrase obscure the state of affairs. All market phenomena are the result of the endeavours, directed at the best possible covering of their requirements, of all those who wish to buy or to sell on the market. It is mistaken to characterise these actions of individuals as unconscious behaviour by setting them in contrast to the conscious intervention of the authorities.

Men are not infallible, not even in their economic doing and refraining. Everyone is free to censure the conduct of his fellow men — for instance their predilection for alcoholic beverages, for shows of dubious character, for wrestling and boxing matches and the like — and to attempt to persuade them to a wiser employment of their means. Yet the problems that arise from the inadequacy of the human mind are by no means solved by replacing the market with planned economy and placing individuals under the tutelage of the authorities. Kings, leaders and officials too are men and can err. The liberty that the market grants to the individual may be doubted from the standpoint of metaphysical trains of thought. In the sphere of the satisfaction of wants, however, it embodies the ideal of liberty that constitutes the essence of the culture of the West and distinguishes it fundamentally from the oriental style of life. In this sense the market, ultimately governed by the consumers, is an essential element of the modern social order and culture.

State and municipal enterprises that operate within the framework of a social order otherwise based on private property in the means of production are just as dependent on the market as private enterprises. As buyers (of raw materials, semi-finished goods, tools and labour) and as sellers (of goods or services) they must fit themselves into the dealings of the market and, in order to maintain themselves, must strive to earn profits and to avoid losses. Attempts to mitigate or to eliminate this dependence by covering the operating and capital losses of public enterprises through subsidies out of tax revenue merely shift the points at which the reaction of the market sets in. For it is not the tax-levying state, but the mechanism of the market, that decides upon whom the levy ultimately falls and how it affects production, the provision of goods, the management of capital and the formation of incomes. Thus here too the sovereignty of the buyers and the inescapability of the laws of the market come into play. When one speaks of a private-capitalist sector and a state sector of the national economy, one must not forget that the state sector too depends on the market.