Read: How Markets Work

After a few a little bit more radical, heterodox critiques of current (textbook) economics Prasch’s “How Markets Work” is rather orthodox. It still deviates from the standard introductory textbook treatment of markets in the sense that it does not blindly follow The (competitive) Market is best doctrine that advocates the market institution as the easy solution to many problems – if only the market was unregulated. Yet, the critique focuses rather on the unreflected application of the perfectly competitive commodity market model to goods and services that do not fit into the standard commodity category.

Hence, Prasch discusses the peculiar deviations of specific markets that render the standard textbook toy model inapplicable. He discusses e.g. financial asset markets that are characterized by positive feedback loops instead of negative feedback loops and that are therefore not necessarily self-stabilizing and labor markets that feature non-monotonic supply curves that bend backwards, forwards, and backwards again and may have four different equilibria, two stable and two unstable one, at different levels of wages. He also touches upon the issue of prices, values, and incommensurability. There are contexts in which the orthodox utility framework seems not to apply, where the choice problem cannot easily be represented by a scalar utility model.

Overall, Prasch’s “How Markets Work” is utterly unspectacular, non-revolutionary, orthodox, and just well thought-out. The didactic approach, starting with a discussion of property rights, is impeccable. As an added benefit the book is easily accessible also for the uninitiated and mostly non-technical as even the number of graphs is kept at a minimum. It may be a good supplementary reading for any introductory (micro-) economics course covering the analysis of demand and supply.

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