Thursday, May 7, 2009

Concept III: Market

The market is the exchange market.

The market is where people can trade what they do not want for what they want.

The first problem that arises from the market is the price - the terms of trade.

What is the "fair" price?

In rudimentary markets, the price is set by the trader who has the most holding power - and I presume that comes from his "capital".

If he can hold and wait, then, if he waits long enough, he may get the price he wants.

If not, then he will "dump" in the market.

The market price therefore does not really reflect the true value of a product - either use value or exchange value.

But the important thing is that the market exists for trading purpose - whatever the price, it be better than be landed with lots of things you do not want with no outlet to trade.

To improve one's terms of trade, one must have (a) the technology to produce, (b) the capacity to produce, and (c) the willing to please others mostly strangers but who are quite prepared to trade with you.

At the end of the day, one's wealth comes from one's ability and capacity.

The trading only allows for variety but not the overall capacity.

In a closed market, the lack of demand may discourage effort.

In an open market, there may be enormous incentive to strive to expand one's capacity - and to specialise for greater efficiency of production.

But when there is overcapacity, production will have to slow down or halted as inventory piles up.

This overcapacity will usually be in a few products, and this could be due to bunching of investments - I would attribute it to lack of innovation and ideas - the drive for competitiveness leads everyone to focus on the same types of products - commodities.

In such a situation, price adjustments allow others with capital to take over the failed operations - or rather failed management of perhaps viable operations.

When one or two operations fail, it is incompetence on the part of the operators.

When all operators fail, it is systemic error - something wrong with the workings of the system.

Rules and regulations must be changed or imposed - to prevent explosion and implosion of the system.

The collapse of the market leads one to the closed market of oneself.

In a closed market, specialisation becomes a disadvantage.

You eat rice with salt everyday.

1 comment:

walla said...