Comments on economics, mystery fiction, drama, and art.

Saturday, April 20, 2013

The five roles of market exchanges

From Brad DeLong, something I think I need to keep in mind every time I teach intro econ (and especially, as I think about it, intro micro):

"...that market exchanges have to fulfill five distinct social roles:
(1) The prices at which commodities are exchanged [serve] as signals and incentives to direct and coordinate the human division of labor.
(2) The fact of trade and exchange cements social bonds--Albert Hirshman's "doux commerce" idea.
(3) Present generosity--giving more than you receive right now, whether explicitly a loan or not--creates a status hierarchy that distributes social decision-making power.
 (4) The unlucky benefit from a modicum of social insurance by implicitly trading away some decision-making autonomy for current resources.
(5) The prices the market attaches to the resources at one's hand make some rich and others poor..."


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