Foundations of Evolutionary Economics, Chapter Eight: Markets

Abstract

This is a the first draft of the eighth chapter of my book ‘Foundations of Evolutionary Economics’ which is going to be published by Edward Elgar in due course. With permission of the publisher, the draft chapters are posted on the web to facilitate academic discussion for further improvement. I analyze markets as artefacts that emerge from the conjunction of institutions and technologies. The most essential artefact is money. The emergence of money enables the division of labour and triggers the unfolding of a particular temporal structure of market transactions that creates the problem of fundamental uncertainty. Prices are artefacts that emerge from the induced processes and guide individual actors’ actions. Prices are conventional phenomena, in particular the interest rate and the wage rate; I eschew the equilibrium approach to prices. Markets grow in complexity as a result of the evolution of transactional capabilities, in particular embodied in firms. Firms make markets, thus are complementary to markets. Market competition is embedded into evolving network configurations and is driven by status competition both on the producer and the consumer side. Thus, market competition mediates the physical principles of Maximum Power and Maximum Entropy. The theory of markets becomes an integral part of the general theory of evolution.