Zhang Wuchang: An Introduction To The Market

　　 market It is a place where goods or services are exchanged. In 1776, Smith said, "give me what I need, and you can get what you need. transaction Meaning. "

There are many different forms of transactions. There are many changes in our daily market transactions. In addition to these, Christmas gift exchange is a transaction. Gifts and relationships are transactions. These different forms or different properties may arise from different rights structure or transaction costs, or customs and habits. Not shallow knowledge, detailed analysis requires several books, and many transactions have not been studied.

Voluntary transactions imply that every participant is profitable. This profit is not divided equally. Every trader wants to get a little more benefit from each other. The allocation of transaction interests is market competition and transaction cost. On the other hand, the cost of restricting competition is transaction cost. This is the next word, press down.

　 Section 1: two basic topics of transaction

Deal with two topics first. First, how can transactions bring benefits? On the one hand, the marginal value between people is different. This may originate from the equilibrium point where the taste is different, or the quantity of goods owned by each person does not reach the marginal value between people. Market competition will bring this marginal value equivalent. I explained it in the seventh chapter of science demand. The so-called market equilibrium means that different consumers demand the same marginal value of the same goods, which is equal to the market price. This equilibrium should be based on some transaction costs that do not exist, but not based on the fact that all transaction costs do not exist. If all transaction costs do not exist, there will be no market. In other words, the existence of the market is to reduce transaction costs. What are the transaction costs to reduce the market? I think it has been almost twenty years before I find the answer. I will explain later, because there is no explanation for rent value and rent dissipation. On the other hand, if the output activity is introduced, the interests of the transaction will be even greater. This is because the cost of production varies from person to person, and the benefits of each professional output can then be great. There is a market equilibrium for output activity and marginal cost should be added. This is also the next word.

The second topic to be mentioned here is Kos's law. It can only be said briefly that the detailed analysis of this law is the project of volume three, the choice of system. This is not the issue of social cost published by Kos in 1960, but one of the words issued by the Federal Communications Commission a year earlier: "a clear definition of rights is a prerequisite for market transactions. I think this is the only version of Kos's law that can be called "law", but the word "clear" is still open to question, but it is not worth the time to dispute.

　　 Transactions must have private property.

Kos's thinking was shocking at that time, because he said that market transactions were not cars or apples, but the frequency of sound waves that could not be seen or touched. The frequency of sound waves can be defined and can be clearly defined. The rights and interests of many other goods or services seen in the market are not clearly defined. The problem here is that the goods or services whose rights are not defined can not be traded in the market.

Exchanging gifts at Christmas is a kind of market transaction. You give me, I am not sure that I will give you, but you have the expectation that I will send back, or some other "relationship" expectations outside the gift return. Anticipating or wildly speculating about future returns, it can be defined to some extent. Anyone who buys anything in the market looks forward to the right or benefit that the item can bring. It is not necessarily clear, but there must always be a certain degree of right expectation. It's yours if you buy it, then you will pay for it. In this way, Coase's law is a necessary condition for the Theorem of Exchange. But tradition does not mean that the right should be defined before it can be concluded. (transaction theorem is the analysis of Edgeworth-Bowley Box that the students read in University. I used a relatively simple and clear method to deal with the seventh chapter of "science need". From this point of view, Coase's law only points out the limitations of trading, that is to say, to some extent, the definition of private property rights (not private ownership) is a prerequisite for market transactions. In volume three, we will explain again that the definition of rights is not clear enough, or the transaction cost is too high, which is the focus of social cost and the most important contribution of Coase. {page_break}

　　 The second quarter: the market without output.

The simplest market transaction is not the kind of production activity, that is, the seventh chapter of science needs. No production, so no matter the cost of production is just like the existence of old stamps or antiquities in the market. Money can be used as a medium or unit of calculation. Transactions are actually goods that are exchanged for goods long ago.

In this simple market, any citizen can see that the price of an item is low enough to purchase with other items or currencies he owns. If the price of a product is high enough, the relative price of the item will be matched with its marginal value. This is the act of maximizing personal interests, and everyone is doing the same for the war in competition. The above mentioned market equilibrium will be the result.

　　 The demand curve is also the supply curve.

The interesting point here is that when prices fall, a person will buy more, the law of demand, the demand curve tilting to the right, and the price rises, this person will sell more, and the supply curve will rise to the right. Interestingly, because in this simple market, the demand curve is the same as the supply curve. The demand curve is tilted to the right; the price is high enough; the citizen sells the supply curve above a price and looks at the mirror as a demand curve. So the law of demand is the law of supply.

I emphasized several times that "the needs of science" emphasized that it is not true that variables can be avoided, but the less, the better. "Demand" is the intention of economists, but the real world does not exist, but it can not be avoided. In the sixth chapter of science, I explained how to deal with the hypothesis that can be verified. It's not easy, but it can be handled. Now, when it comes to supply, the supply is also an intention, not a real thing. Fortunately, the same amount of supply and demand can be said to be the same thing, and the way to deal with it is the same if the hypothesis is to be verified.

　　 A naive fallacy.

Here is to add that the traditional analysis has a naive fallacy. The law of demand is that the demand curve must be tilted to the right, but tradition says rest or leisure is no doubt an economic commodity. The higher the price, the greater the demand, thus overturning the law of demand. The analysis is wrong.

The traditional contour analysis is like this. Vertical axis is money income, horizontal axis is a person's selling time, working twenty-four hours a day is the limit. As wages rise from zero to zero, the amount of time a person supplies increases, that is to say, the time of leisure falls. At a certain point, when the hourly wage rises to a higher level, the person's daily working time will decrease, that is, the demand for leisure time will increase. It turns out that the rise in wages is the rise in the price of leisure, and at some point the demand for leisure increases. The price of leisure rises and its demand rises, which overturns the law of demand. (geometrically, wages rise, the supply curve of working hours first rises to the right, then turns to the left. The latter means that the demand for leisure time is reduced and the demand for leisure time increases. )

It is wrong to say that this traditional analysis is wrong, because this analysis has forgotten that a person can not work twenty-four hours a day and live long, tired and unable to move, and the employer is a miracle, but that is what employers need to do. What we cannot afford to lose is that everyone must take account of the cost that his life may be short because of overwork. No matter how high the time wage rises, the real wage income is the minus of the pain or death caused by the long working hours. In other words, to work at a certain point every day, the rise in time and wages, which deducts the value of life, is actually decreasing, which represents the decline in the price of leisure and the increasing demand for leisure. This is the law of demand. {page_break}

　 The third section: output market and contract change.

The analysis of the market through output procedures is much more complicated. Because the cost of production is varied, the demand curve is no longer the supply curve. We have to deal with production costs and different contractual arrangements. The two are all complex. To seek talents in the shallow is desirable. This is the main task of the "economic explanation" Volume 2 "supply behavior". The opening remarks here are a few words. Students may think that the old man's theory is out of tune with tradition. The old man said the truth.

Let's start with a little story. A few weeks after returning to work in 1982, a colleague applied for promotion and passed the jury. I was one of them, and as director of the Department at that time, I could not ask a single question. I saw that his colleague's research work was devoted to the production function, which is the analysis of the relationship between the input of production factors and the output of finished products. So he asked, "if you shine a shoe on the street (at that time in Hongkong, allow the industry) to polish up your shoes, you pay him two yuan, is it two yuan to buy his labor, or to buy the brightness of leather shoes?" he can not answer it. All production function analysis has such embarrassment.

The answer is that all two are: the product market is the production factor market, and the two are inseparable from the market.

　　 Examples of beads

In February 21st of two, eight, I read the new labor law from pearl beads.

"After several years of World War II, there were some poor families in the hills of the West Bay River in Hongkong. They were poor families. 1938 of our family built on this mountain top, compared to" luxury houses ". Many poor families earn their living by wearing beads. Only one person earns four meals a day from morning till night. Very small glass beads of different colors, worn by thread, become a headband or belt, a bit like an Indian ornament. At that time, there was a market in the West. The agent provides the design of beads, lines and color patterns, and the operator sits in his home and wears them according to the plan. It is a piece of work to calculate wages for each product.

The agent is the boss. I wonder if it is the agent on the first floor. His reward is to draw a commission. How much or secret is the Commission, or nonsense, but many different agents have a lot of competition, see their clothes, and run around the mountain all day long.

"The above common examples have several extraordinary meanings. First, from the perspective of simple piecework, the labor market is the product market, and the two cannot be separated from each other. The traditional economic analysis is wrong. Two, if the government controls the wages of component workers, it is to control the prices of products, and the price management is also. Three, no pressure group will be interested in the industry, because the acting boss is only making time investments, earning only a little bit of knowledge, having nothing to spare, and no rental value to let outsiders work hand in hand. Four, these poor acting bosses are the leading characters in the lively principal-agent topic of economics. This theme is not the self 1983 contract essence of the company, but the transaction cost, risk aversion and contract choice published by self 1969. "

As can be seen above, "labor force" (production factor) is different from the "pearl belt" (product), but the purchase of labor force is the same as the purchase of pearl belt. In terms of piecework wage, the contract form of production factor market and product market is roughly the same. Many intermediaries' supervision and information transmission are just to reduce the work that market customers need to do, and the professional cost of intermediaries is low.

　　 Time pay contract changes

Let's jump to the example of paying wages in time. The change of contract choice is much more than that of the commodity market and the contract market. Strictly speaking, the time wage market is the same market as the goods market, but the form of contracts is different. More importantly, the worker's time is not an object, not a customer's purchase, though, in principle, any product in the market can be contributed by the participation of many different workers within the product, and the price of all kinds of raw materials is added to the rental value of the machinery: the small contribution price of each worker, the price of trivial materials, the price of mechanical rent, etc. In this way, the product market is also a production factor market, and the two one is also. Do not think that the customer of the article does not have such trivial calculation, the market has changed. Customers do not calculate this, but the trivial price is calculated through the boss or middleman of the output organization, which is far more complicated than the example of the wearing beads, but the principle is the same.

Because time wages do not directly measure the contribution of products, the issue of supervision is quite different from that of a piece of work, which involves my "law of performance" mentioned in the third and three chapters of this volume. The choice of contract was the topic of my research in 1966 when I wrote the paper "tenant theory". Over the years, the importance of this topic has become more and more obvious. I would like to point out that Coase's replacement market in 1937 is not right. The correct view is that one contract takes the place of another. The definition of responsibility or right will change. The detailed discussion should be dealt with in the selection of the three system. The key points to be pointed out here are: the market of production factor and product market are different in form of contract, but the market is also one.

　　 The fourth section: conclusion.

Do not think that I am picky enough to take the product market and the production factor market as the same market. Traditionally, separate treatment often takes account of one another and makes mistakes, but ignores the choice of contracts and the contractual structure of the economy as a whole. Of course, different products have different markets, but the same products can separate the product market from the production factor market seriously. Having said that, sometimes I also want to talk with the traditional way, but actually I mean different contract arrangements.

Understand market transactions. Run We should pay attention to two things. One is the choice of contracts, which should be dealt with in volume three, though from here to there, we must avoid occasional involvement on the way. The second important thing is the mastery of concepts. In Volume 1, we dealt with requirements related concepts: lack, competition, balance, function, value, value, price and quantity. Second, turn to income, interest, investment, wealth, capital, cost, rental value, profit, profit, social cost, transaction cost and so on. As far as I know, no other scientific concept is more important than economics.

You can say so. Explanatory economic theory It is shallow, but the concepts are not well grasped. These theories do not work. Practical Economic concepts It is derived from the laws of human behavior and can be regarded as a kind of empirical law. These concepts are accumulated from Smith to more than 200 years of thought and observation, and are important ideological heritages. Unfortunately, today's professional articles are not taught. Generally speaking, textbooks are not deep enough, but they are often wrong and few. The concept of economics should be verified by the observation of the real world. Economists from all over the ages can not fully grasp these concepts.