Economic and Marketing Information                                                                                                                                                                                      FOR INDIANA  FARMERS          
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana
November 30,   1959
Our Market System on Trial
by PAUL L. FARRIS, Agricultural Economics
As soon as men began specializing in production they
needed to exchange goods and services with each other.
Thus, markets appeared. Sellers brought goods to market and buyers brought money or other goods, and they
exchanged with each other. With exchange came the
problem, sometimes difficult, of determining a satisfactory value for the goods and services exchanged.
The value of an item, said economists about the time
of the Industrial Revolution in England, was essentially
what it had cost to produce it. Sometime later the idea
was advanced that a product's usefulness, not the cost
of producing it, determined its value.
As time passed, men began to see that both ideas
were partly correct. Market price really depended upon
both supply (influenced by cost) and demand (arising
from the usefulness of a good or service). Markets balanced the forces of supply and demand. The value of
a product at the point where the forces of supply and
demand were in balance in a market was the market
price.
We have made wide use of markets in the United
States. We have traditionally believed in using the
market system wherever it was feasible. We recognized
early that in most of our economy we had no better
way of guiding production and adapting the supplies
of goods to consumption needs than through markets.
But men have not always been satisfied with market
prices. Some have pointed out that the balancing process
does not work perfectly. Several reasons have been advanced. First, knowledge is inadequate. Men know only
imperfectly where to sell or buy, how to judge the quality of a product or what the future may hold. Second,
it takes time for producers to change their activities in
response to changing conditions, and it may be costly
for them to change. Third, very large sellers or buyers
might be in a position to withhold supplies or somehow
manipulate prices to their own advantages. Fourth, ups
and downs in general business conditions cause shifts in
supply and demand forces and complicate price movements. Finally, men have not always been willing to
accept market prices as being equitable or fair. Our
current agricultural price support program exists because one or more of the viewpoints above have been
held by a substantial number of people.
Traditional System Questioned
More and more of our traditional marketing processes
are being questioned as methods of exchanging goods.
Exchange processes are developing outside traditional
markets. Integration, for example, ties businesses together
so that products move through production and distribu-
"on channels without going through markets. Government is being asked by many groups, agricultural and
non-agricultural alike, to step in and change market
environments.
As various forms of administrative arrangements for
exchanging goods and services succeed, the market system as we have known it will gradually lose ground. This
is not to be deplored if our traditional markets are really
replaced by something better. It would be unfortunate,
though, if they are replaced because they are not doing
what they are really capable of doing.
We are approaching a critical point in farm policy
on this score. Now, and particularly in the near future,
farm groups and politicians will take policy positions
regarding agriculture. They will make legislative decisions which will tend to give a larger or smaller role
to the market system. The issue is this: Can we modify
and improve the organization and operation of our markets so that they can better perform the job of guiding
producers, satisfying consumers and rewarding effort?
Or is this too much to ask of our market system?
The answer is not clear. It is not clear because we
still have some latitude in determining how effective
we want our market system to be. The most important
step, if we want our market system to continue to have
a major role in our agricultural economy, is to recognize
that it needs intelligent guidance. It will not improve
much automatically. Like any man-made social invention, a market system has defects which can cumulatively grow worse unless corrected. That is why we
have historically modified in various ways the conditions under which supply and demand meet. Our tradition has been to keep the market system as our dominant method of exchanging goods and correct its faults
rather than to throw it out because it had faults. Though
our market system was imperfect, it was the best we
had, and it could be improved.
It may be too much to expect that our market system
will reward farmers fairly and, at the same time, effectively guide production and satisfy consumers. Perhaps, then, we can relieve it of certain functions so that
it can better do others. Many believe that if farm income could be protected by means other than through
prices (for example, through some form of income insurance) the market system could do a much better job
of guiding production and channeling goods into consumption.
Survival Challenged
There are at least two reasons why our market system may not get a fair chance to survive. One is that
persons unfriendly to the system may be influential
enough to overcome the influence of those who like it.
The other reason, and the more important, is that those
who favor the system may not themselves try to make
it better. The attitude of this group especially will be
crucial. The market system can be improved by study,
critical analysis and the will to accept and initiate
change.