‘Market’ was the sixth word I ever learnt – after ‘This little piggy goes to…’ But I learnt first hand about the market as I watched my father serving customers at his car repair shop. And yet more as my mother added up the countless rows of pounds, shillings and pence in the business’s ledgers.
So when I studied economics – even at the relatively enlightened University of St.Andrews – I knew something wasn’t right. The textbook writers were trying to make their subject a science, like mechanics. They treated people like robots, not human beings. By stripping out every trace of human psychology – irrationality, generosity, habit, ignorance – they stripped out everything that makes markets actually work. And the trouble is that almost the whole of public policy is based on these daft ideas. Ideas have consequences, they say: but unfortunately daft ideas have daft consequences, which is why we’re in the public policy pickle we are today.
So it was a great pleasure for me to be invited to write The Best Book on the Market, and to explain to people how markets really work and why they’re actually a pretty good thing. I wanted something that everyone – even politicians – could understand, so I’ve cut out the jargon and show how markets really work through my own story, and the stories of countless others of people in real-world markets.
Like my dad. He started back when cars had starting handles, running boards, and thermometers on top of the radiator. One day, a customer came in, agitated that his thermometer was always going into the red. My father inspected the car and realized that the only fault was a misreading thermometer. So he put a blob of solder on the mechanism to stop it going into the red.
I had nightmares imagining this poor man taking his car fully laden into the mountains, with steam pouring from the engine, blissfully supposing that his engine wasn’t in fact overheating.
A bit like wage and price controls. Governments try to keep down prices, but that doesn’t actually alter what’s going on in the economic engine. The emperor Diocletian decreed maximum prices for bread. Bakers saw they couldn’t make a fair return, and stopped baking. The American colonies tried to keep down the price of wheat, which nearly caused George Washington’s army to starve because nobody produced wheat any more.
Mrs Thatcher wasn’t too far wrong with ‘there is no way in which one can buck the market’. Markets don’t do what politicians want them to. That’s because markets are human. They reflect the interactions between millions of human beings. Indeed, they are the interactions between human beings. And humans have a habit of doing what they want, not what their political masters try to make them do.
That’s why we should use markets – indeed, use them more. We’re beginning to see how a carbon market can limit pollution, for example. Or a market in fishing or hunting rights can conserve precious species.
And not only is the market effective, it’s moral too: the best way to make self-interest work for the whole community. Both sides benefit from free exchange, even though they do it only to further their own interests. With millions of exchanges going on, benefit spreads throughout society, without having to force anyone.
I’ve tried to make the book personal and readable, like The Undercover Economist or Freakonomics. That way I hope it will be accessible to everyone. Even, as I say, politicians!