The market is a special form of organization of commodity farming. This is an objective phenomenon of an economy based on commodity production and commodity exchange. Every business entity and a person who makes any purchases or sales is connected with the market. Therefore, the changes taking place in the market are of interest and affect almost everyone. So what is the market? There are many definitions of the market, some of which we will consider.
In the generally used sense, “market”, according to the definition of V.I. Dahl, an area in cities and villages for the sale of edible supplies in the wild (in the air), a place of departure and gathering of sellers and buyers on the appointed days …” (See: Dal V. I. Explanatory Dictionary of the Living Great Russian Language. In 4 vols. – M., 1980. T. 4. P. 118).
Even A. Smith, studying the reasons for the growth of the wealth of peoples, paid considerable attention to the emergence and formation of the market. The market, according to A. Smith, is a regulator of the division of labor. Since “the division of labor is caused by the possibility of exchange, therefore, the degree of this division is always limited by the limits of the possibility of exchange, or, in other words, the vastness of the market. If the market is very small, then no one will find it profitable for himself to engage exclusively in any one job, simply because it is impossible to exchange the surplus of the works of his labor for the same surplus of the works of labor of other people” (See: Smith A. A Study on the Nature and Causes of the Wealth of Nations. – M., Sotsekgiz, 1935. T.I.C.42).
Thus, according to A. Smith, the market is determined by exchange. This is its main property. Moreover, the market, in his opinion, is the actions of the “invisible hand”, when supply and demand meet and balance through the price mechanism.
The Austrian economist J. Schumpeter understood the market as “all the innumerable acts of exchange that we are given to observe in a market economy in any economic period. In their totality, they form an external form in which the circulation of economic life is carried out” (See: Schumpeter I. Theory of Economic Development. – M., 1982. pp. 59-60).
In modern neoclassical economic literature, the definition of the market given by the economist A. Marshall “The market is not any particular market area on which objects are sold and bought, but in general any area where the transactions of buyers and sellers with each other are so free that the prices of the same goods tend to be easily and quickly equalized” (A. Marshall. Principles of Political Economy. M.: Progress, 1984, Vol. 2., p. 6). In this definition, the criterion for determining the market are the freedom of exchange and the setting of prices.
According to most modern textbooks, the market occurs when buyers and sellers exchange goods, securities, labor, etc. With each other, the market is “an institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service” (See: McConnell, K.R., Brew S.L., “Economics: Principles, Problems, and Policies.” – M., Republic, 1992. Vol.2. p.398).
Thus, in all these definitions of the market, its main characteristic is exchange. However, it should be emphasized that not every exchange generates a market and the market does not always lead to a market economy. The exchange originated from time immemorial, in the Paleolithic era, i.e., at least 30 thousand years ago. The reasons that led to the need for exchange and, consequently, led to the replacement of subsistence farming by commodity production and to the emergence of the market are: the development of the social division of labor and the economic isolation of producers.
The social division of labor was caused by the limited resources and production capabilities of man. It is manifested in the specialization of producers in special types of labor activity. The existence of different forms of ownership has led to the economic isolation of producers as owners, in which each of them carries out economic activities in accordance with their own interests.
In the conditions of a developed social division of labor, each producer specializes in the production of certain goods. But to meet their needs, each person needs a variety of goods. This contradiction is resolved through exchange. Producing a limited range of goods, but in greater quantities than necessary to meet his needs, the manufacturer seeks to exchange the surplus created by him for products of other manufacturers. Thus, the social division of labor, on the one hand, separates producers, and on the other hand, unites them, since it causes the need for a regular exchange of the results of production activities.
At an early stage in the development of human civilization, the process of commodity exchange performed only the function of moving goods, i.e. transferring it from hand to hand as use values. Such an exchange was carried out without the intermediary of money, i.e. there was a direct exchange of goods (in the form of barter transactions). Its emergence and development did not yet mean the emergence and development of the market.
Exchange is transformed into a market only when producers organize production in order to sell their goods with the subsequent acquisition of another product they need. Under such conditions, the emerging type of management finally breaks with natural production. An important step on this path was the wedging into the commodity exchange of money and the emergence of commodity circulation. Formally, commodity circulation differs from the direct exchange of goods in that it is carried out through money.
The act of any exchange involves at least two subjects – the seller and the buyer. In order to exchange a product, even if the exchange is random, both entities must be economically free. They should be free to exchange products at will. Consequently, for an exchange organized according to the laws of commodity circulation, the main features of functioning are: 1) the freedom of the seller and the buyer; 2) the basis of the exchange is the supply and demand of goods.
The presence of these signs, however, does not mean the emergence of the market as a system. A system is considered to have arisen and is entering the stage of formation if it begins to self-sustain itself. The emergence of the market implies a multiplicity of exchange operations. Multiplicity is necessary primarily because with a limited number of sellers and buyers, there can be no free fluctuation in prices, but only collusion on the part of both buyers and sellers.
The main feature of a market organization is that in most cases it does not allow one person to interfere in the activities of another. The consumer is restricted from coercion by the seller by the presence of other sellers with whom he can also enter into a transaction. The seller is limited from the dictates of the consumer by the presence of other consumers to whom he can sell his goods.
We can talk about the emergence of a market if the process of commodity circulation and production becomes regular, generates constant fluctuations in demand, supply and prices. The presence of such signs as a lot of sellers and buyers, secondly, price fluctuations and thirdly, orientation to the needs of the consumer-buyer, allows us to talk about the emergence of the market.
The market is an objective phenomenon of the economy. Its appearance is the result of a long economic evolution of human society. The “creation” of the market occurred as a result of people’s search for a solution to the eternal economic dilemma: on the one hand, rare, limited resources, and on the other hand, unlimited human needs for a variety of goods. A person of all inclinations and abilities can produce something effectively only in a certain area. At the same time, its needs are estimated at millions of items of consumer goods. The market organization of the economy arose due to the process of exchanging the products of labor of people who are able to produce them in limited quantities, but who need many consumer goods produced by other people.
Consequently, the market arises simultaneously with commodity production. The market shows producers what needs to be produced and in what quantities. Through the market, buyers influence production. In this sense, the market is a self-regulating system of reproduction. All its links are under the constant influence of supply and demand.
The market is a system of interaction between producers and consumers, based on commodity production and exchange, with the regulatory influence of market prices. |
The subjects of market relations are producers, consumers and their intermediaries. The main producers (enterprises and organizations) sell the material goods and services produced by them and buy the resources necessary for production. Households appear in the market as buyers of consumer goods and sellers of labor. The state buys goods on the market necessary for the performance of its functions. Intermediaries – wholesalers and retailers, commission agents, brokers and agents of producers – provide trade services to producers and consumers. Consequently, the subjects of market relations are individuals and legal entities.
The objects of purchase and sale in the markets are economic resources, material goods and services, money, securities, i.e. everything about which market relations arise between sellers and buyers.
The essence of the market is most fully manifested in its functions, among which it is necessary to highlight: the connection of production and consumption – ensuring the continuity of social production; regulation of production and consumption; stimulation of the organization of modern production; information function and sanitizing function. Connecting production and consumption and ensuring the continuity of social production is the most important function of the market.
The market unites separate producers and consumers. Huge flows of various goods are directed from producers to consumers through markets, and from consumers to producers the money necessary to continue the production process moves.
The market also performs the function of regulating production and consumption. Through the market mechanism (the interaction of demand, supply and price), the quantity of products produced is brought into line with the volume of effective demand of buyers. Constant changes in the relationship between supply and demand affect the price of goods. When demand exceeds supply, the price of a commodity rises, which makes it more profitable and contributes to the expansion of the scale of its production. At the same time, rising prices reduce the consumption of this product, which inevitably leads to new changes in the ratio of supply and demand. At some point, this mechanism will balance supply and demand. But this equilibrium, as a rule, is not long-term. A further increase in production will lead to the fact that there will be difficulties in implementation, prices will begin to fall, producers’ incomes will decrease, and they will begin to reduce the volume of production of this product.
The market also has a stimulating function. Its essence lies in the fact that competition forces manufacturers to update the range of goods, improve their quality and reduce the price. The achievement of these goals stimulates the introduction of new equipment and technology, the improvement of the organization of production.
One of the functions of the market is informational. The market informs manufacturers about the needs of buyers by performing a public assessment of the goods. The very fact of selling a product suggests that it satisfies a certain need. If the goods are sold at a price that reimburses the costs of its production, then this indicates the public recognition of these costs. No less valuable information is provided by failed acts of sale. They send signals to producers that they should reduce or eliminate the production of certain goods. Prices in the market serve as the information that consumers need to make decisions about how to meet their many needs. For example, at high prices for ready-made fashionable clothes for the consumer, it may be more profitable to sew it in the atelier.
The market performs a sanitizing function by differentiating producers in accordance with the efficiency of their economic activities. Cost-effective firms develop, expand the scale of their activities, and inefficient ones incur losses and go bankrupt. In this way, social production is being rehabilitated and freed from economically weak enterprises.