Others may say, "The Market will take care of _________" (fill in the blank) in a discussion on various issues of the day.
Others still may have no opinion about it.
But many opponents will charge "The Market doesn't work. Look at _________ as an example!"
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Before trying to settle any arguments, let's all agree on a simple definition, one we learned in Econ 101 way back when.
In a perfect world, "The Market" derives its power from arms-length transactions, where:
1) A willing seller has something to offer to another party for sale (a widget)
2) A willing buyer has a need for something that he does not have (said widget)
3) Both buyer and seller can negotiate on a price to transfer ownership
a) The seller does not have to sell the widget to a particular buyer
b) The buyer does not have to buy the widget from a particular seller
c) Both parties may come to an agreement and complete the transaction OR
d) Either party may walk away and the transaction is not completed.
4) There are no outside parties to the transaction exercising any influence on the transaction.
Does that about sum it up? Can we start from this point? It's pretty much the definition of an unregulated market.
Do such virtually unregulated markets exist, even today? Yes, I'd submit that "The Market" is clearly evidenced in a very popular, very common form: eBay (tm). For those of you not familiar with eBay, the willing seller (#1 above) has the ability to set the price beforehand ("Buy it Now") or set a very low price that will be bid up by various willing buyers (#2). These buyers may bid up to an amount of their choosing or "watch" the item as it goes along. Watchers have the opportunity to step in and bid at any time.
I'm a "hard money" kind of guy. I like the idea of gold and silver as measures of value, and, since gold is out of my reach, I can buy silver.
Doing a search on eBay (tm), I can find many sellers wanting to offer silver items for sale. Silver is offered in a number of ways: bullion, government-issued coins, or "junk silver," just to name three.
Bullion is generally 99.9% pure (.999 fine) silver, can be in rounds (coin), bar, or other formats. The rounds are usually 1 Troy ounce, about the size of an old silver dollar. Weights vary, from as small as 1 gram up to 100 Troy ounces or more.
Government-issued coins, such as the US Silver Eagle, the Canada Maple Leaf, the Mexican Libertad, the Austrian Philharmonic and many others, are generally .999 fine or better, and usually, but not always weigh 1 Troy ounce. Although there IS usually a denomination marked on them (the Silver Eagle is marked $1.00), the melt value is much higher.
"Junk silver" is the term used for US coins (and others) with silver content. US dollars, halves, quarters and dimes prior to 1965 were 90% silver. A Troy ounce of junk silver is usually about $1.20 or $1.30 face value in the silver.
OK, now that your eyes are glazed over, here goes! Let's assume that the silver price is $20.50 per Troy ounce.
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Willing seller Joe Blow is offering a 1921 US Peace Dollar for $30.00 on eBay (tm). He set the price upfront rather than chance the auction. Joe's listing is going to end in the next 5 minutes. No one has bid on his coin, and no one is watching it.
As a willing buyer, I decided to pass on Joe's offering. I didn't bother to watch it, I
don't care. Why? The 1921 silver dollar is fairly common, so the numismatic value,
(that offered by a coin dealer) may be $22.00 or so, nowhere near the price he's asking.
The melt value, then, what that item would be worth if melted down) is not even the spot
price for silver, since the coin is less that 1 Troy ounce, and only 90% silver.
As a result, I and many other potential buyers decided to pass (#3d above), and Joe will still have his coin at the end of the listing.
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Willing seller Candy Barr would like to sell a 1 Troy ounce silver Philharmonic coin. She decided to let it go for what the market would bear and priced her opening bid at $0.99. Her listing will end in the next 5 minutes. So far, there have been 7 bids on the coin, 3 people are watching it. The current bid price is $22.95.
I happen to like the Philharmonics, so I'm interested. I'm willing to pay a little bit
extra because it's a minted coin, and, because of that, it's universally recognized as a
standard of value and worth a little more than just melt value. I decide to put a max bid
in of $25.80.
When the auction ends, I am the high bidder. I pay for the coin through my account, and the transaction is completed. Here, #3c above happened. The seller agreed to let it go for an auction price. The buyer (me) agreed to purchase it at a certain price. The auction ended, we concluded the deal.
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Sometimes, you just gotta wonder what the offering seller was thinking (or smoking) before setting his "Buy it Now" price. Here's a good example:
Willing seller Notta Klewe is offering two one gram pieces of .999 silver for sale. She sets the "Buy it Now" price at $6.95, and will charge $0.99 for postage. She has received NO bids and has had 0 watchers. Why?
She's priced so far out of the market and doesn't realize it. Here's why: a Troy ounce is 31.2 grams. She's offering 2 grams for sale. She's basically asking a 1500% premium on her tiny quantity of silver. Add to that, her offering can be mailed in an envelope with a simple first class stamp and not come anywhere near being overweight or oversized. Nope, her offering didn't go anywhere, either.
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There is virtually no regulation on eBay (tm), except on certain items, e.g. guns and ammo, that cannot be sold. All sellers agree to offer merchandise that is salable and genuine, all buyers agree to pay for the items they win. There are consequences for non-compliance, and they are enforced, so the marketplace there is generally safe.
So, based on the definition we used at the beginning, the market worked and worked well.
Joe Blow was willing to sell an item, but he wanted a specific price for it. No buyers were willing to meet the price he set, so no transaction occurred.
Candy Barr was willing to let her Philharmonic go at auction price. I was willing to offer a fair price, and I outbid other people who had also offered to buy the piece. The coin changed hands.
Notta Klewe met the same fate as her pal Joe Blow. She was a more extreme case.
So, to wrap it all up. CAN "The Market" work? Certainly! Is eBay (tm) the only place it does? By no means, but it's a sterling example.
The topic of "The Market" will undoubtedly resurface in another post... or two... I welcome your responses!
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