The rational man model is has been under attack for a while. Many have noted that what is rational becomes as slushy as ski hill in spring. Instead of shuffling all things non-rational (according to whom?) to a field of behavioral interpretation, let’s think about the essence of a transaction.
The marketplace is made up of trades. One individual or party commits labor or resources (or both) in exchange for something of value, often money. Where that settles is called the price. At that fixed point in time, at least two parties were able to come together and voluntarily agree to an exchange. The price is interesting because when people and parties repeat these activities more frequently when they can look to a history of price to feel reassured that they aren’t getting duped. Being called a fool is a significant deterrent to economic activity.
So it seems to me once there is a consistent (or statistically significant as the mathematicians like to say) price, there is a market.
Markets refer to the grouping of people or parties who are able to participate in these deals. Before you think that is anyone who chooses to stroll into the central open air market in Marrakesh, consider that not everyone can get to town. And even some of the richest citizens of the world- US women- as early as forty years ago, did not have their own bank accounts, were not on the title of the homes where they raised their children, and had no personal wealth. Barriers to markets are eveywhere in many forms.
But back to the essence of a transaction. If you are lucky to travel abroad to that exotic marketplace with covered stalls and trays piled high with brightly colored spices, you will find that as a foreigner, the price to you is not the same as the price to the countryman. A tourist will pay a surcharge if you are deemed rich enough. When you buy girl scout cookies the surcharge is a donation to scouting programs. A purchaser of organic fruits and vegetables once expressed the surcharge as a tax he willingly paid to support the farmer’s efforts. The price for the spices in the market, the cookies, or the fruits is made up of two essences: the private market one and the social surcharge.
What about the other way around. Say you hire a kid from a disadvantaged family. He doesn’t show up on time, you have to smooth things over with your customers due to some communication problems, and you’ve got to devote more time than usual to training. This employment arrangement also has two essences. The primary essence may still be to perform a job for a wage. Yet the secondary essence is done presumably to lend a hand to someone who might otherwise fall to the wayside and is accounted for in the loss of the extra time necessary to manage the employee. The second essence is social.
I’ll stand by the claim that each and every transaction has two essences. Sure- some are hard to distinguish because the product or service at hand is so well suited to the private market. And some transactions are mostly provided through public intermediaries due to the heavy social implications endogenous to the trade. There are no market failures. But that’s for another post.