The Revealed Ontology of Markets

There is a tension in economics. Mainstream neoclassical theory purports to describe key aspects of economic reality in the same way that physics describes key aspects of an external physical world. Its ontology consists of entities, factors of production and their owners, who make ‘rational’ marginal calculations regarding their consumption and production in markets that, under certain conditions such as perfect competition, produce predictable outcomes in the form of equilibrium prices and quantities. There are numerous normative arguments that can and have been made regarding the desirability of such markets. Some of these are economic regarding aggregate efficiency and utility maximisation. Some are political in expressing views of how markets are the foundation of freedom. Others draw upon notions of distributive justice with rewards proportional to contribution to output. However, the general understanding of markets is to treat the theoretical ideal-type as the natural state and departures from it as distortions that can and should be eliminated. Hence despite theory claiming to be a neutral, scientific observation of the state of affairs, it has long been recognised, by both adherents and critics, that neoclassical markets are not natural, they need to be brought into being, encouraged, nurtured and where necessary enforced, through a combination of legal, regulatory and institutional structures. In this way economics may be understood to be performative in constructing, providing tools for and influencing agents’ behaviour so that functioning markets may resemble those of theory. However, those concerned with the day-to-day operation of markets have to confront their complexity and messiness, not least in terms of the concerns of participants and politicians. This raises the question of whether regulators are truly concerned with establishing the markets of economic theory, or whether over time different, more pragmatic understandings of what markets are and how they operate have been developed? The answer to this question could, in turn, have serious consequences for the legitimacy of certain normative arguments made for markets. If those arguments depend upon the ideal-type ontology of neoclassical economics, yet the implicit ontology of regulators (and market participants) is different, then some of them may no longer hold. Indeed very different forms of market shaping and intervention may seem appropriate. This paper has three parts. The first part examines the normative arguments that have been made for markets by the neoliberal movement, a global political and intellectual movement most effective first in the US and UK, and the extent to which these arguments are dependent upon the neoclassical ontology of perfectly competitive markets. The second part examines the development of competition policy in the US and UK and the extent to which this signals the intent to achieve the markets of neoclassical theory or whether the positions adopted indicate a different, potentially evolving, understanding of markets. The final section brings the first two together by examining which, if any, of the normative arguments for markets are vulnerable to any different revealed ontology of regulators.