We’ve all heard about “the market” doing this to people, doing that to people, getting pulled over for DUI…oh, wait, that was Paris Hilton. But I labor under the impression that most folk don’t have a good conception of the fact that “the market” is shorthand for a much more complicated idea. For example, most people think the market rewards those with money. In fact, the market defines what a good decision is, and then rewards those who make good decisions.
Let’s look at baseball for an example. The eight cities whose teams are in the playoffs this year, five are ranked in the top six in population: New York (1), Los Angeles (2), Chicago (3), Philadelphia (5), and Phoenix (6). The other three, however are much lower in the rankings (close to or even below our beloved Nashville at 28): Boston (24), Denver (25), and Cleveland (39).

Granted, population of the home city is not the perfect measure here—the term “market share,” and thus small or large market status, refers to more than just the city population. So let’s use Forbes’ valuations of baseball teams (out of 30 teams): Yankees (1), Red Sox (2), Cubs (5), Phillies (9), Angels (13), Cleveland (17), Diamondbacks (19), and Rockies (20). What you should notice is that it’s not the top eight teams in terms of revenue or valuation that make the playoffs. The teams third and fourth in both valuation and revenues (Mets and Dodgers) failed to make the playoffs.
Back to my point: the market rewards those who make good decisions. The Rockies, Diamondbacks, Indians, and Angels did not make the playoffs by buying high-priced free agents. For that matter, neither did the Phillies. (The Yankees seem to have made it in spite of theirs.) Instead, those teams made better decisions when drafting, when deciding to keep players (Jim Thome for two of those teams), when deciding which free agents to pursue.
And the baseball “market” is set up to reward those who know how to evaluate talent and how to manage baseball games. The Braves punch above their market size because the talent they put on the field attracted fans from more than just their home market. Wanna bet sales of Rockies merchandise go up after the country gets a look at that scrappy bunch of underdogs? That more people are wearing Brewers’ jerseys?
Now, the market rewards people who make good decisions with money. And money allows those decision-makers more margin of error. If the Yankees draft a bust in the first round, it hurts them—but they have the money to absorb that cost. If the Athletics make too many poor choices in a draft, then they feel the pain a lot faster. Likewise, Bill Gates can afford to make a poor investment, whereas I can barely afford to make a good investment.
Back to my original point: I have used “the market” as if it were a single organism, with a consciousness and motive power all its own. But the best way to understand the market (and why attempts to centrally control or direct it are misguided) is the concept of distributed processing. Think of a swarm of bees or a flock of birds. They move as if the group had a single mind controlling them, but they don’t. (For a great introduction to this via popular fiction, see Michael Crichton’s Prey.)
Instead, each member of the group receives just the amount of information necessary to allow them to make their decision. The aggregation of those responses produces something that looks like it has a mind of its own—but doesn’t. And that’s what the market is—swarm behavior. Markets deliver to us only the information we need to make our individual decisions (we call that information a price). We do not consciously coordinate our actions with each other, nor does another consciousness do it for us. But it seems as if one does, and that illusion leads us to believe that, if we can control that consciousness, we can control the swarm.
What we can do is alter the market institutions so that they send different signals. Where we have done so without regard to the nature of the market, however, we have ended up sending signals that lead pathological behavior to emerge in the swarm: subsidies cause massive overproduction, price restrictions cause scarcity and famine, and people get hurt.
In other words, we have to be careful in selecting our definition of “good decision.” It requires a set of values—and if you don’t define your values, someone else will do it for you. Perhaps that term “moral philosopher” does make more sense than “economist.”