Print2.1 Standard Markets
Preface
After having toppled Europe's last feudalistic government and in the interests of making equal all aspects of society, Napoleon (1st) established the first set of scientific standards, known as the metric system. There had been a growing need in France and in Europe to address aspects of market instability and significant localization of market rules – for example, how something as simple as a bushel of wheat could be measured in multiple ways, such as by having a heaping mound, or packing the grain, or having difficulty in producing a standard basket by which to measure. Much of this depends on local rules and traditions of measurement. Notions of smooth international trade were only possible after an agreed-upon set of standards. Without specific standards, it's very difficult to determine value, and thereby trust the buyer or seller. It is also difficult to measure existing stockpiles and plan for future possible shortages without being able to rigorously measure. Once international standards such as the metric system were agreed upon and adopted, the ability to deliver homogenous products was much more stable. Energy markets, as we will come back to throughout the course, are highly standardized in how they are ordered, traded, and the ways in which energy is delivered.
Lesson 1 introduced the concepts of standard markets and status markets, and we will investigate those distinctions in further detail in this lesson, as these distinctions help us to understand how markets are formed, structured, conceptualized, and acted upon. Recalling two of the prerequisites for market order, we have to ask, what is the offer? And how does it get a price? These two questions are interrelated in how we arrive at an answer to both; yet, how they are interrelated and answered differs between standards and status markets.
Generating Standards
In Chapter 5, we should be paying close attention as to how standards are generated. The generation of standards, such as cost per unit energy, greenhouse gas equivalent, and conversion efficiency, allow for the translation of value between similar commodities. For example, say we want to compare energy being produced from coal-fired power plants versus a solar array. Having standards allow us to actually make comparisons between these two energy forms even though the output is essentially the same, i.e., electricity. So, even though the commodity itself, i.e., energy, can be translated to a common standard regardless of the source, other standards allow for further market evaluations that describe the value of other dimensions of the market trade. Standards also allow for nonparticipants, i.e., "newbies," to get a handle on what the market is about, how it is valued, and what the value might be for a commodity they were are interested in purchasing, or perhaps something that they hold for themselves (as in a gold market).
Items for sale, according to the standard market, are concerned with various grades of quality for a particular commodity product. Often, such grades of quality are relational and not set to an objective standard but rather to the range of qualities within the given supply for that duration, such as in the grading of certain qualities of lumber or the grading of certain kinds of crops in a given season, for example. Qualities dependent on other variables, such as the weather in a given year, can directly affect the output, such as in the case of certain vintages of wines which are better in certain years than others.
We can also see how we can link certain qualities of a product with external qualities or concerns. For example, when we hear of clean coal, we understand that this doesn't mean that it is clean in terms of CO2 or particulate content (something which cannot be avoided in burning of coal), rather it only refers to levels of sulfur content which can affect the quality of air and create acid rain. Cleaner coal, then, is a market term for low sulfur coal, even though the terminology seems to imply more. So, a standard in the case of the cleanliness of coal would likely be sulfur levels per unit volume, which can certainly determine a different price for the commodity, because more expensive mitigation measures for scrubbing the sulfur may not be needed in cases where there is little to no sulfur. While cleanliness may not affect the energy output per unit volume of coal, it certainly can affect a variety of other costs in mitigation of sulfur content. Keep in mind, then, that standards can have different kinds of qualities and attachment to the commodity itself. Oftentimes, these refer to qualities of the object/commodity itself relating to its direct use (how efficiently does it burn), but it can include aspects of indirect use (sulfur content) that extend to other markets and environments.
Standards Markets
Markets where the qualities of a unit of commodity are identical in every way to every other unit, in that all units are precisely the same, is when that commodity extends from a representational stock (standard) market system. So, an example where a "perfect" standards market arises when one share of a company is identical in every way to other shares, so that any trade of a given share is valued the same and would yield the same price as any other and all shares are like other shares of that kind. Even though the quality of a company may shift the price of their stock, the price shifts equally across all units of stock. Energy markets are traded on commodities exchanges in ways that are very similar to stock markets. (Note: there are examples where some shares of companies are voting shares, while others may not be, but all the shares are the same within that same tier of stock.) While the standard that may determine the cost of certain kinds of energy is basically cost per unit of output, there is a wide variety of other qualities that can significantly shape local, regional, and national energy markets. So, when consumers agree to pay a higher cost per unit energy, they are doing so for reasons other than simply bottom line costs. This is particularly important when labor didn't protect the price of energy forward, such as in the case of installing new energy systems in municipal areas. The concerns are not about the immediate unit cost of energy, as much as they are a calculation of future unit costs of energy and other issues such as energy independence and dependability -qualities which are not often captured by market standards. We will see that these kinds of qualities typically relate to a form of status market in combination with a variety of standards. For example, a municipality might agree that even though the cost per unit of energy might be higher for a solar installation than a wind installation, the scenic value of one is worth more than another.
Neoclassical Market Theory
The section of chapter 5 where Aspers focuses on neoclassical market theories is particularly important to the context of this entire course. This is because most of the time when we discuss market strategy, we do so in the terms of the neoclassical market. So, what some may call nonmarket strategies, others may consider to be descriptions of the market that are simply alternative to neoclassical market theories.
To review, Aspers describes neoclassical competitive markets as having the following characteristics (Aspers 2012, p. 121):
- The market is comprised of actors who are assumed to behave rationally, acting the best information, and to know the consequences of their actions.
- Each actor is an atomic unit whose actions are considered and acted upon independently of others.
- Each actor's influence is limited, and thus cannot overly influence the market.
- The cost of market transactions is assumed to be zero, and the entry and exit into a marketplace is considered to be free, which would require the fact that there be no patents to consider.
- Products in the market are homogenous.
- The market is the only way of acquiring any goods.
- The system is stable in relation to external shocks.
Most critiques of neoclassical market theory point out some of the obvious shortcomings to the list here, readily citing examples that demonstrate the opposite to each of the points. Status markets, for example, do not work according to some of these assumptions and, in fact depend significantly on, for example, what others may think of certain actions, firms, or trades.
(For further critiques see: Herb Thompson (1997) "Ignorance and Ideological Hegemony: A Critique of Neoclassical Economics", Journal of Interdisciplinary Economics, 8(4): 291-305. Wikipedia also has a good entry on this issue.)
What we learn here is that neoclassical theories of markets and market actors are, singularly, price-oriented, and that while this may be the case for actors working within explicit standards markets (stock markets), it is not the case when we begin to consider a wide variety of other decisions that sociology point to as important factors in arriving at an agreement. Again, the problem arises in applying neoclassical market theory to markets that are not standards markets solely based on price. This is emphasized here to illustrate, in part, that many nonmarket strategies are really strategies for engaging markets in standards and status terms that are based in a variety of variables other than price alone.