Introduction

Evolution of the market

Markets occupy a central role in economic theory. It is assumed that we understand them – but do we really? This chapter suggests that we do not. We know a lot, but not so much as we should. Markets remain a subject of controversy in popular debates over economic policy and historical debates over commercialization and capitalism. That is why we need to learn more.

Markets facilitate trade. Trade, it is often assumed, developed from small beginnings in chance encounters; for example, two people meet on a country path and one swaps their coat for the other's piece of jewellery. But there is little evidence for this ‘chance encounter’ theory. The key question is ‘Can you really trust a stranger?’ Why does the stronger person not just rob the weaker one? So why would the weaker person go out alone? Trade, it would seem, needs a secure environment. Security needs to be provided by someone who can observe a situation and has the power to detain and punish a wrongdoer. Hopefully, the threat of being captured and punished will deter the wrongdoer. Trade therefore requires a strong individual who can provide that security, such as a tribal leader.

Archaeological evidence from the Stone Age suggests that neighbouring tribes would meet at ceremonial centres to marry off their children, worship their gods and trade some goods as well. Provided the tribal leaders were at peace with one another, the ceremony would provide a safe environment where trade could take place. By the Bronze Age, long-distance trade was common in many parts of the world, supported by a network of small cities. Trade, it seems, typically flourished at big events (later known as fairs), which fulfilled important social and religious purposes (Cunliffe, 2008; Howell, 2010; Barjamovic et al, 2019).

Trade can take the form of simple reciprocity, barter or a monetary transaction. The problem with reciprocity is that the gifts may not be exactly what the recipients wanted. Some preliminary negotiation would therefore be helpful, and this may lead to barter, namely the exchange of gifts of equivalent value. Negotiation also implies communication; which requires some sort of common language; this could involve sign language or written text.