What is a Market?
Finish these statements:
The market for houses right now is…..
The stock market is….
Corn prices are….
Cryptocurrency/Bitcoin has value because….
The market for oil impacts....
You and I talk about all sorts of markets more often than we realize, because every time we talk about prices, we are talking about a market. The definition of market, at least for today’s column, is an area where goods and services are transacted or exchanged.
If you visit my back roof here on the south side of the square, you will be treated to the wafting scents of the Pizza Shoppe’s kitchen. Consider all of the markets our great neighborhood pizza joint transacts. First, all of the different food items each have a market: cheese, wheat (pasta and dough), assorted vegetables and meats. And that's just the beginning. Next, there's a market for the labor to make and serve that food. Yes, minimum wage does interfere in that market, but a market still exists. There’s also a market for the real estate that the pizza is made and served in. And finally, there’s a market for the energy and water used in the restaurant.
But markets touch a lot more than pizza restaurants. They touch every part of our lives. Many people hate markets because it reminds them of what they can't have. Like the child who hates to be told "no", adults also often get salty when they can't have something they want.
And why can't adults and children have everything they want all the time? Because of scarcity. Resources are scarce. There's not enough space for everybody to have a beachfront home. There aren't enough cows for everyone to have a prime rib dinner every night and day. There aren't enough doctors for everyone to get advice every time they don't feel well. Scarcity stinks, but it's reality.
So how do we decide who gets what in a scarce world? Many cultures have lived with survival the fittest, and that usually meant the physically fittest. Advanced weaponry, especially guns altered that model. Humans have thankfully gotten a bit of a clue that unchecked violence and war have severe consequences as well. So what's left? Markets! The exchange (or trading) of goods and services.
I for one am very thankful that the allocation of resources is done with voluntary exchange of value and not by physical strength and power. And I would guess you are too! But why do markets work so well? Prices! Prices convey more information in simple numbers than we can get from the most capable supercomputer today. Prices aren't perfect, ultimately because humans set prices, and humans are imperfect. But if you want information about how this world is working and the current state of events in the world, familiarize yourself with prices and markets.
If you want to be sure you're spending your time the most valuable way, familiarize yourself with the market for your time and its price.
If you want to be sure you're making the right housing decision for your family, familiarize yourself with rent prices and housing prices.
If you want the money you don't need today to work for your future, familiarize yourself with asset prices, including stocks. And familiarize yourself with the market for money, the price for which can be found in current interest rates.
Begin noticing the markets around you. Begin noticing the price of all things, even those that don't have a “sticker”. Become market savvy, and you will gain confidence you're handling your resources well.