May 17, 2015

Market blunder

Comment on David Ruccio on ‘Economics and the value of art’


Ricardo excluded the pricing of ‘rare statues and pictures, scarce books and coins’ from his formal theory of value and called them non-produced consumption goods (Mandler, 1999, p. 68). The labor theory of value was always meant to apply to produced consumption goods only. Subjective value theory blurred this distinction.

Since non-produced consumption goods have indeed been produced, albeit some time ago, their price has to be determined in the secondary market. The pricing in the secondary market is entirely different from the pricing in the primary market. Hence it is not correct to speak of THE market without qualification. As Tobin put it: "’Market’ is one of the most overworked and imprecise words in economics.” (1980, p. 796)

It is one of the greater blunders of Orthodoxy to apply the silly supply-demand-equilibrium plaything across the board. The price determinants of the primary and the secondary market are entirely different. For the correct market theory see (2011), in particular, the section ‘Wealth creation in the secondary market’.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2011). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Mandler, M. (1999). Dilemmas in Economic Theory. Oxford: Oxford University Press.
Tobin, J. (1980). Are New Classical Models Plausible Enough to Guide Policy? Journal of Money, Credit and Banking, 12(4): 788–799. URL