If only we could…

…[take] the human being out of the market entirely, then we should have a proper, effective and efficient market…?
So might go the refrain of Neo-liberal economics, or at least a slightly different take on the Neo-liberal ideal of ‘every interaction should be a market transaction‘.


That Neo-liberal economic refrain is part of the inspiration behind the creation of the ‘Soul of the Market’ or rather theMarketSoul and this site.
With this last post of 2013, we thought a bit of reflection and a reminder of our inspiration and founding philosophy might be in order.
In order for a market to be effective, there has to be a few ripples in the ebbs and flows of the transactions and interactions making up the market processes.  Therefore, we have to be able to tolerate human frailties and flaws, or else the market becomes too mechanistic and dare we say it preordained.  This can naturally not be an effective outcome for any market.  Human failings and market failure are two sides of the same coin.  However, we should work together in order to limit the inevitable damage and negative consequences of both human and market failure.  This does not necessarily translate into more regulation, might we add at this juncture.
Let us never forget this and celebrate process frailty, failure, learn to develop and embrace tolerance, persistence and perseverance; basic elements of human nature
We should never forget our inspiration, put it to aspiration and strive to achieve our own unique and specific dreams.
Human Nature / Logo
Human Nature / Logo (Photo credit: Ars Electronica)
Go, Inspire, Aspire and Achieve…
theMarketSoul ©2013
Our final word of 2013 is:


Continuing conversations in Friction Costs: Increased Friction Costs II

A few weeks ago we published what seems like our most popular blog article to date, namely Increased Friction Costs.

As it has been our most read article, we thought we might continue to build on the theme of Economic Friction Cost.


English: The model shows institutions and mark...
Image via Wikipedia

Williamson (1993) published some work on Transaction Cost Economics (TCE) in a book entitled The Economic Institutions of Capitalism’.  TCE is an equilibrium theory and looked more closely at the firm level or micro-level analysis and at behavioural aspects of ‘rational choices’.  Up until that point most economists had only considered production cost as part of profit maximisation assumptions, and not at transaction costs within the firm.

Transaction Cost Economics focuses predominantly on the governance of ongoing contractual relations (Williamson, 2007).


English: relation of real money demand and nom...
Image via Wikipedia

But what exactly, in practical terms are Friction Costs?


As stated in our previous article there is a large element of hidden costs implicit in Friction Costs.  Friction Costs can be highlighted by analysing the end to end or life cycle costs of any product or service.  A general rule of thumb that is applied to life-cycle costing is to take the visible ‘advertised’ cost and double it up.  That exercise generally gets you very close to the full life-cycle cost of any product of service.  This rule of thumb works with large capital projects, as well as estimating the full employment costs of hiring people.


But friction costs go further than this.  You might call it the fourth dimension of costs as it incorporates time value and opportunity cost elements.


Time value has two specific meanings for us here:



  1. Time value due to down time, loss of productivity, etc. This is more accurately referred to a value of time
  2. Time value in terms of the diminishing purchasing power of money, due to factors like inflation and opportunity costs when money is not put to beneficial uses.  This is the general use of the term Time Value of Money and ustilises Present Value techniques via a discount rate to work out the equivalent value of money in today’s purchasing power terms, whether we look into the past or into the future.


Thus, the two areas we have to focus on during the expansion of the Friction Cost exploration in the next article will be time value and opportunity cost elements, as part of our enquiry into delving into a better understanding of Friction Costs.



theMarketSoul ©2010

The Morass of Mediocrity

We link today’s article to one of our main themes on our home page, namely the ‘Battle against the Status Quo’, or as per the title of this posting, ‘The Morass of Mediocrity’.


Helmet from the Sutton Hoo ship-burial 1, England.
Image via Wikipedia

The underlying intent and theme is that of competition and competitive behaviours and the difference between rules based and principles based standards.


It is our opinion that a rules based culture encourages more insular and introspective behaviours, where the rush is for the middle ground of mediocrity, rather than as the opposite principles based culture would be the encouragement for the search for innovation and competitiveness at the margins and extremes of the ‘functional envelope’.  By this we mean the parameters and frameworks set-out in the principles based environment, to ensure that a well-defined playing field (not necessarily level), is established and market participants understand their boundaries and culture norms they have to adhere by as part of the participation process.


Yet, apparently, a more principles based regulatory framework is exactly what is being blamed for the Credit Quake of 2008 – 2010.


And if we analyse the circumstances that led to the regulatory failure and debt driven imbalance we currently experience, we would discover that it is because we operate in a hybrid world with symbiotic elements in the relationships between the private, public and third sectors.


Some of these factors include, but are not limited to:

  1. Market structure – free market versus socialist structures
  2. Regulatory framework – the disjointed regulatory frameworks and mixed agendas and the sense of urgency in the global regulatory framework
  3. Cultural setting – Anglo-Saxon, European, Middle Eastern, Far East, etc.
  4. Reliance on macro-economic tools including monetary and fiscal policies
  5. Skewed nature of national performance measurement
  6. Balance between equilibrium and disequilibrium clearance mechanisms in the economy
  7. Erosion of moral hazard and other distorting signals


Régulation de la machine à vapeur Merlin
Régulation de la machine à vapeur Merlin (Photo credit: zigazou76)

However, as a mainly libertarian focussed publication, it would be remiss of us not to endorse the principles of minimal interference (small government in other words), yet we also realise that this has to be tempered with personal responsibility.  However, because the symbiotic (hybrid) relationships have become so skewed and dysfunctional over the last few decades, was it any surprise that the uncertainty this created led to opportunist behaviours?  Because a ‘moral compass’ is a very relative term, is it no surprise that depending on your own individual position and point of view, that the direction it indicates will be different from others?


The G20 are meeting again this weekend and the global regulatory framework will again be in more detailed focus, yet other priorities are again distracting the main thrust and issues on the agenda.


Therefore to conclude this brief interlude into the ‘morass of mediocrity’, the real question is:


If we all run and work hard for the centre ground, who will remain at the margins, pushing the envelope and ensuring that we break the tyranny of the status quo by exploring new unchartered territories and responsible risk taking behaviours?


theMarketSoul ©2010

The Sustainability Gene

The CBI published a report entitled “The shape of business – the next ten years” in late 2009.


The authors identified 5 key drivers affecting the business environment, namely:


1.  Changing finance and capital conditions,

2.  The decline of trust in business and markets,

3.  A less benign macroeconomic environment,

4.  Social and demographic change where the recession will have a major influence,

5.  Sustainability and resource issue.


We pick up our cue from the fifth driver being Sustainability for today’s post.


Our comment serves more as an aide-mémoire to return to in more detail in future articles.  This post also does not serve as a commentary on the CBI’s report, but rather as a general opinion on the nature of sustainability and human a nature and is therefore pure conjecture.


We believe that sustainability as understood to mean the impact we have on the planet and the resources we consume, is not a natural human phenomenon, in the face of self-interest (as per the economic definition of the term) and competition for scarce resources.


In other words sustainability flies in the face of human kind‘s natural tendencies to compete for resources, either by war and confiscation, or by trade and exchange for those scarce resources.


We therefore contend that as human actors interacting with and through the free market mechanism, we do not naturally possess a ‘sustainability gene’, but instead have to develop a new model and framework for ensuring that this objective is effectively pursued and becomes part of the underlying psyche of being in business and discharging our fiduciary responsibilities.


Linking to our previous post ‘The Markets do not need certainty’, we contend that it is structure that helps shape markets and creates the conditions conducive to the effective operation of those markets.  Other factors will ultimately affect the efficiency of the markets and some of these factors include Innovation and such like.


In conclusion, let us wrap up with a few quotes on sustainability:

  • You can never have an impact on society if you have not changed yourself.  Nelson Mandela
  • The very process of the restoring the land to health is the process through which we become attuned to Nature and, through Nature, with ourselves.  Chris Maser
  • We can learn whatever we need in nature because we are part of nature.  Human beings are part of Creation.  We live by the same laws as all of nature.  Anne Wilson Schaef

And in the final quote above we possibly see a glimmer of hope for a possible answer to our ‘Sustainability Gene’ deficiency.  Somehow Adam Smith’s ‘self interest’ and the modern free(ish) market system require an injection of nature law and justice.


Whatever that shall be.

theMarketSoul ©2010