Ludwig von Mises defines the market as follows:
The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor. The forces determining the –continually changing–state of the market are the value judgments of these individuals and their actions as directed by these value judgments. The state of the market at any instant is the price structure, i.e., the totality of the exchange ratios as established by the interaction of those eager to buy and those eager to sell. There is nothing inhuman or mystical with regard to the market. The market process is entirely a resultant of human actions. Every market phenomenon can be traced back to definite choices of the members of the market society.
In this definition the market process is all about cooperation – yet most people (including economists) would say that the market process is about competition. That view is incorrect – we either cooperate in order to compete or we compete in order to cooperate.
This conceptual error has real consequences as Paul Ruben explains in the WSJ:
Consider the most basic economic unit, the transaction. A transaction is cooperative because both parties gain from a voluntary exchange. There is competition in markets, but it’s actually competition for the right to cooperate. Firms must compete for the privilege of selling to consumers—for the right to cooperate with consumers. Workers compete for the right to cooperate with employers. Competition matters because it ensures that the most efficient players will gain the right to cooperate on the best terms available. But competition plays a supporting role, while cooperation makes markets thrive.
Here’s an example. Wal-Mart comes to town and several small businesses disappear. How do we represent that event? If we think in competitive terms, we say, “Wal-Mart has outcompeted small firms and driven them out of business.” If we take a cooperative view of the same event, we say, “Wal-Mart has done a better job of cooperating with customers by selling them things on better terms, and the small firms were not able to cooperate as well.” Same facts, but a very different emotional reaction.
Similarly, we might say that a poor person has been outcompeted in the market. Or we might say that a poor person cannot successfully cooperate with others because he lacks valuable skills and has little to sell.
Most government intervention in the economy operates to prohibit or inhibit cooperation.