Institutions and economics 101

The nature of organisms and property of their associated phenotypes, within biology, are determined by complex matrix of genes. Those genes are expressed in their competitive environment through their phenotypes (Dawkins, 1982, 1986, 2006; Smith, 1982, 1988; Hamilton and Axelrod 1981). The nature and behavior of an organism, in particular, and nature and behavior of its phenotype, in general, is determined by nature of its genes. In simple words monkey behave the way monkey behave because monkey has genes of monkey, which are expressed in the environment it found itself. This is why in order to understand behavior of an organism or its associated phenotype, knowledge of genes and knowledge of how those genes are expressed in terms of their phenotype is critical.  

The nature of social organizations is also determined by their genes. Institutions are genes of social, political, economic and psychological organizations. The phenotype of an institution could be one organization or large number of overlapping organizations^[1]. Fortunately, as long as organizations are defined in flexible manner to include Micro, Meso and Macro organizations (see Gabre-Madhin, 2009; Klein and Leffler, 1981; Bernstein, 1992; Baker et al., 2002; Fafchamps, 2004), with their overlapping nature, an organization can be taken as phenotype of institutions. As our knowledge of genes does give us better capacity to understand and modify biology, our understanding of institutions will also give us better capacity for social management and governance.

In addition, there is increasing demand for development of integrated social science, based on biological foundation, to make social sciences more practical and useful (Pinker, 1997). Unless all known knowledge is integrated into unified truth and unless all social ideas are built on foundation of biological truth, social science will not be in position to have acceptable quality of scientific investigation. Anthropologists do try to integrate all natural and social knowledge (Haviland et al., 2008). The problem is anthropologists do lack rigorous and detail knowledge of the scientific frontier of knowledge found within each and every social science discipline, especially economics. Ignoring the advancements in evolutionary and institutional side of social sciences within the last century, if you see Pinker (1997) from natural science and Haviland et al. (2008) from anthropology, it is sad to notice old theories of Veblen and Marx are taken as foundation of their institutional and organizational theory. So it is beyond reasonable doubt to accept the fact that we do need to have clear and update institutional knowledge, in order to develop well integrated social science. 

What are institutions? Institutions are  formal laws, social norms, common senses, mind senses^[2], traditions, religious beliefs,  moral values and soon (Kirsten, et al., 2009; Hayami and Godo, 2005; Hodgson, 1998, 2007; North, 1989, 1991, 1992, 1994; Biggart and Beamish 2003; Williamson, 2000; Nabli and Nugent, 1989; Bowles, 1998; Dopfer et al., 2004; Matthews, 1986), which determine the relationship between decision making agents^[3] (Nabli and Nugent, 1989; Groenewegen et al., 1995; Hodgson and Knudsen, 2004). Organizations are built from decision making agents to achieve some implicit or explicit goal of its members (Kirsten, et al., 2009; North, 1989, 1992, 1994; Nabli and Nugent, 1989; Matthews, 1986). In this process institutions do define the nature of relationship that exists between decision making agents within the organization (Nabli and Nugent, 1989; Groenewegen et al., 1995; Hodgson and Knudsen, 2004). Those institutions also define the relationship between decision making agents and their organization (Kirsten, et al., 2009; North, 1992, 1994; Biggart and Beamish 2003; Nabli and Nugent, 1989; Groenewegen et al., 1995; Hodgson and Knudsen, 2004). Moreover the relationship of that organization with wider national and international organizational system is also specified by those institutions. By doing so, institutions will define the ownership right of resource and the distribution of wealth among decision making agents (Mwangi and Meinzen-Dick, 2009; Grossman et al., 1986; Demsetz, 1967). 

Mekelle University is built of different decision making agents, which include students, teachers, administrative bodies and supporting staffs. Those agents do have personal goals of their own, which is not necessary compatible with goals of the University. This is where institutions become handy. If the institutions of the University are optimally defined and efficiently enforced, they will provide optimal signals to coordinate the enlightened and strategic selfish action of decision making agents toward promotion of organizational objective.

The right question to ask at this point is: how do institutions achieve this? The nature of the relationship between different agents of the University and the nature of the relationship between those agents and the University itself are defined by University’s formal and informal laws, rules, regulations, norms, traditions, customs and values. Moreover the relationship between Mekelle University and the overall national and global system is defined by wider national and international institutions. It is important to notice informal institutions, which cannot change by stroke of a pen, are very critical institutions in teaching learning process as they are critical in other parts of human life. If the rules and regulations, incentive structure and informal associations between economic agents in a given organization are the right kind, the organization will be efficient on achieving its objectives (North, 1991, 1992, 1994).

This is done first by guiding agents’ enlightened and strategic selfish behavior in the right direction (North, 1991, 1992, 1994). If the formal and informal institutions of Mekelle University and national institutions are organized to promote excellence among students, teachers, supporting staffs and administration, they will definitely attain high level functionality in terms of attaining organizational objectives. Second, institutions will introduce certainty on future outcome of current action (Kirsten, et al., 2009; North, 1991, 1992, 1994; Nabli and Nugent, 1989; Groenewegen et al., 1995). Right institutions will grantee good grade, better paying job and social respect for hard working and intelligent students. Right institutions will generate better quality of life, intellectual recognition and social respect for hard working and effective teachers and researchers. Those in turn will make enlightened and strategic selfish action of agents to be consistent with organizational objective of the university.

No matter how efficient or inefficient institutions are, however, stable life is simply impossible without common framing of mind that can be created by institutions. Institutions do make thinking and social functionality possible by creating common expectation within society (Biggart and Beamish, 2003; Hodgson, 1997; Hodgson and, 2004; Heiner, 1983; Camerer and Loewenstein, 2004; Dequech, 2002).

We should notice (super) rational thinking^[4], which can analyze all potential possibilities in order to make optimal decision under risk and uncertainty, is simply impossible to human kind. At biological level this is solved by common design of human mind, which uses common mind senses which are pragmatically selected by evolution for their functionality (Cosmides and Tooby, 1994a, 1994b, 1996, 1987; Pinker, 1997). The fact that our mind is similar at hardware level and basic operating system level will make the social world more predictable. People don’t think with free spirit in all possible ways, their way of thinking is constrained by their biology which defines nature of their brain. Even when our culture is very different from each other, still our thinking is not very different from each other. This will make our understanding of peoples’ reaction toward our action easy to contemplate and it will also make the social world easy to understand. 

However human mind is also made flexible by being function of culture and experience. Cultural elasticity is developed with evaluation of Mammals and perfected with human beings. Cultural capacity of Mammals in general and human beings in particular is what allowed them to dominate the evolutionary world as we know it (Haviland et al., 2008). The problem is since our mind uses mind schemes as rule of thumb to make the best of its bounded capacity, without using abstract and objective logic, still there could be confusion on how we understand the world. How does one know how others will react to his action and behavior in this reality? In theory all possible reactions of all decision making agents are infinitive in number. This will make the social world chaotic and hard to understand and act on. This is where culture by creating common framing of mind and by creating common expectation will make the social environment very stable and highly predictable to our mind (Biggart and Beamish, 2003; Hodgson, 1997; Hodgson and, 2004; Heiner, 1983; Camerer and Loewenstein, 2004; Dequech, 2002). This is why norms, customs, traditions and cultures not only reduce uncertainty of exchange and cooperation, but also the uncertainty of life and thinking itself.     

In simple words, institutions are needed to organize diverse decision making agents into functional body, called organization (Kirsten, et al., 2009; North, 1989, 1992, 1994; Nabli and Nugent, 1989; Matthews, 1986). The organization can be friends, family, firm, ministry, clan, community, market, state and soon (Chang, 2001; North, 1989, 1994; Dorward, et al., 2005; Coase, 1937). Organization as result is a functional body or group organized to act for specific purpose (North, 1992, 1994; North, 1989).

As is stated above, institutions will provide the right signal and they will generate predictable expectation to coordinate the activity of decision making agents toward achievement of organizational objectives. This is why right incentives and signals provided by the right institutions will lead to higher organizational efficiency. But, if institutions are of a wrong kind, strategic and enlightened selfish act of individuals can possibly result on disastrous out come to everyone (North, 1992, 1994; Groenewegen et al., 1995; Berg, 2001). Just think about property right in competitive system. If it is appropriately enforced, it will grant fruit of own labor to the owner, which can provide positive signal for hard working ‘rational’ individuals. Unfortunately, if it was not properly enforced, some people will prefer to share output of others than producing their own output. As the result national output will decline by amount which can be produced by those who prefer to be free riders. Far worst even those who prefer to work, after observing that their output is shared by others, will increase their tendency to be free riders. This will have a devastating impact on collective efficiency (Berg, 2001).

A good example for the above conclusion is 1990’s starvation of Somalia, which is caused by enforcement failure of private property on agricultural products. Lacking stable state and facing the chaotic social conflict, farmers were not able to exclude others from their farm output and often their farm output was harvested by warring lords. This reduced farmers’ effort in next production year and end up generating national starvation, despite favorable natural climate they were experiencing at the same year (Berg, 2001). Assumed “rationality” of people, if they live under wrong institutional structure, will not generate efficient outcome either. Everyone can “rationally” end up in loss-loss situation, if operating under wrong institutional structure, despite making “rational” choice is easy to see in the stated history of Somalia above.

Human “rationality” is not a substitute for the right kind of institutions; actually the common irrationality of human mind is efficiently corrected by the right institutions. Human beings behave in more rational manner not because they are rational but because institutions guide them to be rational. This fact is well proven in many experimental market studies of experimental economics (see Plott, 1986; Smith, 1964, 1967, 1982, 1990; Roberson and Smith, 1982; Easley and Ledyard, 1983; Gode and Sunder, 1993). This is why, human rationality is desirable, if it is possible; but what is most important is right institutional structure to organize humanity in right direction. Science is working to generate great outcome, not because scientists are rational being in all of their thinking, but because the scientific culture is very effective in refining facts from fiction. This in turn by reframing our mind will improve our rationality. 

The next question we have to ask is: who sanction those institutions? Institutions are sanctioned by community, by family, by culture, by state or/and by other decision making agents to coordinate the effort of each and every agent to ward specific goal (Dorward and Omamo, 2009; North, 1989, 1992, 1994; Biggart and Beamish 2003; Bowles, 1998). In achieving the goal of the organization, however, the flexibility allowed to framers of institution is limited by basic operating system created by biological nature of common human mind (Cosmides and Tooby, 1994a, 1994b, 1996, 1987; Pinker, 1997). Society may be able to change the uploaded software of mind, which is cultural and environmental expression of biology, but the level of flexibility possible is limited by hardware and operating system provided by nature. 

Institutions can be formal, as sanctioned by law, or informal, as sanctioned by social norms and decisions (Rodrik, 2007; North, 1992, 1994). It is always important to remember that informal institutions are as important as formal institutions (Gabre-Madhin, 2009; North, 1992, 1994; Hodgson, 1997; Hayami and Godo, 2005). This is so, given the fact that “the rules that contradict the morals of people would not be sanctioned socially and, if stipulated formally, would not function effectively.” (Hayami and Godo, 2005, page 11). In simple words socially rejected institutions will demand huge enforcement cost to be practical (Kirsten, et al., 2009; North, 1992; Field, 1984; Hayami and Godo, 2005).

If society supports an institution, there will be internalized morality which leads to least cost enforcement without a need for huge and costly external pressure (Cox and Fafchamps, 2006; Groenewegen et al., 1995; Mezgebo, 2014). You don’t rape and murder a beautiful hopeless girl in middle of an isolated jungle. This is because your mind cannot accept rape and murder as way of sane human being and you cannot live with that. It is not due to fear of police, judge or social sanction that most people restrain from crime. It is because they cannot live with themselves then after, if they have done immoral crime.

If a rotten apple happens, then community does have better access to micro information from eye and mind of every member, which makes least cost supervision possible (Masuku, 2009; Bradach, 1989; Powel, 1990; Fafchamps, 2004). Then social sanction will be used to restrain such bad behavior in least cost possible (Mwangi and Meinzen-Dick, 2009; North, 1971, 1992, 1994; Williamson, 2000; Hodgson, 1998; Bardhan, 1989; Hodgson, 1997; Field, 1984; Bardhan, 1987; Cox and Fafchamps, 2006; Akerlof, 1998).

Even if community ties are weak for collective sanction to be practical, as is observed by Fafchamps (2004) in some African markets, the community still can improve efficiency of formal organizations by supplying local knowledge, micro information and whatever social pressure, which can exists, in to service of formal enforcers of the law to make the formal laws very effective. However if the new law or new institution is rejected by the society, the iron hand of society which can help formal enforcers will destabilize the formal laws from inside out. This will make enforcement very hard business and will generate high enforcement cost to out weight the benefit of the new institution.   

However we should not underestimate our capacity for institutional design and the dramatic change in society that can be generated by such design. Institutions will not only determine how we think and how we behave; but they can also determine the kind of goal we have in life by defining our identity. Identities which can be manipulated like national feeling, civic duty and professional identity can introduce restrain on moral hazard and can promote efficient work ethics (Chang, 2001; North, 1992, 1994; Granovetter, 1985; Dequech, 2002; Pagano, 1999). But they have to be used in the right manner, as human beings are not clean slit that can be filled anything (Pinker, 1997; Mezgebo, 2014). This is so because social science is built on biological foundation, as biology is built on chemical foundation of nature. We have to accept society and its powers, but society can be changed too, if done with care.

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[1] There is a claim which states that institutions and organizations did not always exist as indivisible parallel view points of one social reality (Kirsten, et al., 2009; Chang, 2007). However institutions and organizations are actually two sides of one coin; and one cannot exist without the other.   

[2] Mind does not use abstract logic to think, but it uses mind senses. Those mind senses are foundation of observed common senses (Pinker, 1997). Common senses and mind senses are intentionally included here under institutions. The inclusion of mind senses and common senses under institutions will allow us to define internalized morality as institutions. This is in contradiction with Groenewegen et al. (1995) who insist on separating internalized morality from the institutional structure which organizes them. However such division is artificial and unpractical. 

[3] Decision making agents include individuals, households, firms, countries, communities, families, clans, friends and soon.

[4] Most economists, explicitly or implicitly, do assume either rationality or super rationality as true nature of human intelligence. For example Stigler and Becker (1977) do insist on assumption that an objectively defined stable preference, with capacity to make rational cost benefit analysis in imperfect information world, can explain human behavior. Farther more, Becker (1991) did conclude habit are informal rational contracts with life of past generations, given they are dominant way of life now. Even there is micro model, which try to explain the genesis of rational habit, which is developed by Becker and Murphy (1988) and Becker et al., (1991) to justify rationality of habit. However the level of rationality demand under such analysis is irrational itself, because it demands super rationality, which is only possible to almighty God (Pettit, 2002; Conlisk, 1996; Selten, 1999). From another angle the work of Hodgson (1997), Heiner (1983) and Hodgson and Knudsen (2004) did clearly show, when working with bounded intelligence that we have, use of habit and norms is more optimal than using rational analysis. Even the conclusion which states well adapted instincts, which lack foresight of humanity and which are common to all animals, are superior to reason is proven by prominent evolutionary psychologists Cosmides and Tooby (1994b) in their famous paper entitled “Better than Rational: Evolutionary Psychology and the Invisible Hand”. Even though work of Becker (1962), Becker and Murphy (1988), Pollak (1970) and Becker et al., (1991) in developing market behavior under irrationality and habit is path breaking; in case of habit and norms the authors tend to go around the wrong assumption they hold dear than admitting the self evident truth.  

Market allocation re-represented from different angle

Market will organize the self motivated act of decision making agents toward promotion of social welfare, using the invisible hand of competition. Market is a blind watchmaker system. Like evolution it is the system which organize disorganized working environment to unified process of fitness creation (see Dawkins’s, 1982, 1986, 2006; Smith, 1982, 1988 and Hamilton and Axelrod 1981). In market producers are producing to maximize their long term profit, individuals are trying to maximize their welfare, workers are trying to have better life, countries are trying to have better economy and soon. The problem is when everybody tries to promote his/her/its own interest, what is the grantee that our collective interest will be promoted? This can be granted, to some extent, by invisible hand of market competition (Smith, 1776; Poulton and Lyne, 2009 and Hayek, 1988).

Why do the baker and butcher feed us? This is because it is their self interest to do so in a competitive market (Smith, 1776). Why do Apple, Samsung and Microsoft supply us new and improved gadgets at ever decreasing price? This is because under competitive system, the reliable way they can make high profit is through creation of dynamic comparative advantage and reduction of cost. The world may not be this perfect, since firms do also try to get profit by industrial espionage, political manipulation, tax avoidance, extortion, market power, market manipulation, free riding, corruption and soon. But still competition is very effective in improving fitness is not open for doubt. There could be debate in level of optimal competition that could be allowed in given context (Williamson, 1991, 1993, 2000, 2005, Berger, 2009; Wong, 2004; List, 1909 and Stiglitz, 2001). However the lion share of competition in improving performance is beyond any doubt. To understand market we need to see the reason for its development and the reason why it leads to efficiency.

One of the most important reasons why market is needed is because human behavior has large junk of bounded selfishness in its intrinsic nature. Ethics, morality, fairness and identity do bound selfishness. But they will not undermine selfish nature of humanity in general (Mezgebo, 2014). There is huge collection of experimental evidence in gift exchange games, which is able to show the fact that there is sense of fairness in humanity; that is in addition to our selfish nature. See Fehr and Fischbacher (2002), Camerer (1997), Rabin (1998), Camerer and Loewenstein (2004), Ensminger (2000), Smith (1976) and Henrich (2000) for some reviews. Based on this and other points, some may insist human beings are not selfish at all. But we should notice the question if fairness is learned or natural is still in debate; but based on those experimental results selfish nature of humanity is not debatable at all. Just see your follow man in all history and if you cannot see selfishness in his nature, you are really blind. We may doubt fairness of humanity, which is actually hardly invisible. But it is absurdity to doubt selfishness of humanity; unless we keep cheery picking of few facts, by focusing on what we like only, so to justify our premature closure. 

For example fairness is socially learned treat which declines with experience is documented in experimental result of Binmore et al. (1985), Weg and Zwick (1991), Harrison and Mccabe (1988) and Neelin et al. (1988). Another, experimental evidence by Ensminger (2000) found that fairness is context specific. In which people may compete in some areas of their life and act fair in other areas of their life. All results cited above, however, do clearly show the fact that: selfishness may not be the only innate nature of human beings, but still it is the dominant nature of human beings all around the world.

Still there is another counter agreement of using modern market oriented human behavior to understand innate human behavior in general. This is because market itself can create artificial selfishness that we observe (Callon, 1998). The logical rejection of selfishness emanates from the fact that society can influence individual behavior and goal. If society promotes selfish goals as right goals, people will become selfish. If society promotes nobility, people will become noble in behavior. If being great warier or being priest of a church is assumed by society as right goal of life, people will define their goal as such. How do societies influence individuals? First since peoples’ thinking itself is harmonized by culture, this will frame their mind to think as such (Callon, 1998). Actually Callon (1998, page 5) seems to imply our way of life is framed by society as the society see it fit.

Rather than postulating that the ability to calculate is an intrinsic property of homo sapiens, it is the culturally or socially constructed dimension of this competence which is emphasized. Irrespective of the mediations through which this influence is supposed to be exercised, it is asserted that in all cases certain social structures or cultural forms favour calculation and selfish interests while others induce agents to be altruistic, disinterested, generous and even to give freely.

In addition most social scientists and large group of institution economists do accept the fact that if anyone diverges from such communality of goals in significant manner, it will be formally and informally sanctioned by society and those who follow it will be promoted (see Mwangi and Meinzen-Dick, 2009; Williamson, 2000; Cox and Fafchamps, 2006; Nabli and Nugent, 1989; Akerlof, 1998;  Kuran, 1987; Biggart and Beamish 2003; Bardhan, 1987, 1989; Field, 1979,  1984; Pierson, 2000; North, 1971, 1992, 1994; Haltiwanger and Waldman, 1985; Hodgson, 1997, 1998). Given the above fact people will behave selfishly in selfish culture, but this does not mean people are selfish by nature.

But such argument is not based on biological foundation at all; is not completely consistent with history, is not consistent with cross cultural experimental evidence that is available and far worst it has logical problem. Let’s start from one of the logical problems of the above idea. The theory says society is using carrot and stick to create conformation. The same carrot and stick, which is used everywhere, is creating selfish nature in selfish cultures. The question is if I am not selfish at all, why do I follow the mass because of incentive? The above theory does directly justify the selfish nature of humanity than opposing it. The theory which is built to reject selfishness is built on selfish human being after all. All social sciences do accept the fact that society uses carrot and stick to create conformation. The problem is such common postulate demands selfishness of some sort as foundation.

In addition large junk of evidence in experimental and behavioural economics done in diverse cultures and with different level of economic development, including hunters and gatherers, do justify the fact that people have moral side of life but they have dominant selfish nature too (see Fehr and Fischbacher, 2002; Camerer, 1997; Rabin, 1998; Camerer and Loewenstein, 2004; Ensminger, 2000; Smith, 1976, Henrich, 2000). From biology the basic mind sense is not elastic enough to be filled whatever we like as clean slit, but it will bound us to be consistent with innate nature of humanity (Pinker, 1997, Cosmides and Tooby, 1994a, 1994b, 1996, 1987 and Hayek, 1945, 1964, 1988). The very nature of biology is built in strategic selfishness (Dawkins’s, 1982, 1986, 2006; Smith, 1982, 1988; Hamilton and Axelrod 1981; Pinker, 1997, Cosmides and Tooby, 1994a, 1994b, 1996, 1987 and Hayek, 1945, 1964, 1988). History wise people may die for national pride, clan, idea, ideology and soon. But always they always scarify their happiness to promote what is theirs and to fight what is not theirs. What society can change is what is the definition of the self or identity, not the dominant role of selfishness in human nature (Mezgebo, 2014). People from the current ruling party of Ethiopia do give up their personal happiness to promote their ideology and political view point in civil war which lasted for 17 years. But they did not become Angles or Jesus then after! They actually developed us verse them mentality. Ones us is defined they were savages beasts in attacking their enemy (them). What is elastic is the nature of identity not human selfishness. This is another logical problem of the counter agreement.   

Yes, the self could be flexible as people see themselves in terms of overlapping identities (UNDP, 2004; Mezgebo, 2014), but still the enlightened and strategic selfish nature of humanity is undeniable fact then after (Mezgebo, 2014). Investor may spend resource to promote industrialization for profit, employment creation, national identity and patriotism, whichever is the dominant motive. But the investor will promote his factory, way of life and thinking to promote personal, social and national interest as the investor see it in long run is undeniable. He is still selfish as he is not promoting development of foreign country, what is changed is the dominant identity in his character from being ego centric to patriotism. Self interest, no matter how we define the self, could be effectively coordinated in some cases by invisible hand of competition and market prices.

Market uses high powered incentives to link performance with incentive (Williamson, 1991, 1993, 2005; Macher and Richman, 2006; Baker et al., 2002 and Masten, 2000). Such link will be effective when the selfish behavior is dominant and signaling of performance is not very costly to overweight market performance (Holmstrőm and Roberts, 1998). When people are selfish the best way to motivate them to do things for society is to give them incentive which is directly related to performance. Actually the performance of market improves as signaling cost, cost related to information asymmetry, declines in comparison to positive welfare impact of market (Stiglitz, 2001).

We should notice life, including market, is learning process with experience accumulation. In this process linking performance with incentive is very important as selfishness becomes dominant character of human behavior. If we can signal performance without prohibitive cost, market which uses high powered incentive will be very effective way to motivate people to do what they are expected to do. In this process right form of exchange institutions which can create least cost efficient signaling, like double auctioning in place of single auctioning[1], can guide economic agents with bounded rationality toward optimality is well documented in experimental markets (Plott, 1986; Smith, 1964, 1967, 1982, 1990; Roberson and Smith, 1982; Easley and Ledyard, 1983 and; Gode and Sunder, 1993). This is stick and carrot process to condition decision making agents toward higher fitness.    

The second critical reason why market is needed is because of the existence of limit on human intelligence and the existence of information asymmetry. The problem is production and consumption decisions are done by large army of unorganized producers and customers all over the nation, if not all over the world. In this process production and consumption decisions needed to be coordinated. But no one has all the information, nor the managerial capacity to coordinate all those decisions toward higher fitness (Hayek, 1945, 1964, 1988 and Stiglitz, 2001). This is why market competition is needed to act as invisible coordinator, like the blind watchmaker of evolution, of course with the help of human foresight (Smith, 1776; Hayek, 1945, 1964, 1988). We let the selfish beings compete for fitness. If it can work for evolution, there is no reason to doubt why it cannot work for economy too.  

In this process market prices do play important role in communicating the choices and capabilities of different decision making agents (Hayek, 1945, 1964, 1988). The invisible hand needs visible prophet to coordinate agents toward specific goal. The visible prophet of competition is market prices. The preference of customer in competitive system is expressed by prices, as customers compete formally or informally. At the same time preference of producers and their capability to supply is also communicated through prices. As long as both demand and supply are expressed in competitive system, the interaction of demand and supply will generate market prices which are important index of supply and demand. The entire disorganized effort of everyone to promote self interest is coordinated by competitive market prices in effective way to promote collective fitness (Smith, 1776; Hayek, 1945, 1964, 1988; Poulton and Lyne, 2009 and North, 1992).

The third reason why market mechanism is efficient in long run is it has capacity for self correction in long run. Problem of credit, risk, information, technology and soon represent problem of production and exchange in short run. In the other side of the same coin they represent opportunity for profit in long run. The development of banking in current Italia, the development commodity exchange in USA and the development of diverse institutions like networks, option trading, future trading, share cropping and so on are adaptive institutional solutions developed by society with formal or informal market to solve its structural problems. Problem of market in short run are profitable opportunity in long run to develop mitigating institutions (North, 1991 and Stiglitz, 2001). This is evolutionary process of competition for fitness. As result it is often very ugly, sluggish, never assured in all cases and in some cases very inhuman process. However it is important edge of market over other organizations. In simple words by producing incentive structures that evolve over time, market and exchange institutions will determine the growth, stagnation or decline of any community over time (North, 1991).  

This simple undeniable fact can be told as perfect market story to organize our thought in simple manner (Aumann, 1985), to explain complex market structure and its morality by using fairytales of children (Morgan, 2002) and also to impose market morality on society (Callon, 1998). There is reason to doubt such fairytales, which will be introduced below; but there is no reason to doubt the importance of competition and market for high performance. That is why market is taken as organization of selfish decision making agents with goal of collective fitness promotion. Viewed from different angel, market is built from matrix of institutions, which coordinate the self-promoting act of individuals to ward social welfare maximization (North, 1992). The fundamental institutions of market include the following (Hayek, 1988)

1.      Clearly defined property right

2.      All exchange of property right to be based on free will

3.      And enforceability of contract in cost effective manner

The optimality such market institutions are what determine the optimality of the market as organization (North, 1991, 1992, 1994; Plott, 1986; Rodrik, 2004). When people are selfish in their action, if property right is not having functional protection and exchange is not based on free will; how can we assume the baker will waste most of his/her time and resource to produce the best quality bread, using the least cost combination of inputs? Why not steal it from someone else? Why do customers pay high price when they need more bread? Why not force the baker to produce more? We should notice those are fundamental institutions for market efficiency. In imperfect world which does not fit the static fairytale of neoclassical economics known as perfect world, alternative institutions will evolve to fill the gap and this will lead us to complex mix of market institutions (North, 1991, 1992, 1994). This is why we have norms, values, moralities, commercial cods, tax codes, business norms, and diverse organizations with their own institutional matrix to make market functional. We are not assuming the world is created for market but large junk of our institution is crated and modified to fit the dynamics of market as dominance of market rises. Now let’s turn to fairytale of dominant economics schools.

Any neo-classical micro economics text book will show us that under its assumptions static free market is Pareto optimal. The model can show market allocation will result in best possible resource allocation. As result there is no way to improve market allocation as market will attain what is best possible. The central assumptions of perfect market are

1)      There are large number of buyers and sellers: Every agent will take the market price as given and is price taker in the market. Nobody will have the power to fix price, which is determined by market demand and supply as collective action of all participants is mediated by competition.   

2)      There is given and fixed technology: In the economy technology is given and anyone can use that technology without any restriction. This is one reason why the model is static than dynamic.   

3)      There is perfect mobility of factors: Factors of production, like capital, labor, land and raw material, can freely move from one firm (location) to another without any need for additional cost.

4)      There is perfect information: There is perfect information about price, output, market demand, market supply and so on. By implication there is no risk and judgment is done under perfect information in world without uncertainty. 

5)      Entry and exit is free for all: Since there is free entry and exit, nobody can earn any abnormal profit and only the fittest will survive   

6)      There are no public goods and externalities: All benefits and costs are accruing to those who are responsible either for the consumption or production of the goods and services.  

7)      Decision making agents are rational: Human beings are making the best possible decision on time use, production, consumption and saving, after considering all important information.   

Under these assumptions, micro economic text books will show us that market will result in the best possible resource allocation or Pareto optimal resource allocation. Means there is nothing that can be done to improve market efficiency. What can be attained is already attained and there is nothing that can be changed. The market is Pareto optimal when

1.      There is Pareto efficiency in consumption: It is not possible to increase utility of customer by changing the composition and quantity of goods consumed by the customer. Means customers are generating the best possible utility that can be generated from the limited resource that society posses.  

2.      There is Pareto efficiency in production: It is not possible to increase level of production by improving input composition and efficiency of input use in production. Means what can be produced from the limited resources is already produced and there is nothing that can be done to improve it farther.

3.      There is Pareto optimality in distribution: Goods and services that can be produced from the limited resources are distributed optimally. Means there is nothing that you can change to make some one better off without making another person worse off.  

If these assumptions are right, resource allocation which is the cornerstone of any development effort can be coordinated by market forces only (Kirsten, et al., 2009). In other words, the institution needed to achieve rural development is market only. Free market will provide optimal inputs to the rural residents and will create optimal market for their output, without any bottlenecks. If these assumptions are right, rural and national development could be as simple as letting the market free or getting the price right (World Bank, 1991). From philosophical angle, with large junk of logical inconsistency in which we have no time to debunk, Rand (1964) did also reach the same conclusion. While swimming in certainty of perfect market in their risk free and certain life, decision making agents, who are atomistic and socially independent rational beings, will march to heaven from hell called state and social over reach in the economy toward rational and fulfilling life. What they need is the prophet of truth which can give them the perfect life and heavenly light of eternal happiness in form of neoclassical economist and philosophers like Rand[2].

   

The problem is that the orthodox theory is looking in the bright side of the street, when the developmental key is lost in the dark side of the street (Kirsten, et al., 2009). In general many prominent economist who are not part the orthodox neoclassical school do reject perfect market theory as painfully out of touch with real world (Stiglitz, 2001; Cimoli, et al., 2006; Rodrik, 2007; Berger, 2009; Chang, 2007, 2001; Kaldor, 1972; Young, 1928; Lee and keen, 2003; Subramaniam and Panth, 1996; Hodgson, 1998; Kirman, 1989; Colander, 2003 ,2005a, 2005b; Haavelmo, 1997; Richter, 2001; Hahn, 1991; Pagano, 1989; Rabin, 1998; Camerer and Loewenstein, 2004; Selten, 1999; Holland, 1992; Clark, 1918; Reinert, 1996; Keen and Standish, 2006; Keen, 2002; Blaug, 2002; Cartwright , 2002; Pettit, 2002; Akerlof, 1998 and Wong, 2004). This is nicely summarized by Stiglitz (2001, page 11-12)

The model virtually made economics a branch of engineering (with no aspersions to that noble profession), and the participants in the economy better or worse engineers. Each was solving a maximization problem, with full information: households maximizing utility subject to budget constraints, firms maximizing profits (market value), and the two interacting in competitive product, labor, and capital markets.

The problem is that in order to reach such mathematically precise conclusion, which can show market allocation is the only perfect solution for representative customer and representative producer, they have to assume many things which are unrealistic. For example Selten (1999, page 3) stated

Full rationality requires unlimited cognitive capabilities. Fully rational man is a mythical hero who knows the solutions of all mathematical problems and can immediately perform all computations, regardless of how difficult they are. Human beings are very different. Their cognitive capabilities are quite limited. For this reason alone the decision behavior of human beings cannot conform to the ideal of full rationality.

Similar but extreme form of rejection of such fairytale is also presented by Keen (2002, page 4 and 5) in stating

Virtually every aspect of conventional economic theory is intellectually unsound; virtually every economic policy recommendation is just as likely to do general harm as it is to lead to the general good. Far from holding the intellectual high ground, economics rests on foundations of quicksand. If economics were truly a science, then the dominant school of thought in economics would long ago have disappeared from view. ….. But economists, despite the abysmal predictive track record of their discipline, are forever recommending ways in which the institutional environment should be altered to make the economy work better.

However rejecting perfect market theory is not the same as rejecting the high efficiency of market coordination (Hayek, 1945, 1964, 1988; Poulton and Lyne, 2009 and North, 1992). Most authors when they reject perfect market, they are grooming state intervention as legit without qualification. That is why this has to be clear from the start. Rejecting performance of competitive market is like rejecting evolution in biological science. Market may not behave in perfect sense as it is assumed in perfect market. After all evolution does not promise perfection and market cannot give us perfection at all. Far worst evolution is clearly inhuman process. Yes market is not as savage as evolution. This is because first people use foresight to adapt to it, as much as possible, and second such problems are opportunity for profit making in long run. See North (1991) for historical evidence to back the above fact.

Market will not only reduce its inefficiency but also will also reduce its savageness in long run. In general the blind watchmaker system of market, backed by foresight of decision making agents, will lead to high efficiency is simple reality of day to day experience and historical experience. This process is not perfect but it will work to generate high functionality. This is why market based society will end up dominating others (Hayek, 1988). Perfect market may not explain reality but it does explain large junk of advantage that can be generated from property right enforcement, free will based exchange and enforcement of contracts in competitive system.

Turning to perfect market theory, we should recognize it is not scientific truth (McCloskey, 1987, 2002) but it will help us to organize our thought into scientific common sense. This is nicely stated by Aumann (1985, page 8) as following

In my view, scientific theories are not to be considered ‘‘true’’ or ‘‘false.’’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner.

The above conclusion is not necessary true as theory of physics did not stand in the same ground as economics. However we should recognize the fact that the loud cry of heterodox economists is found in similar shallow ground in all the models they build. In historical schools there is cheery picking and synthesizing of facts to conform own bias in theory formation. In mathematical model building of the heterodox schools similar absurd assumptions are imposed on models to make them operational, because we lack knowledge of alternative framework to start our thinking (Stiglitz, 2001 and Aumann, 1985). Stiglitz (2001) did clearly acknowledge this problem in his modeling of real world problem in his Nobel Prize lecture. However at this point our models are story telling (Morgan, 2002, page 197) in addition to being scientific common sense

In the context of a complex world, models are an accepted way of representing the economic world in a simpler way so that we can think about its features. By asking questions and then manipulating models, we are able to tell ourselves stories about the hypothetical world portrayed in the model. But these stories also help us to explain the real world, for it is these stories, an integral part of modeling, rather than the typically unrealistic assumptions from economic theory, which make the stronger connections to the real world. We expect these stories to be related to our questions about the world, our typical experience of the world, and to the kinds of events we find in our world. We don’t expect them to be exactly true to any particular events of the world. If they were, they would not be stories. But nevertheless, they connect by the questions that prompt the story, by the fact that the events they portray correlate to events in the world, and by the congruence of outcomes. It is by telling stories about the economy that we most effectively connect our models to the facts of the world.    

In real sense of a model they don’t satisfy the condition of good model at all (McCloskey, 1987, 2002). But still they are useful not only to organize our knowledge, but also for simulation of alternative policies. Let’s explain the second point. If used with care and when they are relevant to the question at hand, a consistently built perfect market or other kind of market models which are somehow related to real world can be our rat, monkeys and insect as test subject in medical experiment of human medicine. 

Animals are not human, as homo-economies and his world is very different from us. Monkeys do approximate us better, followed by rats. None of those beings are perfect model to humanity no matter their level of similarity and distance. You can imagine McCloskey (1987, 2002) shouting animal experiment is not science, after all a single gene can change the entire conclusion. But good is not enemy of perfect, of course when used with care.  

In some cases they are perfect model which satisfy the condition set by McCloskey (1987, 2002). Say in testing if the atmosphere of given location can sustain life or not. Even in medical experiment in which single gene can make huge difference, it is very logical to test new medicine in close and distant relative animals, before experimenting with human beings. For McCloskey (1987, 2002) it is not conclusive and may be not useful but it saves many lives when used with care. This is because we learn a lot from experimentation on rats if used with care. We should notice the more similar is the animal to humanity the more reliable most experiments will be and this will justify the needed to build more accurate models. However we should not under estimate the importance of modeling how imperfect it is, after all human mind is built on imperfect modeling of the world (see Pinker, 1997, Cosmides and Tooby, 1994a, 1994b, 1996, 1987). The problem of modeling is not they are imperfect, all models, are imperfect even in physics. Otherwise it would be end of science and prominence of technology. Our mind is the best example for imperfect model based analysis. The problem is some models are not continuously exposed to reality check so they could be improved.

Our mind uses common senses and mind senses which are not accurate in many areas of our life. This is well proven fact in many studies of psychology, evolutionary psychology, experimental economics and behavioral economics (Cimoli, et al., 2006; North, 1971, 1992, 1994, 1999; Stiglitz, 2001; Arrow, 1969; Hodgson, 2007; Nelson, 2006; Williamson, 1971, 1976, 1979, 1991, 1993, 1998, 2000, 2005; Hodgson, 1998; Macher and Richman, 2006; Smith, 1991; Loomes, 1998; Pagano, 1999; Simon, 1962, 1985; Vanberg, 2002, 2004; Rutherford, 1995; Cosmides and Tooby, 1994a, 1994b, 1996, 1987; Nelson and Nelson, 2002; Conlisk, 1996; Rabin, 1998; Camerer and Loewenstein, 2004; Selten, 1999; Goldberg, 1990; Kahneman and Tversky, 1982; Gigerenzer, 1991; Clark, 1918; Neale and Bazerman, 1985; Cachon and Camerer, 1996; Camerer et al., 1993; Akerlof and Yellen, 1985; Aumann, 1985; Grether, 1990; Neelin et al., 1988 and Weg and Zwick, 1991). Mind senses and common senses are neither perfectly applicable in all problems nor they are perfectly rational. But it does not mean they are useless. When used with care and when corrected by reality, our common sense and mind sense created the miracle we call our civilization. The problem of the dominant economics school is not their models are useless; but because they are used by dogmatic mind which has no interest to learn and improve them.

So the real question is: does perfect market theory has role to play beyond rat experiment, in this imperfect world. The standard approach used in larger developmental economics is to accept market failures, which will be introduced below, as real and to focus then after on how to mitigate them in the due process. If the real world can be made to behave like perfect market then we could have automatic development through market forces (Akerlof, 1998). Akerlof (1998, page 23) can give us good summery in the following form without rejecting the failure of perfect market theory    

There is a standard model of economic behavior, the Arrow-Debreu general equilibrium model of perfect competition. While this model may not be entirely adequate as a description of economic reality, it is most useful as a standard of comparison. For in equilibrium in this model, subject to the careful qualifications of Pareto optimality, peoples' lives are as pleasurable as they possibly can be, given their tastes and productive capabilities. Consequently, to understand why peoples' lives are not as pleasurable as they might be (in the Pareto sense), it is necessary only to know why the real world fails to correspond to the Arrow-Debreu Utopia.

The point is we should identify the failures and remedy them to move toward perfect market as much as possible. But this is challenged as absurd by many thinkers. For example Cimoli, et al. (2006, page 2) stated

Conventionally, one would start from the very general question when are public policies required from the point of view of the theory and, as known, the standard answer would be "when there are market failures" of some kind. However, albeit quite common, the “market failure” language tends to be quite misleading in that, in order to evaluate the necessity and efficacy of any policy, it takes as a yardstick those conditions under which standard normative (“welfare”) theorems hold. The problem with such a framework is not that "market failures" are not relevant. Quite the contrary: the problem is that hardly any empirical set-up bears a significant resemblance with the “yardstick” - in terms of e.g. market completeness, perfectness of competition, knowledge possessed by decision making agents, stationarity of technologies and preferences, “rationality” in decision-making, etc. (the list is indeed very long!). In a profound sense, when judged with standard canons, the whole world can be seen as a huge market failure!

In addition Herrick and Kindleberger (1983, page 96) stated even though neo classical see development as simple as making the market work, socio cultural and political institutions do influence the process of development. But

in neo classical economic analysis, the operation of perfect competitive market tends to be seen as circumscribing the limit of economic efficiency. Other systems are compared with market oriented system, the usual question being the extent to which they can match its performance. The possibilities of exceeding it are seldom considered.

The authors also add the conclusion which states when development is perceived as market perfecting process stagnation is wrongly associated with market failures and none economic forces (Herrick and Kindleberger, 1983). Similar views are presented by Chang (2001, page 6)

In the neoliberal framework, the ideal market is equated with the ‘perfectly competitive market’ of neoclassical economics. However, the neoclassical theory of the market is only one of the many legitimate theories of market, and not a particularly good one at that. There are, to borrow Hirschman’s phrase, many ‘rival views of market society’….. And therefore the same market could be seen as failing by some people while others regard it as normally functioning, depending on their respective theories of the market.

Objectively the problem can be seen from two angles. The first one assumes perfect market to be optimal under its assumptions.  But given its assumptions are unrelated to the real world, the logical question is does it have any use? The second one logically rejects the perfect market as optimal allocator of resource in dynamic sense. The logical question that follows then is if it is not the best, given other theories can lead to superior dynamic efficiency, why use it?   

If perfect market can be proven as efficient under its assumptions and if used with care, it could be still useful in guiding our behavior in world filled with imperfection. The problem of development is often ignorance about answer to the question: where are we going in long run and how will things evolve in long run? Say our problem is going from point A to point B in one location. A mad man draw a straight line that connects A and B, then he assumed we are made for walking, with perfect legs which never gate tired, and we have perfectly paved road that connect A to B. His recommendation is run directly from A to B following this line to reach destination. The problem is the real world is rough mountains terrain with deep valley followed by dangerous cliffs in areas where the market is highly dysfunctional and markets are none existence. When the mad man at barrel of gun forces you to run toward cliff, he is very dangerous person. But his madness is not without use, if you have freedom to be practical. The line gives you long run direction that you have to follow in moving from A to B, while being practical in due process.  

If you are in middle of nowhere and the only consistent knowledge you have is this map, how imperfect it is in mapping the terrain and in modeling your nature, do you discarded it as useless? The next step is to identify the failures of the map of the mad man and the roads that have to be followed to deal with them. This is where solutions in form of identification of market failures of traditional schools of economics, institutional structure of the real world developed by new institutional economists and political economy, and information problem explained by information economists becomes handy in mapping the terrain and the jungle of the real world. Those creative works, with the useful map of the mad man, will guide us to move from point A to B though trial and error. This is where most economists spend their time and energy.

Yes it should be used with care, after all in allegory of the cave the one who saw the sun cannot easily rule in darkness without becoming fool of the cave as unpractical man or mad king of the poor. Knowing perfection gives you tool that should be used with great care in adapting it to imperfect reality (Pluto, 380 BC). Even though the dominant school of economics, which is presented as fool here, has serious assumption related problems, the mathematical and theoretical consistency used in building the micro and macro model for representative economic agent is really worth of great admiration in comparison with most social sciences. Yes the emperor is naked and his arrogance in trying to teach heavenly fashion at barrel of gun to the world is terribly amusing. But still the emperor does and will remain emperor of social science. This is because the mad man used the best known method to connect A to B, which is consistent mathematical logic. More importantly the dominant schools conclusion, to let the markets and prices free, is right not because they are perfect in modeling, but because market is often reliable.

Yes there are many markets and in theory some can be better than the market of this mad man. You can build line which shows how to go from A to B in real world, but in practical thinking the alternative roads which are mapped are fragmented, incomplete and highly inconsistent from model to model. They show nothing than limit of perfect market for real world and small map with incomplete knowledge. The emperor is emperor not because of its strength. The emperor is emperor because weakness of all its rival lords. The problem of building models which reject perfect market in its entirety is well acknowledged by Stiglitz (2001), despite being the prominent critic of such madness. At end of this section the reason for fragmentation of heterodox ideas in economics will be explained from metaphysical point of view and metaphysical limits of social science will be explained in next section.       

The serious problem to orthodox theory is observed due to the fact that in dynamic context it can be shown the perfect market allocation is not optimal allocation at all. The mad man really lost it in dynamic sense. The map is really dangerous, when it is not the shortest path from A to B. The problem comes from the fact that under dynamic comparative advantage, in which dynamic comparative advantage is not only followed but can be created, perfect market is neither optimal nor perfect. The idea that productive capability lead to trade (List, 1909) verse free trade leads to generation of productive capability (Smith, 1776) is old debate which vibrates still in our time (Chang, 2001; Kattel et al., 2009; Reinert, 1996; Berger, 2009; Wong, 2004 and Stiglitz, 2001). But it is true both are just partial true. In some case trade crates market value for resource, technology of production and institution of organization. This in turn will create comparative advantage as result. In other direction comparative advantage leads to trade.

Ignoring the irrelevant debate, the question is do we have to focus on static comparative advantage and let market develop comparative advantage for us in dynamic sense (World Bank, 1991); or do we need to crate comparative advantage by conscious choice (List, 1909; Chang, 2001; Kattel et al., 2009; Reinert, 1996; Berger, 2009; Wong, 2004 and Stiglitz, 2001). Perfect market is not efficient from dynamic point of view, because it will not lead to technological progress and will not utilize economies of scale advantage (Stiglitz, 2001; Chang, 2001; List, 1909 and Berger, 2009). This is because profits have to be kept at normal level by high competition and the model demands perfect information. If there is high competition economies of scale advantage will not be attained in manufacturing and learning process of industry will be killed (Berger, 2009; Wong, 2004; Chang, 2001 and List, 1909). In addition perfect information will kill the chance for innovation by creating free rider problems in technological developments (Stiglitz, 2001).  

There are absurd schools who say scarcity is not problem of economics. For example see the book edited by Berger (2009) on circular and cumulative causation. This is good example to show how absurd the heterodox lords who fight the mad emperor of the orthodox city are making the naked mad emperor as socialite of the world. However a good model that can explain the conflict is to understand the fact that under scarcity there is allocative efficiency, technical efficiency and growth efficiency (Stiglitz, 2001). In trying to solve allocative and technical efficiency in static sense, perfect market will lead to growth inefficiency (ibid). If you are house servant without capital and high education, the perfect market theory will demand that you focus on specialization as house servant. If you need to be business man or doctor, the market will guide you through prices the mad man says (see World Bank, 1991). Then following the efficient market you will progress to be business man or doctor, and that is if it is will of market. We should know this does not emanate from working of market principle, it emanates from dogmatic believe on perfect market of the mad king.

Then the other side of the problem known as political economy or heterodox economics will tell you, you cannot be house servant to be slave of the rich people. After all what kind of father sends his children to work under static comparative advantage than building comparative advantage by sending them to practical or theoretical school that makes you rich (Chang, 2001; Kattel et al., 2009; Reinert, 1996; Berger, 2009 and Wong, 2004)? This is the debate of perfect market verse perfect state schools. All of them do acknowledge imperfection of their favorable sward. The problem is they just ignore it in practice, and will always say let the market free and the let the state free! Guess if you are house servant, how disillusioned and numb you will feel in the due process. You have to ask those who say let the state free where is my Santa who can send me to school? Then you have to turn to those who cry let the market free, is market for me or am I for market?  

Any practical human being cannot ignore all kind of efficiency side by side. A house servant has to think how he can balance the need to meet current need while saving to the future from both technical and allocative efficiency point of view. Then without destabilizing what is possible now he has to build comparative advantage by taking different courses or by starting new business that can run by current comparative advantage. This again should lead to sustainable growth in income in long run. This is common sense. You cannot build industrial development ignoring the comparative advantage that you have now. You need resources for progress and survival; after all you are not fathered enough by rich nations around the world to have lovely time of development under childhood. You are poor man in dark world sometimes crying about missing ladder and sometimes being fathered. So use the resources at your disposal critically to build comparative advantage in highly rewarding activity.

You cannot ignore today for the future because today is what support your future and you cannot survive otherwise. But you have to be smart enough to build comparative advantage in highly rewarding areas with careful observation. This is development in simple words. That is why even the existence of alternative source of efficiency neither discount technical and allocative efficiency of static market, nor justify the existence of market dogma that you have to follow as word of God to make the price run wild like prophet of almighty God. Find the proper balance by trial and error, taking the accumulated knowledge into account, and make it work. This is simple answer because South Korea did not grow by economists, China did not follow will developed theory toward progress and England did not develop general theory toward progress before agricultural and industrial revolution, there was a lot of learning process with trial and error that lead to their success. Economists did not come before but after success with their dogma to explain the success of practical people with real problems. If market management and price distortion works to generate dynamic fitness, please distort it by all means. But don’t distort it because your intellectual master brainwash you to think that is how it is done, the devil is always in the detail. We will come back to this issue at end of this section and next section from metaphysical foundation. That being said, let explain market failures next; so we can map the real world better. Market failures can be classified to traditional and none traditional market failures. Traditional market failures are market failures which are developed by orthodox school and none traditional market failures are market failures developed by the heterodox schools.

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[1] In single auction either buyer or seller bid to buy or sell. In double auction both buyers and sellers bid to buy and sell. It is well documented in above stated experimental; research papers double auction is more efficient than single auction.

[2] Risk free life and certainty under market is not assumption of Rand (1964) but she do also share her own share of absurdity which are not listed here too.