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Novel idea - a free market in housing

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Not really though, unfortunately.

Karl Polanyi explained that land is not a true commodity because it cannot be produced, and a true self-regulating market requires that land can be produced.




The conceptual tool that Polanyi uses to show the incoherence of classical political economy and its later neoclassical intellectual heirs is his theory of fictitious commodities. At the core of the vision of a self-regulating and autonomous economy is the idea that the price mechanism coordinates the supply and demand for both key economic inputs as well as for final products. The economy consists of many decentralized producers who compete with each other and continuously take account of price signals in the market. If, for example, a particular raw material becomes scarce and significantly more expensive, firms that ordinarily rely on that input will search for substitutes and suppliers will increase the supply. The combination of more supply and the substitution of alternatives will soon bring those prices down to a more reasonable level that will readjust supply and demand. Through this constant adjustment process, the price mechanism assures that the decentralized economic actors make the best possible use of available resources.


This vision of a self-equilibrating economy was still just an abstract ideal for the classical political economists. By the mid-twentieth century, however, economists worked our the mathematics of a general equilibrium model which, under restrictive conditions, will demonstrate the optimal outcomes that the classical economists expected. Yet even before this model was fully developed, Polanyi recognized that there was a fundamental flaw in this entire way of thinking. The capacity of the market mechanism to balance supply and demand works for commodities‚ÄĒthose things that are actually produced for the purpose of being sold in the market. But Polanyi argues that while land, labor, and money are all critical inputs into the production process, they do not meet the definition of a commodity. Labor is simply organized activity of human beings, land is nature that has been subdivided, and money is a unit of accounting and a way of storing value.


Polanyi insists that land, labor, and money should be understood as fictitious commodities; they cannot behave or be treated in the same way as true commodities because they were not produced to be sold on a market. The opportunities to substitute for these economic inputs are distinctly limited, moreover. The idea of the self-regulating market economy, however, requires that land, labor, and money be treated "as if" they were real commodities. 25 The vision of a self-regulating market economy thus rests on a fiction; it describes something that cannot actually exist. The only way to bridge the gap between the pretense and the reality of actually existing market economics has been to use the powers of government to manage the markets for these fictitious commodities in ways that produce over time the illusion of their commoditization...






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