ABSTRACT
The word “allocative” in the title is to be emphasized, since virtues of a competitive economy other than allocative ones are also frequently elaborated, particularly in debates about the respective merits of centralized planning, commonly associated with a communist regime, and decentralized planning through competitive markets, associated with idealized private enterprise or capitalism. At the mention of a market, the non-economist tends to visualize some arrangements of stalls in a small town selling fresh produce and trinkets – perhaps an extended mart of a Petticoat Lane or an oriental bazaar. They are indeed markets, but the word “market” has a range of meanings readily confirmed by any good dictionary. For the economist, however, it is primarily an institution through which the economic life of the country can be regulated. In its most reduced form, a market is formed when two or more persons come together for business purposes. In its most expanded form, it can be a world market dealing with any one of a variety of commodities such as coffee, wheat, sugar, cotton, cocoa, coal, steel, oil, wood, etc., or with a wide range of securities or with foreign currencies. Of course, costs are incurred in operating a market – costs of capital and maintenance, communication, keeping records and enforcing contracts.
