TH E C A P IT A L IS T M O D EL The follow ing sections establish a simple model o f the manner in which capitalist markets operate. The main reason for setting about such a task is not purely to devise a means by which (any) capitalist economy may be characterised, but to go further and show that the central workings o f market mechanisms may be susceptible to imperfections o f various kinds. The importance of such a demonstration lies in the implications for government inter­ vention generally, and for econom ic planning in particular. If it can be shown that there are properties intrinsic to certain markets or classes o f markets that impede the achievement o f an appropriate equilibrium, we h av eprim a fa c ie grounds for supposing that gov­ ernment has an important role to play in the operation o f the economy. Before investigating the forms that any such actions should take, it is necessary to demonstrate that action of som e kind is , in fact, essential. Prices constitute the device through which offers to buy and sell

goods are mediated. The first task, then, is to exam ine how prices are set, how they are adjusted and whether their adjustment might be expected to lead to an equilibrium between supply and demand. This is done in two stages, the first being to describe the basic Walrasian model in which an Auctioneer is introduced. The sec­ ond stage is to exam ine ways in which this fictional Auctioneer can be eliminated. An understanding of both stages is a prerequisite of a thorough understanding o f why capitalist markets may not, with­ out active guidance, constitute the most effective means o f allocat­ ing resources.