Are Markets and Prices Social Constructs?

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In several columns from 2019 through to today, Roger Valdez has written in Forbes about markets, defending markets and price as a social construct amongst other items*. In particular he has focused on the issue as it relates to housing and the affordability of housing prices.  


In a piece in 2019, he wrote about the idea of commodification that he took from Marx*. In essence, he boiled it down to the idea that a commodity is best represented as in Marx as derived from exploited labor and that price is a construct and does not represent scarcity. This, he then goes on to argue, is the point that leads to housing being a right and therefore should not be subject to market forces because an increase in housing prices is not based on scarcity but exploited labor  In a more recent piece, he writes about the fact that “price as a construct is poppycock”** and that this left idea has led to bad housing policy.  He also accusesse the left of being driven by ideology rather than empirics and facts. 


But, there is another way to look at the issue he raises. In fact, the choice is not between neoclassical/neoliberal economics and Marxian economics. This is a false dichotomy. Institutional law and economics does indeed argue that prices are reflective of social constructs but not in the way Marx argues.  ILE looks at the fact that supply and demand are in fact a function of legal and cultural constructs in the first place.  Prices will reflect supply and demand but that supply and demand themselves are not natural phenomena but are constructed out of other social forces.


Valdez seems to be arguing that the “left '' wants to impose lots of housing restrictions on the world and then use that money to subsidize non profit affordable housing developers.  As for housing developers themselves, they complain about restrictions and then figure out that these restrictions lead to higher housing prices and more profits and so quiet their opposition. He also argues that conservatives and those on the right don’t seem to want to engage in this debate.   Valdez finally argues that the real losers are those that need affordable housing.


ILE would reframe this issue as one that sees the question as how we construct markets and who the winners and losers of those constructions will be.  Valdez may have a point that housing restrictions may be based more on enriching certain developers as opposed to really helping people who need affordable housing.  At the same time, it is not just a question of government versus market or just use the concept of free markets.  The “free markets” are based on a set of rules and guides and even customs.  These rules can be established to support affordable housing .  There are also certainly empirical questions as to which policies will in fact support affordable housing.  


Both things are true: 1) Prices are a social construct and 2) this social construct is also based on supply and demand and that those factors are constructed out of legal rules and customs. 








*https://www.forbes.com/sites/rogervaldez/2021/03/02/housing-debate-shows-why-capitalism-needs-no-defense/?sh=1cebc71572ef

**https://www.forbes.com/sites/rogervaldez/2021/03/02/housing-debate-shows-why-capitalism-needs-no-defense/?sh=1cebc71572ef

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