Market? What market?

There are those who completely in denial of market existence and there are those who dismiss any non-market solution. Even the most ardent supporters of market sometimes slip: they think market is so powerful you don't need to do anything. On the other extreme, the market deniers think people are all too stupid, there is a call for government in virtually everything.

We are not in either group. (Despite the accusation that we are free market diehards).

Letting a problem in the hand of market has its own cost. If that cost is greater than the cost of managing it under a controlling command, you want an organization. Or, in business lexicon: firm. In a firm you have a manager who assign you and others, tasks. Think about a small firm with one manager and three workers. It is less likely that the manager knows all of you too well, she pays each of you wage exactly worth your contribution to the firm. Furthermore, it is less likely that he knows you perfectly, that he can assign you a work that really exploit all your potential to the limit (and pay you accordingly). Why not and not? Because the cost of getting the right information for those questions is too much.

Yet, firm exists. It should then be true that the cost of letting the market handle it (the matching of your pay and your do and your being) is even higher. Just imagine you go around telling everybody on the street that you can do this and that. And somebody else goes around asking people if one happens to match exactly what she needs to work for her. And imagine this is not just you and her. But everybody, all people. Why this is not happening? Because it's too expensive.

So it leaves us with firm or market. Or more accurately: a particular firm, other firms, and the market. If the particular firm happens to be able to manage things most efficiently (that is, with the least cost), then it will prevail. The others, gone.

You should now understand why some firms are big, some small. Or, why that thing called government still exists today.