The marketplace as price-setting mechanism
In the opening of a 2013 episode, Bob Zadek set out the show’s working definition of the marketplace. He invoked Milton Friedman’s Free to Choose for the proposition that freedom means the freedom to choose, and Adam Smith’s “the invisible hand of the market” for the proposition that the market sets prices and determines desirability. On Zadek’s account, the pricing mechanism is what sets the value of a commodity, and it is set by millions of individual decisions; that collective decision-making is, he said, a more valuable and more accurate predictor of what something is worth than a dictate from Washington, Sacramento or Albany. He extended the comparison to elections, saying that majority rule reflects trust in the wisdom of 50-plus-one voters, and that this is what the country is about in its politics and more or less in its economics. Where is Everyone Going? (2013)
The marketplace for governance
Zadek carried the concept from goods to governments. He described a marketplace for tax ideas and for the level of taxation, which he said is just as harsh and just as cruel to the losers as the economic marketplace or the marketplace for candidates. The 50 states, in his framing, constitute a vigorous marketplace for forms of political governance: each state is more or less free to determine the nature of its government and how much taxation will take wealth from the people and what will be given in exchange. Success in that marketplace is measured not by pricing but by citizens who vote with their feet, moving from a state whose system of government is unappealing to one that is more appealing. Zadek said that reading that movement requires statistics and the ability to synthesize data, and he introduced his guest Travis Brown, author of How Money Walks, as having done that analysis. Where is Everyone Going? (2013)
Government transfers and the knowledge problem
A 2009 episode on Cash for Clunkers supplied the show’s sharpest account of what happens when government acts inside the marketplace. Zadek called the program a crass form of income transfer and said he and his fellow believers abhor income transfers and any concept that another American is more entitled to his money than he is. Katherine Mangu-Ward described the program’s effects on producers and dealers: Ford was speeding up production of Escorts because the car fit the criteria the government had somewhat arbitrarily laid out; the first set of appropriations went in four days; predictions for how long the money would last ranged from the first week of September to November. When the money dried up, she said, somebody would be left holding the bag, probably dealers, who would also face a drop-off from normal sales because the program transferred future purchases to the present. She cited dealers half a million to a million dollars in the hole waiting for government checks. Cash For Clunkers is a Dud (2009)
Zadek then generalized the point from his own business. As a commercial lender, he said, he establishes credit rules, and one of his personal rules is that he does not make loans to businesses where there is what he labeled a “political risk” — he will not lend where the borrower might not survive because of something Congress does, giving healthcare providers as an example, because he cannot predict what Congress will do. He said he can underwrite and understand the marketplace, but once politics is interjected it is impossible to make a lending decision. Applied to Cash for Clunkers, he identified the losers as automobile repair shops, used car dealers and auction houses that auction off used cars, businesses whose owners had studied and understood their market but could not underwrite what the clunkers in Washington would do. The marketplace, he said, becomes all out of whack when people cannot make intelligent business decisions based upon the market, and people wait on the sidelines and the economy is stifled. Cash For Clunkers is a Dud (2009)
Mangu-Ward added that charities suffered too. She described a series of transactions in which people gave old cars to charities that either fixed them up for people who needed them or sold them for scrap, and said that given the choice between a small tax deduction or no benefit at all and getting $4,500 from the federal government, the choice is obvious. The people who run these car conversion charities, she said, are dependent on the secondary effects of the marketplace. Cash For Clunkers is a Dud (2009)
Reputation as market discipline
In a 2018 conversation with Richard Epstein, Zadek raised the Harvey Weinstein case as an instance of the marketplace accomplishing what litigation or government might have done. He said Weinstein lost everything — the Weinstein Company failed, Miramax failed or went into financial difficulty — and that none of it was the result of litigation or governmental action; it failed, interestingly enough, in the marketplace. He asked whether the marketplace was not more effective than litigation or the government at punishing the wrongdoer, albeit without the due process of a courtroom. An Intellectual Discussion of Sexual Harassment with Richard Epstein (2018)
Epstein agreed that reputation and public confidence are the single most valuable asset a corporation has, and that once the Weinstein allegations were clear the reaction was relentless. He then set out the concept’s hazards: reputation can be fickle and can be used against people for whom charges are much less clear, producing not only great powers of correction but great actions of injustice. He contrasted Weinstein with Garrison Keillor, whose show was also off the air after Minnesota Public Radio decided not to broadcast new or old editions, and said that any sense of proportionality tying punishment to the severity of the offense tends to get lost in reputational situations. An Intellectual Discussion of Sexual Harassment with Richard Epstein (2018)
Epstein illustrated the point with two cases. Bon Vivant, which made vichyssoise, put out a load contaminated with botulism that killed a dozen people or so, and the company was out of business within a week — a case where nobody could doubt the source. By contrast, he knew a woman who had been a caterer and lost her business after someone died of food poisoning at an event she had put together; only after she had gone out of business was it discovered that the host of the party had put out his day-old salad with the other food, and that nothing she had done had anything to do with the death. He also noted that when a plane crashes, liability may run to $100 or $200 million while the fall in the company’s stock is twenty times that size, because of anticipated loss of future business. An Intellectual Discussion of Sexual Harassment with Richard Epstein (2018)
Epstein tied the severity of reputational punishment to the decline of defamation law. He said the defamation remedy is about as useless as one could imagine today, citing the doctrine of innocent construction — mitior sensus — under which a charge that can be read however fancifully as non-defamatory is given the innocent meaning, and the New York Times rule requiring actual malice, meaning knowledge of falsity or reckless disregard of truth. He said the makers of Alar were falsely accused in a well-publicized story and the product was put out of business long before the defamation suit was brought, and the suits failed. He added that there has not been an important defamation case since about 1990 or 1991, whereas before that time there were a huge number, mainly in federal court. An Intellectual Discussion of Sexual Harassment with Richard Epstein (2018)
Across episodes
The marketplace is treated in more than one episode, but the excerpts do not show a single question being argued to a different conclusion over time. In 2009 Zadek and Mangu-Ward applied the concept to a government transfer program and the knowledge problem it creates for lenders and dealers; in 2013 Zadek applied it to competition among states and to the pricing of ideas and governance; in 2018 Zadek and Epstein applied it to reputational punishment, where Epstein supplied the qualifications about proportionality and the weakness of defamation law. The 2013 excerpts also contain a second segment on the marketplace for governance and a segment introducing Travis Brown that break off before the guest speaks, so the excerpts show no development of that argument beyond Zadek’s framing.
What the sources do not cover
The excerpts do not define the marketplace formally, nor do they state a founding date or principle for any school of thought beyond the attributions to Friedman and Smith. They do not report the outcome of any defamation case, the text or holding of Title VII or Title IX, or the fate of the Cash for Clunkers program after the period discussed. Several segments end mid-sentence or at a section break, so the guests’ own formulations of the marketplace in those passages are not available here.