Where do markets come from?

Production markets have two sides: producers are a fully connected clique transacting with buyers as a separate but aggregated clique. Each producer is a distinctive firm with a distinctive product. Each side continually monitors reactions of the other through the medium of a joint social construction, the schedule of terms of trade. Each producer is guided in choice of volume by the tangible outcomes of other producers—not by speculation on hypothetical reactions of buyers to its actions. Each producer acts purely on self-interest based on observed actions of all others, summarized through a feedback process. The summary is the terms-of-trade schedule, which reduces to constant price only in limiting cases.…