The market allows for exchange of goods and services between holders of identical bundles. If I seek books, but detest oranges - I can swap them with someone in return for his books. That way both of us are rendered better off than under strict egalitarian version.

Still, there is no guarantee that I will find my exact match - a person who is interested in swapping his books for my oranges. Illiquid, small, or imperfect markets thus inhibit scope of these exchanges. Additionally, exchange participants have to agree on an index: how many books for how many oranges? This is price of oranges in terms of books.

Money - obvious "index" - does not solve this problem, merely simplifies it and facilitates exchanges. It does not eliminate necessity to negotiate an "exchange rate". It does not prevent market failures. In other words: money is not an index. It is merely a medium of exchange and a store of value. The index - as expressed in terms of money - is underlying agreement regarding values of resources in terms of other resources (i.e., their relative values).

The market - and price mechanism - increase happiness and welfare by allowing people to alter composition of their bundles. The invisible hand is just and benevolent. But money is imperfect. The aforementioned Rawles demonstrated (1971), that we need to combine money with other measures in order to place a value on intangibles.

The prevailing market theories postulate that everyone has same resources at some initial point (the "starting gate"). It is up to them to deploy these endowments and, thus, to ravage or increase their wealth. While initial distribution is equal - end distribution depends on how wisely - or imprudently - initial distribution was used.

Egalitarian thinkers proposed to equate everyone's income in each time frame (e.g., annually). But identical incomes do not automatically yield same accrued wealth. The latter depends on how income is used - saved, invested, or squandered. Relative disparities of wealth are bound to emerge, regardless of nature of income distribution.

Some say that excess wealth should be confiscated and redistributed. Progressive taxation and welfare state aim to secure this outcome. Redistributive mechanisms reset "wealth clock" periodically (at end of every month, or fiscal year). In many countries, law dictates which portion of one's income must be saved and, by implication, how much can be consumed. This conflicts with basic rights like freedom to make economic choices.

The economic actor is assumed to be constantly engaged in rational pursuit of self interest. This is not a realistic model - merely a (useful) approximation. People don't repeat their mistakes systematically (=rationality in economics) and they seek to optimize their preferences (altruism can be such a preference, as well).

Still, many people are non-rational or only nearly rational in certain situations. And definition of "self-interest" as pursuit of fulfilment of preferences is a tautology.

V. Consumer Choices

How are consumer choices influenced by advertising and by pricing? No one seems to have a clear answer. Advertising is both dissemination of information and a signal sent to consumers that a certain product is useful and qualitative (otherwise, why would a manufacturer invest in advertising it)? But experiments show that consumer choices are influenced by more than these elements (for instance, by actual visual exposure to advertising).

VI. Experimental Economics