Secdocument - 9676download Economics of Markets Neoclassical Theory Experiments and Theory of Classical Price Discovery Sabiou M Inoua Full Chapter

Economics of Markets: Neoclassical
Theory, Experiments, and Theory of

Classical Price Discovery Sabiou M.
Inoua
Visit to download the full and correct content document:
https://ebookmass.com/product/economics-of-markets-neoclassical-theory-experimen
ts-and-theory-of-classical-price-discovery-sabiou-m-inoua/
Economics of Markets
Neoclassical Theory, Experiments,
and Theory of Classical Price
Discovery
Sabiou M. Inoua
Vernon L. Smith
Sabiou M. Inoua · Vernon L. Smith
Neoclassical Theory, Experiments, and Theory
of Classical Price Discovery
Sabiou M. Inoua Vernon L. Smith
Economic Science Institute Economic Science Institute
Chapman University Chapman University
Orange, CA, USA Orange, CA, USA
ISBN 978-3-031-08427-0 ISBN 978-3-031-08428-7 (eBook)

https://doi.org/10.1007/978-3-031-08428-7
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer
Nature Switzerland AG 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors, and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.
This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Acknowledgments
For thoughtful and constructive reviews of our papers or chapters, we

thank anonymous reviewers of our chapters and papers. We also benefited
from many discussions with faculty and seminar participants at ESI and
we thank them all. Chapman University, and ESI in particular, is hosting
one of the authors as visiting research associate and we are grateful to the
many people who helped, one way or another, in this process; we also
thank the Koch foundation for its financial support.
In the process of writing this book, we published several papers as
articles that we wish to acknowledge, and cite permissions granted for
using substantially the same or similar material herein.
v
Contents
1 Prologue 1
2 Introduction 9
3 Rediscovering Classical Economics in the Laboratory 21
4 Price Formation: Overview of the Theory 39
5 Price Formation: Partial Equilibrium 93
6 Price Formation: General Equilibrium 131
7 Financial Instability: Re-tradable Assets
and Speculation 157
Index 183
vii
List of Figures
Fig. 3.1 Short-Side Rationing and Classical Price Adjustment 29

Fig. 4.1 Distribution of costs and values in Table 4.1 41
Fig. 4.2 Supply and Demand functions for an Isolated Exchange 42
Fig. 4.3 No market-clearing price exists for this supply and demand
configuration. The relevant equilibrium concept here is v1 ,
which minimizes overall market imbalance: we shall refer
to this more general concept of competitive equilibrium,
as the center of value 56
Fig. 4.4 Böhm-Bawerk’s horse market simulated: two-sided
(buyer-seller) competition (10 buyers, 8 sellers). (a)
Supply and demand functions. (b) Price dynamics specified
as pt+1 = pt exp[lambda[D( pt ) − S( pt )] (with lambda
= 0.07 arbitrary, but set low enough to have small
oscillations, which are inevitable given this approximate
specification of competitive dynamics). (c) Price-value
distance and information revealed in price. (d) Dynamics
of the price-value distance 66
Fig. 4.5 Simulation of a well-behaved non-clearing market studied
experimentally (V. L. Smith, 1965). (a) “Swastika” supply
and demand configuration. (b) Price dynamics (same
as in Fig. 4.4, with lambda = 0.01). (c) Price-value
distance, V (p), and information, I (p), revealed in price.
(d) Dynamics of the price-value distance 67
Fig. 4.6 Under Short-side rationing, trade volume is maximum
when supply equals demand 68
ix
x LIST OF FIGURES
Fig. 4.7 The basic profitability or affordability indicator function

(Left: a(x) = I (c ≤ x). Right: a(x) = I (v ≤ x)) 76
Fig. 5.1 Center of value is graphically the set of prices
that maximize the area below excess demand Z . It
generalizes the concept of market-clearing price: formally
C = [r + ,r − ], where the endpoints are, the critical points
at which Z changes sign 101
Fig. 5.2 Maximum attainable surplus is the hatched area 103
Fig. 5.3 A large market’s competitive dynamics [values and costs
from exponential distributions: mean (v) = 5, mean (c) =
3, fraction of demand units = 0.7, H(Z) = 10Z]. (a)
Average supply, demand, and number of transactions
under short-side rationing. (b) Price trajectories are
shown for various initial conditions. (c) Average
potential versus actual surplus (the latter calculated
under the no-covariance assumption (1.35)). (d) Dynamics
of potential versus actual surplus 108
Fig. 5.4 Isolated buyer–seller haggling simulated: (a) Supply
and Demand (b) Price dynamics: p0 > vmax means we
are modeling the standing ask price. (c) Potential surplus
function V (left scale) and information function I (in bits,
right scale). (d) Dynamics of V 111
Fig. 5.5 Simulation of a non-clearing market studied in the lab (V.
L. Smith & Williams, 1990, Fig. 10, Condition A). (a)
“Swastika” supply and demand configuration. (b) Price
dynamics. (c) Potential surplus function, V, and value
and cost information amount, I, revealed by price (in bits).
(d) Dynamics of V 113
Fig. 5.6 English auction simulated. (a) Cumulative distribution
of values (5 to 40 by increment of 5) and cost (or seller
reserve price, 10). (b) Price dynamics: minimum bid
increment βmin = 5. (c) Potential surplus function, V,
and Information, I, revealed by price (in bits). (d)
Dynamics of the potential surplus, V 116
Fig. 5.7 Multiple-unit English auction simulated (Four Units). (a)
Values and cost (seller reserve price). (b) Price dynamics:
minimum bid increment βmin =5. (c) Potential surplus
function, V, and Information, I, revealed by price (in bits).
(d) Dynamics of the potential surplus, V 118
LIST OF FIGURES xi
Fig. 7.1 Ford motor company stock: (a) Price; (b) Return
(in percent); (c) Cumulative distribution of volatility
in log–log scale, and a linear fit of the tail, with a slope
close to 3; (d) Autocorrelation function of return, which
is almost zero at all lags, while that of volatility is
nonzero over a long range of lags (a phenomenon known
as volatility clustering) 164
Fig. 7.2 S&P 500 index: (a) Price; (b) Return (in percent);
(c) Cumulative distribution of absolute return; (d)
Autocorrelation function of return and absolute return 165
Fig. 7.3 US–UK exchange rate: (a) Exchange rate; (b) Return
(in percent); (c) Cumulative distribution of absolute
return; (d) Autocorrelation function of return and absolute
return 166
Fig. 7.4 Bitcoin: (a) Price; (b) Return (in percent); (c) Cumulative
distribution of absolute return; (d) Autocorrelation
function of return and absolute return 167
Fig. 7.5 A lab asset price volatility (Data source Kirchler and Huber
[2009, Market 5]) 168
Fig. 7.6 Big volatility clusters triggered by major events (Crises) 169
Fig. 7.7 A purely speculative asset market model: the simplest
case of momentum speculators or RCAR(1) model,
with prob(news at time t ) = 1, in this simulation; feedback
term n t drawn from an exponential distribution with mean
0.55; impact of news is zero-mean Gaussian with standard
deviation of 1 175
Fig. 7.8 General model simulated. (a) Price; (b) Return
(in percent); (c) Cumulative distribution of volatility
in log–log scale, and a linear fit of the tail, with a slope
close to 3; (d) Autocorrelation function of return
and absolute return 178
List of Tables
Table 3.1 Number of contracts above, equal to,

or below equilibrium in first (second) experiment 37
Table 4.1 Example of values and costs 41
Table 4.2 Values and costs in Böhm-Bawerk’s horse market 65
xiii
CHAPTER 1
Prologue
Abstract This book proposes a theory of competitive market price

formation which generalizes and extends classical views beginning with
Adam Smith.
Keywords Marginal utility theory · Equilibrium · Classical economics ·

Neoclassical economics
In neoclassical marginal utility theory, price dynamics was elusive to

model from the perspective of the buyers and sellers who participate in
markets. The models, rather, postulated a static framework for individuals
to choose optimal quantities, given prices, thereby imposing conditions
inimical to modeling price formation. Yet laboratory market experiments,
starting in the 1950s, established the stability, efficiency, and robustness of
the market mechanism for finding prices given individual maximum will-
ingness to pay and minimum willingness to accept quantity endowments,
under privacy conditions in which neoclassical theory implies “market
failures.” Markets succeeded where theory failed—a core objection to
the neoclassical paradigm as it was thought, taught, and believed in the
middle of the twentieth century.
This book proposes a theory of competitive market price formation
which generalizes and extends classical views beginning with Adam Smith.
© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2022
S. M. Inoua and V. L. Smith, Economics of Markets,
https://doi.org/10.1007/978-3-031-08428-7_1
2 S. M. INOUA AND V. L. SMITH
Classical economics, we argue, originated, and developed a conception

of markets as price discovery processes, that were free of the limitations
imposed on market dynamics by the neoclassical marginal utility theory of
quantity choice, given prices, beginning in the 1870s. So compelling did
the new theory appear to economists, that it swept aside any movement
to integrate the new tools with the old accomplishments, which were
substantial as we intend to show, but were thought to have been made
obsolete by the new perspective and tools. The new school centered its
representation of consumer demand on the utility-maximizing actions of
the individual. In this view, rationality became focused on, and emanated
from, the individual, who is identified by a utility function representation
defined over continuous and differentiable commodity spaces, minimally
required only to be increasing and concave in the quantities of goods.
The resulting individual price-income conditional demand, and symmet-
rically treated supply functions, become aggregate nonincreasing demand
and nondecreasing supply functions, that characterize a collective of
individuals that arrive in markets to trade.
Unspecified and unmodeled was an explicit process governing agents
for finding and realizing market prices and corresponding quantity allo-
cations. The dominant “solutions” offered were essentially metaphors
of theory. In the English version, W. S. Jevons asserted that traders all
required complete information on demand and supply, as represented
in his model, to determine prices and allocations. Thus, did he solve
for an ideal decision maker who could find quantities if prices were
given, setting the stage for imposing the law of demand and supply on
prices in the market. Leon Walras, or at least his followers, proposed an
imaginary auctioneer who found prices by trial-and-error adjustment—
the French version of a metaphor for price discovery. “Metaphor” is
the correct descriptor, for in his defense it is said that the Walrasian
insight, which concerned a model not the world, was that an entire
market economy works approximately as if it were a single auction.1
Neither Jevons nor Walras modeled economic agents as they experienced
each other in markets, and thereby set standards of theorizing that have
persisted in economics.
1 We have benefitted from many anonymous, thoughtful, and constructive reviews of

our papers or chapters. We take them to be typical indicators of reader understandings
and here reference one of them in context.
1 PROLOGUE 3
Marginal utility-based general equilibrium was the prevailing state

of mid-twentieth-century micro-theory, taught universally in graduate
economics programs across the world. Now let undergraduates, naive in
economics, walk into a classroom and be partitioned into two groups;
one composed of individuals who are designated buyers each with private
assigned maximum willingness to pay (wtp) reservation values for one
(or more) unit(s), while the second group is composed of people who
are designated sellers each with private assigned minimum willingness to
accept (wta) reservation costs for one (or more) unit(s). Buyers (sellers)
are profit motivated to buy (sell) at prices proportionately below (above)
their reservation price values (costs).2 Unknown to all the participants,
these assignments define aggregate willingness to pay or accept private
demand (WTP) and supply (WTA) distribution functions, that predict
the “equilibrium” price and quantity (subject to “short-side” rationing,
as we -shall see below) tendencies in the market. We call this point or set,
the market center of value.
The participants trade using an open outcry two-sided auction, unlikely
to be part of their previous knowledge or experience, and at the time,
not yet recognized in economics. Remarkably, if not magically, people in
these market microcosms quickly learn the institutional trading protocol
and find the prior-predicted prices and allocations through repeat trade
over time.
It seemed that something was amiss, for here we have experiments
in which people have only private information, and operate unassisted
by a Walrasian auctioneer, but who perform better than we economists
had any right to expect given the extant state of our understanding. In
effect, people in these market experiments model each other in real time—
a formidable theoretical challenge—more effectively than we thought
possible, or that theoretical economists could accomplish at the time.
Contrastingly, in our reexamination, the classical economists saw
demand quantities as obviously and transparently given by the observable
revealed desire for them, with demand operationally expressed, and some-
times voluntarily revealed, in WTP reservation prices in a variety of forms
in markets (such as bidding at an English auction, occasionally referred
2 Generally, we will use small letters in referring to individual willingness to pay (wtp) or
accept (wta) reservation values or costs and capital letters when referring to the aggregate
distribution functions of these individual reservation values (WTP) or costs (WTA).
to in contextual side comments by Adam Smith). Similarly, sellers volun-

tarily bring goods to market with a clear desire to sell them, expressed
in revealed WTA reservation prices. Obviously, in effect, noted the clas-
sical economists, these goods have a “utility in use” value. But “utility” is
a hidden variable. More relevant and empirically interesting, in the clas-
sical implementation, is to use operational and observable concepts of
wtp (wta) to understand the far less transparent puzzle inherent in the
order and regularity of the prices that emerge everywhere in markets, and
most fundamentally in the consumer markets that fuel the purpose and
existence of the whole system.
In the classical vision, with no modern practiced avenue of abstract
thinking and modeling, the focus was on understanding markets through
close observation—a central concern in the natural history of any fledgling
new science. Consumer shoppers commonly buy discrete integer units of
items, sellers sometimes bring too little or too much to market; hence,
the bundles and inventories are of discrete items that are vended almost
universally one unit per transaction. The “law of supply and demand” in
neoclassical economics identified with price-quantity equilibrium states,
and with the prescription of one price in a market, imposed conditions
up front that were inimical to discovering their truth as an end-state of
theory. In contrast, classical economics identified the law of supply and
demand with price changes and was inherently dynamic; hence, in our
elementary mathematical representation, price changes have the same sign
as excess demand.
Classical thought was so prescribed, as in our narrativized description,
because it defined the circumstances within which the observed “higgling
and bargaining” yielded determinant changes in prices, and allocations.
Indeed, the relevance of classical thinking was at some point in busi-
ness history manifest in the oral-outcry auction as formalized institutional
higgling and bargaining, available to the first experimenters, but foreign
to the neoclassical economics literature.
Classical economists did not pursue generality for its own sake, or
range far beyond the observed circumstances, because the phenomena
to be understood is a process that is, or might at least in part be,
governed directly by those circumstances. Why generalize before you have
a purpose, and can formulate more precisely the next relevant questions?
The Newtonian era had shown that hidden variables (postulated grav-
itational attractions) could be known by their effect on observables.
1 PROLOGUE 5
Theory could proceed and to foster understanding without knowing the

mysteries of that which is hidden.
This attitude, and a capacity and motivation for careful and selective
observation, enabled the classical economists to define a program that
could do for social and economic systems what Newton had done for
physical systems.3 Although the program did not end in a formulaic math-
ematical theory, it was rigorous, based directly on careful observation, and
substantially set the stage for that development.
The old discussions on value from Adam Smith to Jules Dupuit seem
to rest on three implicit principles that, if adopted as axioms, allow a
coherent modern version of their theory to be formalized4 :
Motivation: people experience gains from trade and freely interact to

this end in markets; undergirding this observation is buyer demand,
captured in the concept of WTP reservation values—one value (or
more) for each person—that are ever-ready to help determine poten-
tial prices governed by the desire to buy cheap; and seller supply,
encapsulated in the concept of WTA reservation costs, which are
potential market prices attenuated by the desire to sell dear. On each
side of every unit transaction price in a market is a buyer (seller)
whose value (cost) is not less than (more than) the price. As Adam
Smith well understood, this revelation of private information in the
form of public prices had external consequences accounting for the
wealth of nations.
Free entry: there are no artificial restrictions on the ability of firms to
freely compete in satisfying consumer demand (implicitly, the same
principle holds for buyers, but the classical economists sensed that
entry freedom was more likely a problem for producers because of
persistent Mercantilist state interventions on behalf of incumbent
3 One of Adam Smith’s earliest manuscripts is “A History of Astronomy,” published

posthumously, and now appearing as The Glasgow Edition of the Works and Correspondence
of Adam Smith, Vol. 3: Essays on Philosophical Subjects with Dugald Stewart’s Account
of Adam Smith, edited by W. P. D. Wightman, J. C. Bryce, and I. S. Ross (eds). Oxford:
Oxford University Press, 1980.
4 See Inoua, S. M., & Smith, V. L. (2020). Adam Smith’s Theory of Value: A Reap-
praisal of Classical Price Discovery [To Appear in The Adam Smith Review, 2023]. ESI
Working Papers, February 2020 (Revised Version, 2021). Retrieved from https://digita
lcommons.chapman.edu/esi_working_papers/304/.
business interests to protect them from entry via import tariffs or

prohibitions on the export of raw materials such as Scottish wool).
“Higgling and bargaining”: there is a market process for finding

prices, which involves two significant properties:
1. The “short side” rationing condition. At any temporary resting

or prevailing potential contract (bid or ask) price, either supply is
short, and the amount purchased cannot exceed what is offered;
or demand is short, and sales cannot exceed what is demanded.
This “short-side” rationing, central to the market process, governs
price adjustment, price discovery, and may prevail in the final resting
(equilibrium) state in any market. A transparent example, recognized
by Adam Smith, is at a local auction where a one-of-a-kind item is
offered for sale to multiple buyers. But the principle generalizes.
2. The elementary mathematical implication is that price change has
the same sign as excess demand, which minimally restates the “law
of supply and demand” dynamically in its original (classical) form
without pre-imposing any equilibrium consequences. If equilibrium
emerges, it is a consequence of internal market forces causing no
change. Literally, in classical economics, the direct and unambiguous
observation was that prices increase (decrease) whenever the quan-
tity of any commodity which is brought to market falls short of
(exceeds) the effectual demand. In this assertion, Adam Smith refers
to sellers bringing to market a quantity whose reservation price (full
unit cost) is known to them. This is the “natural price” which in a
modern account is a point on the long-run supply curve. However,
Smith’s analysis is not confined to the long run, as often alleged; this
is recognized in his example where, for a given excess, the compe-
tition of the sellers is greater for perishables like oranges than for
durables like scrap iron. “Competition” clearly refers to a propen-
sity to cut prices by sellers (raise prices by buyers), rather than forgo
contracts while always preferring to sell dear (buy cheap).
These contextual details matter to us because they provide clues to a more

general narrative showing how Smith thinks of prices adjusting dynam-
ically through the market interaction of buyers and sellers, which is the
essence of a classical theory of market value. In our formulation, we assert
1 PROLOGUE 7
mathematically that price change has the same sign as excess demand.
That is the dynamic that accounts for contract paths that approach and
may achieve stationary states. However, that dynamic easily generalizes
much beyond Smith’s contextual description of sellers bringing goods
to market. Thus, as in an experiment, all the sellers and buyers may
be physical present in the market, and any can initiate an action. When
a “low” (“high”) price is bid or asked, and at that price the effectual
demand exceeds (is below) what sellers are willing to supply, then price
quotes/contracts increase (decrease). Indeed, the items traded may be a
service, not tangible goods, wherein each seller brings to market a service
capacity as distinct from a stock of hard or soft goods.
These conditions explain, ostensibly, the “magic” of how naïve under-
graduates (or anyone, as established in economics laboratories all over the
world) easily find stable market prices, in single or multiple markets for
non-re-traded goods, and how the classical economists came to under-
stand price formation. Classical economists lacked only a mathematical
expression for what they learned from observation, judgment, and sound
reasoning.
This confrontation between the two schools invites a theoretical reex-
amination of the market mechanism of the classical economists with
comparisons to neoclassical theoretical developments showing how this
divergence occurred. Our primary purpose is to begin a program to
complete the theory of competitive market price formation emanating
from classical, experientially realistic, descriptions of market “higgling and
bargaining” over discrete units of goods, and consistent with the first
experimental findings on market behavior. Far from being vague, these
nonutilitarian descriptions are quite precise if we focus on the origins of
market actions and their consequences for the economy.
We characterize the classical program in a basic principle: the market
price of a good converges toward an optimal, robust, summary (a gener-
alized median) of the traders’ valuations of the good. Because the process
is parameter free, it is qualitative, and says nothing about rates of price
change, or time-to-equilibrium achievement, in the absence of speci-
fying more parametric structure. This attractor, which we call the center
of value, generalizes the traditional notion of competitive equilibrium:
it applies to a competitive market, whether small or large, whether it
clears or not, and predicts that prices decay toward this center (Smith &
Williams, 1990).
Adam Smith’s metaphor of the “invisible hand” expressed his recog-

nition that people achieve wealth creating economic betterment through
market systems that far exceed their conscious awareness and exceeded
what anyone could achieve by deliberate design. This theorem was
implicit in his understanding and explication of the dynamics of market
price adjustment. We show how his dynamics can be formalized. From
the perspective of contemporary challenges to understanding market price
formation, we identify a thread of consistent description, from Adam
Smith through his French, English, and Italian followers, that we model.
The model and its origins in the history of economic thought are sepa-
rable, and in this book, we focus primarily on the model as contrasted
with the neoclassical general equilibrium model, with references, where
appropriate, to the relevant neoclassical scholars. A separate work extends
and elaborates this model and examines specifically the role of various
neoclassical scholars in the evolving history of classical economics and its
subsequent displacement by the marginal revolution.
Reference
Smith, V., & Williams, A. W. (1990). The boundaries of competitive price theory:
Convergence, expectations, and transaction costs. Advances in Behavioral
Economics, 2, 31–53.
CHAPTER 2
Introduction
Abstract The implicit axiom of price-taking behavior opens the question

of who or what is giving prices, to what purpose, how they are formed
initially, and how they adjust in response to changes in the economic envi-
ronment. The early neoclassical innovators, writing nearly one hundred
years after Adam Smith, were primarily concerned with applying their new
tools to modeling the structure of economic interdependence in a market
economy and were content with simplifying assumptions they believed
facilitated that objective.
Keywords Equilibrium · Neoclassical theory and economics · Marginal

revolution · Classical economics · Market demand
Economists think of prices forming in markets through competition

governed by supply and demand and generating maximum gains from
exchange. Although this view is universally associated with Adam Smith
([1776] 1904), economists no longer study his original work, and have
long been trained in the neoclassical marginal utility tradition wherein
individual consumer-actors are represented as choosing quantities of
goods that maximize their personal utility given prices and income as
a budget constraint. This implicit axiom of price-taking behavior opens
the question of who or what is giving prices, to what purpose, how

Switzerland AG 2022
https://doi.org/10.1007/978-3-031-08428-7_2
they are formed initially, and how they adjust in response to changes
in the economic environment. The early neoclassical innovators, writing
nearly one hundred years after Adam Smith, were primarily concerned
with applying their new tools to modeling the structure of economic
interdependence in a market economy and were content with simplifying
assumptions they believed facilitated that objective.
Laboratory market experiments, however, reliably demonstrate by
replication that motivated unsophisticated subjects, driven by their own
homegrown principles of action, soon find competitive equilibrium price-
quantity outcomes. These findings—beyond a general equilibrium focus
only on structure, end-state results, and interdependence—naturally lead
to a reopening of longstanding scientific questions concerning price
dynamics, and price information, in economic systems going back to
Adam Smith. The earliest of the neoclassical marginal utilitarian scholars
avoided the problem of formulating a price discovery process by asserting
the requirement that all the traders in a market must have “perfect knowl-
edge” of information on his model of supply and demand, and of the
consequent equilibrium price (Jevons, [1871] 1888, p. 87). A second,
more influential view of the neoclassicals, and especially of his followers,
imagined an external agent—the Walrasian auctioneer—who finds equi-
librium prices by an exogenous procedure of trial-and-error adjustments,
an “as if” exercise, justifiable perhaps in allowing a framework for pricing
as a system to be erected with details to be filled in after the structure is
in place (Walras, [1874] 1954).
2.1 Experiments: Markets

Worked Where Theory Failed
Thus, is defined the dominant mid-twentieth-century state-of-theory
when the first experiments implemented market exchange using the oral
outcry rules common in the commodity and securities markets of the
time; this literature on practice and rules existed entirely external to
the literature of economics (Smith, 1962, drew on Leffler, 1951, in
determining the procedures used in multilateral price making).
The experiments involved a “small”1 number of buyers and sellers,
who know only their assigned personal private willingness to pay (WTP)
1 The total number of subjects were in the range 12–30 in the typical experiment.
2 INTRODUCTION 11
or willingness to accept (WTA) values (costs), and who engage in a multi-

lateral bid-ask-acceptance process; in some experiments—stress testing the
edges of validity of the first experiments—at no price did the market clear
(e.g., the so-called swastika design; Smith, 1965, 1980, pp. 357–360;
Smith & Williams, 1990, pp. 42–51). From the viewpoint of neoclassical
theory, we should expect “market failures.” Yet the laboratory markets
surprised everyone in tending strongly to stabilize across sequential repe-
titions at high levels of efficiency (with the subjects extracting nearly 100%
of the maximum possible surplus). Subsequently, these experiments were
replicated thousands of times (Clavin, 2020).
Theory failed, not the markets.
2.2 Classical and Neoclassical Perspectives

on the Focus of Modeling: The Failed
Promise of General Equilibrium Theory
Against the background of this intellectual history, we revisit the classical
view of economics, which stems primarily from Adam Smith through his
French, English, and Italian followers. Neoclassical economics focused
on the individual as the origin and fount of market rationality in all
economic conduct. Demand was a pre-market individually rational home-
work exercise derived from maximizing utility, defined on a continuously
variable commodity space, conditional on given prices and income, and
subject to an income budget constraint. Unless utility was additively sepa-
rable, demand was subject to a pesky “income effect.” These individual
demands became expressions of aggregate demand when buyers arrived in
the market. Similarly, supply was derived from firm profit maximization.
Absent was the articulation of a process whereby prices formed endoge-
nously in the market that could become the basis for a theory of price
discovery, product allocations, and economic efficiency consistent with
constrained utility maximization.
In contrast, the classical view held that people know which discrete
items they desire to buy (sell) and have associated wtp (wta) values
that bounded what they would pay (or accept) for the items. In the
market collective, they “higgled and bargained” over prices for item unit
purchases and sales, against their background WTP (WTA) values all the
while trying to buy cheap (or sell dear). Every purchase is trivially subject
to an “income (sic, wealth) effect” because the cheaper the price you
negotiate and at which you buy, the more money you have left over to
buy other goods (or to save, increasing wealth). The actors in markets
thereby simultaneously aggregate demand, supply, and find stable prices
as part of a shared, but privately informed and motivated, market inter-
action process. Based on this dispersed aggregated WTP (WTA) data, the
classical research program was directed to understanding that interactive
process, and the puzzling but dependable emergence of orderly prices
and corresponding allocations in markets.2 Adam Smith knew that the
process was beyond the comprehension of the participants and inferred,
depending on the extent of markets, that it accounted for specialization
as the unintended cause of wealth creation.
In this conception, individual consumers are not buying units of each
good up to a quantity that equalizes the marginal dollars’ worth of each
good purchased. Rather, each is comparing the negotiated potential prices
of discrete items with their wtp/wta limits and trying to buy cheap or sell
dear. The prices that result depend on the wtp/wta private information
of others. The aggregation of that information into prices, as signals of
functional significance in human economic betterment, is a principle that
applies to aggregates of consumers across all goods markets, well beyond
the comprehension of individual consumers. Each individual has a simple
and manageable optimization problem: the comparison of one number,
wtp (wta) for a unit, with a potential price (bid, ask, or contract), and is
motivated to better themselves.
This book develops a mathematical theory of classical price formation
embracing the classical verbal narrative which is deep and precise; the
exercise shows the importance of the accuracy of the verbal narrative to
its mathematical statement. But we begin by indicating how the limited
achievements of neoclassical economics are traceable to its diversion from
these classical foundations.
First, the old school is about the collective rationality that emerged
from elementary individual behaviors in a natural market interaction
process, as the “invisible hand” metaphor conveys. The new school, in
contrast, strove to derive economic regularities from a sophisticated indi-
vidual utility maximizing rationality, which is mostly lost by aggregation,
as we eventually learned from the incisive Sonnenschein-Mantel-Debreu
(or SMD) theorem (Debreu, 1974; Mantel, 1974; Sonnenschein, 1972).
2 We will use wtp (wta) when we refer to the market aggregate distributions of
individual wtp (wta) valuations.
2 INTRODUCTION 13
Contemporary models often evade this aggregation problem by falling

back on the rationality of one idealized individual (Robinson Crusoe, or
a representative agent)—a figure that, ironically, evokes a central planner,
not a decentralized market collective discovery process, when applied to
the economy. In other words, aggregation, which was one of the main
functional virtues of the market in the old school, became an intrinsic
problem in the new. The law of demand in the pre-neoclassical litera-
ture (notably in the works of French classical economists such as J.-B.
Say ([1803] 2006) and later by Cournot, ([1838] 1897) was under-
stood, if not rigorously stated, to be a collective regularity that holds by
aggregation over the distribution of individual consumers’ WTP. Such a
probabilistic formulation of demand, whether implicit or explicit, emerges
many times over in economics, notably and belatedly as a way out of the
SMD problem itself (Grandmont, 1987; Hildenbrand, 1983).
2.3 Prices Are Unknown Until They

Are Formed in Market Processes
Based on Dispersed Individual Values
In its redirecting of value theory, the neoclassical school also redefined,
and reversed, the consumer’s goal as determining optimal quantities from
given, or “hypothetically known” prices. Prior to the marginal revolu-
tion, the exact quantity that a person potentially buys of a good was
not an issue, for this quantity is either trivially obvious (because, as for
most goods, consumers buy a single unit at a time) and/or is exoge-
nously given (by biological determinants or habits and customs). Hence,
the classical consumer’s problem is to buy cheap a desired specified quan-
tity of goods, which come in discrete units (or packets). Crucially, the key
concept in the old price theory was an individual’s valuation of a good (or
use-value on the demand side and cost on the supply side), as potential
maximum willingness to pay (wtp), minimum willingness to accept (wta),
or reservation prices, an operational, potentially observable variable. The
pre-market reality that existed consisted in homegrown unit values that
served to bound and only in the limit to become prices in the course of
the market process.
In other words, the marginal revolution inaugurated in economics an
abstract theoretical exercise that represents the consumer as if they were
a mathematically sophisticated person who uses differential calculus to
choose optimal quantities of goods from a continuum of possibilities,

while taking the goods’ prices as given; then goes to market to implement
their plan. Once found, however, can we thereafter assert that “prices are
given?” Yes, provided only that there is no alteration in the environment,
in which case discovery must kick in if prices are to change adaptively
to the new conditions. This thought process starting with the premise
of “given prices” was suggested, perhaps, by the observation of the
widespread stability in consumer markets for nondurables, whose most
significant attribute, is their non-re-trade-ability.3 From its beginning, this
conception of demand as price-taking forecloses any prospect of modeling
a buyer-seller interactive price formation process in markets. It presumes
the concept of known pre-market prices to derive demand and supply
functions without a means of determining prices from the market. The
classical economists were certainly aware that almost all markets yielded
stable prices, but that was the mystery to be understood, not taken as
given to define quantities demanded or supplied. It was this orientation
that was lost in the genuine excitement and rush to develop the break-
through concept of utility functions as a new foundation for economics;
continuous commodity spaces and cross marginal utilities were simplifying
means of allowing the application of elementary calculus.
Ironically, while the mathematical core of neoclassical theory was an
application of the differential calculus to static principles of individual
optimization, that of classical economics was an application of the integral
calculus to the dynamics of market collectives, leading naturally to char-
acteristic properties of continuity, stability, and intimate connection with
probability distribution theory. Classical rationality was centered in the
collective of individuals who knew not what they wrought, and this was
ultimately found consistent with market experiments. Rationality was not
in the individual, a proposition consistent with individual choice studies
by behavioral economists, who documented many violations of rationality
in simple choice frameworks.
The classical and neoclassical schools are also distinct and unique in
the way they represent competition in a market. Competition in the old
3 Seventy-five percent of private product (gross domestic product less government

expenditures) is non-re-tradable and the source of great endogenous market economic
stability; all instability arises from the other twenty-five percent, most notably, the housing
component. These field observations are paralleled in laboratory markets for nondurables
(Clavin, 2020) and for assets (Palan, 2013).
2 INTRODUCTION 15
school (as in common parlance) means the rivalrous interaction of buyers

and sellers, namely: (1) the confrontation (or ‘higgling and bargaining’)
between buyers and sellers; and (2) the rivalry among buyers, or among
sellers, when they outbid or undersell each other for units offered for sale
or to purchase as they try to trade units, some traders acquiring what
others lose (suggesting incorrectly the zero-sum intuition that pervades
popular impressions of exchange). Thus, competition involves both price
making (or discovery) and quantity rationing. But in the new school—
postulating given prices supported by large numbers wherein individuals
have no control over prices—competition is represented as the state of
passive price-taking. Hence, in the ideal limit, via a complex of mutually
supporting assumptions, traders are not even interacting, let alone inter-
acting in a rivalrous manner, and yet are able to trade any units (or as
many as) they wish within their budget/profit constraints.
The old view describes a unified price theory, for which the new school
substitutes either perfect competition or, if imperfect, a distinct series of
price theories based on a given number of sellers (monopoly, duopoly,
oligopoly,…,“perfect competition”)—a taxonomy of markets which some
experiments have called into question where buyers (sellers) have one,
two, or no competitors, have only private dispersed information on value
(cost), and must perforce explore and determine their demand endoge-
nously by varying prices (Smith & Williams, 1990). Entry as well as price
are freely chosen at-risk decision variables and the challenge for sellers is
to learn in real time whether the market favors the survival of only one
or two firms, to identify the extent of their market power, and to imple-
ment it in the process of learning demand from the prices that form. For
example, a market may be supplied by a single seller, but still converge to
competitive equilibrium by the competition of the buyers (as in an English
auction), or by the buyers’ confronting the lone seller and withholding
their demands until the seller cuts the price to an acceptable level that
may approximate the competitive equilibrium (Smith & Williams, 1990,
pp. 33–41). Similarly, a single firm’s market may be contested by other
firms and limit the firm’s ability to exercise market power (Caliskan et al.,
2011; Muris & Smith, 2008). The economist’s monopoly power concepts
are not integral to the way traders think about their market interactions.
We examine an alternative market taxonomy that distinguishes buyer-
seller rivalry with quantity variable, versus buyer (or seller) rivalry with
quantity locally given, or provisionally offered in multilateral negotiation.
2.4 Classical Theory, Wealth,

and Information in Price Discovery
We formulate a mathematical theory of price formation rooted in clas-
sical “higgling and bargaining,” with quantity variable, but extended to
formally include buyer (or seller) rivalry with quantity locally given, or
provisionally offered in multilateral negotiation. Although the unifying
principle received empirical support in the laboratory data, its full signif-
icance was overlooked (Smith, 1962, pp. 129–133); the principle, which
implies more than the law of supply and demand as market clearing,
consists of viewing the driving force of the market to be not excess
demand, but more precisely its integral. The integral of excess demand is
a Lyapunov function of competitive price dynamics. This characterization
of the market mechanism is better suited to a price discovery process than
the conventional view centered on excess demand and market clearing.
First, as noted, its empirical superiority is established experimentally.
Second, it is more general and includes the dynamics of non-clearing
markets.
Third, it simplifies the mathematics of the market mechanism: while
excess demand is discontinuous for discrete items, its integral is contin-
uous (thus illustrating the virtue of aggregation). Finally, and most
importantly, although implicit in Adam Smith ([1776] 1904 Vol. I, bk I,
Ch VII), it has a deep interpretation, echoed explicitly in Hayek’s (1945)
brilliant intuition about the informational function of a market: the price,
by virtue of this principle, converges to the best, robust, summary of the
traders’ valuations of the good, which constitute a large set of dispersed
and private information, not within the reach and comprehension of any
single mind, yet is maximally revealed through the market price. That
is, the market mechanism is in its essence a sophisticated, emergent, and
robust statistic.
The classical concept of WTP value for each good was constrained
by wealth. Individuals were represented as each having a hierarchical
ordering of goods by priority of “need” but including goods based on
more “frivolous” desires.4 Thus, goods like water and items of food are
of highest priority, followed by items of clothing, shelter, and so on.
4 References to goods or wants in lively demand, but that are “frivolous”, appear often
in the works of Scotland’s famous economist. Adam Smith ([1776] 1904; vol. 1, pp. 174,
314, 328, 381, 387; vol. 2. pp. 261, 391, 394).
2 INTRODUCTION 17
In our modeling, we formally consider that any two discrete consumer

commodities are related in only three exhaustive ways: either (1) they
join or cooperate in serving a need and hence are purchased together
(complements); or (2) they compete in serving a need or desire and hence
are purchased one in exclusion of the other (substitutes); or (3) one is
bought in priority over the other, because it serves a more urgent need.
Or (to close the model), in each case, neither is purchased.5
The classical modus operandi and discipline built primarily on direct
observation that had a direct meaning (even if it resulted in indirect and
unintended consequences), which is the basis for this three-part cate-
gorization of goods. Pre-market, a discrete unit of a good may have
substitutes or complements ordered by their WTP values, in general
distinct across individuals because of their diversity. Demand (and supply)
aggregation, and which units are bought by which individuals at what
prices, is resolved by buyers and sellers in the market process. Goods
substitution is expressed directly in variations in WTP values for integer
units of one good versus another across individuals, not obscurely or
abstractly, in cross marginal individual utilities for goods in continuous
commodity spaces. Cross elasticities of market demand are properties of
aggregations of individuals who commonly have unit demands. If, in pre-
market wtp evaluations, some consumers conditionally value a second
or a third unit for themselves, for a family, or for inventory combined
with infrequency of shopping, such are part of the structural context
of demand. This focus on direct observation also sets the stage for the
design of laboratory and field experiments, for empirical estimation, and
reduces unmoored drift in the theory due to misspecification of funda-
mentals. The most relevant thought framework for theory is that of
mental experimental design.
Individuals go to market with pre-market priority valuations and
command over spending defined by their wealth. When an individual
finds/negotiates a price less than max wtp value, the purchase determines
the wealth left over to be expended on other goods (or on “savings,”
where we introduce considerations of consumption security provided by
an asset claim on consumption). An important consequence of this á
priori exhaustive categorization of (nondurable, non-re-trade-able) goods
5 Thus, a small box of cornflakes and a quart of milk are complements. A small box of
cornflakes and one of Wheaties are substitutes. A small box of cornflakes is preferred to a
can of green beans.
is that every discovered price, as a bit of information, has a wealth effect.

Thus, as noted by Adam Smith, if its abundance “renders water of no
price at all,” then individuals have much wealth left over after this price
information has emerged; however, it is quite otherwise in the Arabian
desert where, for example, the price paid is “10,000 crowns for a cruise
of water” (Smith 1978, p. 358).
Hence, the neoclassical demand concept of an “income effect,” if
non-additive utilities are maximized under an income constraint, as in
Marshall, is vacuous. That such a concept acquired meaning in neoclas-
sical economics was an immediate consequence of presuming “given
prices” and constrained income before they could be given and is without
meaning if there exists only a market process for finding prices based on
aggregate individual WTP values. This hints as to why general equilibrium
theory had nowhere to go and ended in the SMD theorem. To assume
any price as given is to assume that which is to be determined. Moreover,
even when found, we can only say it is given provisional on no change in
the environment, for then there must be adaptation and rediscovery.
References
Caliskan, A., Muris, T., Smith, V., & Kobayashi, B. (2011). Antitrust and
bundled discounts an experimental analysis—A reply. Antitrust Law Journal,
77 , 683–699.
Clavin, W. (2020, August 4). Famous economics experiment reproduced thousands
of times. Phys.Org. https://phys.org/news/2020-08-famous-economics-tho
usands.html
Cournot, A. A. ([1838] 1897). Researches into the mathematical principles of the
theory of wealth. Macmillan.
Debreu, G. (1974). Excess demand functions. Journal of Mathematical
Economics, 1(1), 15–21.
Grandmont, J. M. (1987). Distributions of preferences and the “law of demand.”
Econometrica, 55, 155–161.
Hayek, F. A. (1945). The use of knowledge in society. The American Economic
Review, 35(4), 519–530.
Hildenbrand, W. (1983). On the “law of demand.” Econometrica, 51, 997–1019.
Jevons, W. S. ([1871] 1888). The theory of political economy (3rd ed.). Macmillan.
Leffler, G. (1951). The stock market. Ronald Press.
Mantel, R. (1974). On the characterization of aggregate excess demand. Journal
of Economic Theory, 7 (3), 348–353.
2 INTRODUCTION 19
Muris, T., & Smith, V. (2008). Antitrust and bundled discounts: An experimental
analysis. Antitrust Law Journal, 75(2), 399–432.
Palan, S. (2013, March 1). A review of bubbles and crashes in experimental asset
markets. Journal of Economic Surveys. https://doi.org/10.1111/joes.12023
Say, J.-B. ([1803] 2006). Traité d’économie politique ou simple exposition de la
manière dont se forment, se distribuent et se consomment les richesses (Vol. 2).
Economica.
Smith, A. ([1776] 1904). The wealth of nations (Vols. 1 and 2, E. Cannan Ed.).
Methuen.
Smith, A. (1978). Lectures on jurisprudence (R. Meek, D. Raphael, & P. Stein,
Eds.). Oxford University Press.
Smith, V. (1962). An experimental study of competitive market behavior. Journal
of Political Economy, 70(2), 111–137.
Smith, V. (1965). Experimental auction markets and the Walrasian hypothesis.
Journal of Political Economy, 73(4), 387–393.
Smith, V. (1980). Relevance of laboratory experiments to testing resource allocation
theory, evaluation of econometric models (J. Kmenta & J. B. Ramsey, Eds.)
(pp. 345–377). Academic Press.
Smith, V., & Williams, A. W. (1990). The boundaries of competitive price theory:
Convergence, expectations, and transaction costs. Advances in Behavioral
Economics, 2, 31–53.
Sonnenschein, H. (1972). Market excess demand functions. Econometrica, 54,
9–563.
Walras, L. ([1874] 1954). Elements of pure economics (W. Jaffé, Trans.). Kelly.
CHAPTER 3
Rediscovering Classical Economics

in the Laboratory
Abstract In this chapter, we turn to a reexamination of the early exper-

iments that “rediscovered” classical economics, since it is part of the
impetus motivating us to formally model the classical market price forma-
tion process. Then we will resume our presentation on classical theory in
Chapter 4.
Keywords Competitive market · Neoclassical tradition · Equilibrium ·

Walrasian hypothesis · Double-auction trading · Classical economics
In this chapter we turn to a reexamination of the early experiments that

“rediscovered” classical economics, since it is part of the impetus moti-
vating us to formally model the classical market price formation process.
Then we will resume our presentation on classical theory in Chapter 4.
3.1 Experiments, Following Marshall,

Implemented a Classical Market
Although Marshall and the Austrian economist Böhm-Bawerk were signif-
icant spokesmen for neoclassical marginal utility theory, their articulation
of price formation in markets did not depend in any way on the
marginalist framework for which they were effective as champions.

Switzerland AG 2022
https://doi.org/10.1007/978-3-031-08428-7_3
Marshall’s description of price discovery in “a corn-market in a

country town” is an excellent elaboration of the classical Smithian process
applying willingness to pay, WTP (willingness to accept, WTA) reserva-
tion values to buyer-seller “higgling and bargaining” (Marshall, [1890]
1920, pp. 332–334). In this market context, marginal utility is neither
applied nor mentioned by Marshall, because it is irrelevant to his demon-
stration of price formation. This perspective, however, is not part of the
established understanding of Marshall, nor of his significant influence
on early-market experiments examining neoclassical supply and demand
theory. Similarly, in Böhm-Bawerk’s peasant horse market, where each
person is a buyer or seller of a single horse, first illustrated with one buyer
and one seller, then one-sided competition (one seller, multiple buyers;
one buyer, multiple sellers), and finally two-sided competition with
multiple buyers and sellers (Böhm-Bawerk, [1888] 1891, pp. 198–208).
He elegantly demonstrates how—as we would describe it—adding buyers
and sellers alters the distance between the center of value in the market
and the distribution of trader’s personal use evaluations. In an impor-
tant sense, horses are not a best example, because they can be bought
for resell, and not only for use, adding complexity that is non-existent
in markets for non-durables that we articulate and explore in Chapter 7.
Böhm-Bawerk’s example applies more naturally to a farmers’ consumer
market for fresh produce bought only for near-term consumptive use.1
3.2 Experiments, However, Were

Perceived as Rooted in the Marshallian
Neoclassical Perspective
It is in the laboratory that the classical view of price formation was
destined to be literally replicated, although the first market experimenters
considered themselves in the neoclassical marginal tradition as it was
perceived as being expounded by Marshall. His influence was acknowl-
edged by the experimentalists, but they were unaware that Marshall was
1 A perfect example is the Boston Haymarket, an historic outdoor greenmarket special-

izing in fruits and vegetables near Faneuil Hall, a public meeting house dating from
colonial times, and therefore a popular community gathering place for the conduct
of social, political, and therefore market affairs. Where people gather for any peaceful
purpose, inevitably they also trade. Trade is everywhere a natural extension of human
sociability.
3 REDISCOVERING CLASSICAL ECONOMICS IN THE LABORATORY 23
following closely the non-utilitarian classical tradition in describing the

price dynamics they were studying (Chamberlin, 1948, p. 96; Smith,
1962, pp. 115, 121).
The first competitive market experiments were conceived as a proce-
dure for linking supply and demand theory to what people do in a market
and were implemented by assigning private values to 10–20 buyers, and
private cost to approximately the same number of sellers; these were
“small” numbers by the vague thought standards of the time. Prevailing
beliefs were that the privacy and small number conditions were contrary
to the attainment of equilibrium outcomes. Inspiration for this design
came from three motivating sources: (1) Jevons ([1871] 1888) provided
the background utility-maximizing choice model, but the implementation
was with discrete units that had no necessary utilitarian foundation—a
later after-thought reconstruction in (Smith, 1976a). (2) The context was
consciously in the tradition of Marshall ([1890] 1920) in that supply and
demand operated as flows over successive price making periods in the
belief that if equilibrium is attainable, it must somehow involve learning
over time. (3) Chamberlin’s (1948) experiments had pioneered the proce-
dure used to represent supply and demand, later generalized as “the
theory of induced value” in the context of continuous commodity spaces
(Smith, 1976a). Remarkably, prices formed endogenously, among the
participant subjects, in a unifying collective search for economic value
via the bid-ask continuous “double auction” protocol long operating in
the Chicago commodity markets and New York Stock Exchange (Leffler,
1951).2 Buyers were each assigned a single private value, “which repre-
sents the maximum price he is willing to pay for one unit…” (Smith,
1962, p. 112). A unit bought below this maximum wtp earns a profit in
cash equal to the difference between the private value and the price paid
in the experiment. Each seller is assigned a private value (cost) repre-
senting their personal minimum wta for a unit and earns a profit in cash
equal to the difference between the selling price and that value. Thus,
Marshall and Leffler provided the elements that distinguished the new
experiments from those reported earlier by Chamberlin (1948) that had
failed to yield the competitive equilibrium. However, there was no prior
expectation that the results of the new experiments would differ qual-
itatively from those of Chamberlin, although the nullifying conclusion
2 This first edition source was not cited in any of the early experimental papers but is
the edition available when the first experiment was conducted in January 1956.
might be more powerful under conditions putatively more favorable to

equilibrium emergence.
Chamberlin’s experiments were also explicitly and firmly thought to
be in the neoclassical utility tradition associated with Marshall who was
perhaps the first author to recognize the pre- neoclassical literature on
value, which he attempted to synthesize and reconcile with the newborn
marginalist view. Thus, Chamberlin (1948, p. 96) implemented supply
and demand by giving each buyer (seller) a “ticket” representing their
individual “Marshallian demand price or supply price….”3 Marshall,
and those of us following his example who thought we also were
following the neoclassical tradition, had explicitly stated, and interpreted
demand (supply) as representations of willingness to pay (WTP) and
to accept (WTA) reservation prices.4 That tradition was utilitarian but
the first implementations assigned single units to individual buyers and
sellers. Hence, the reservation price language prevailed and was sufficient,
without the trappings of utility theory: “These reservation prices generate
a demand curve such as DD…” (Smith, 1962, p. 112). Implicitly, they
were “marginal” units, as were subsequent cases assigning more than
one unit, each interpretable as marginal reservation wtp (wta) “prices.”
However, note that if each buyer (seller) is a single unit trader, marginal
value is identical with total value. If aggregated over all individuals in a
large market, demand (supply) is a schedule of the maximum the market
3 Chamberlin (1948, p. 95) draws on the neoclassical tradition of both Jevons ([1871]
1988) and Edgeworth (1881). His experiments were “designed to illuminate a particular
problem….that of the effect of deviations from a perfectly and purely competitive equi-
librium [Jevons’ proposition] under conditions (as in real life) in which the actual prices
involving such deviations are not subject to ‘recontract’ (thus perfecting the market)
[Edgeworth’s construction] but remain final. The concept of a mechanism that allows
equilibrium discovery before prices and contracts are binding has been reported in the
experimental economics literature. This mechanism, “the uniform price double auction,”
compares quite favorably in efficiency with the continuous double auction while making
it possible for the market to find an equilibrium, before any contract becomes binding
(Smith, 2008, pp. 84–98).
4 “This article reports on a series of experimental games designed to study some of the
hypotheses of neoclassical competitive market theory” (Smith, 1962, p. 111). Skepticism,
reflecting prevailing beliefs, is plain: “These schedules do nothing beyond setting extreme
limits to the observable price-quantity behavior in that market. All we can say is that the
area above the supply curve is a region in which sales are feasible, while the area below the
demand curve is a region in which purchases are feasible…. We have no guarantee that
the equilibrium defined by the intersection of these sets will prevail, even approximately,
in the experimental market (or any real counterpart of it)” (Smith, 1962, p. 114).
will pay (minimum the market will accept), rather than go without each
unit. This representation is precisely that of the classicalists, not that of
the neoclassical paradigm. Hence, in retrospect, the early experimental
studies were classical to the core, where the double-auction rules of
interacting and trading constituted the “higgling and bargaining” process.
Later, as experimental economics gained traction in research and
teaching, experimentalists encountered the methodological objection that
experiments are not about the “real world” application of economic
theory to economic problems. One effective response was to demonstrate
such a connection using Jevons’ formalism showing how, through mone-
tary rewards, we could induce demand, supply, or any economic decision
environment in the laboratory (Smith, 1976a). Hence, “Induced value
theory” formally relied on the commonly accepted neoclassical conti-
nuity of individual utility functions, while proposing discrete multiple
unit implementations as reserve prices. Since US currency had value—
“utility”—to everyone, money earned as a function of action induced
monetary value on the outcomes of marginal successive decisions. The
intent and purpose of this rhetorical formalism was to shift the burden of
proof to other neoclassicists as to why this was not what all economists
were up to in their daily routines. Hence, the inference that the lab micro-
cosm was a recognizably familiar environment to all economists for the
study of economic decisions of all types. However, the continuous utility
formalism and its rhetoric obscured its classical observational foundations
in people’s revealed wtp (wta) for discrete units.
From the earliest experiments, none of the conditions believed to be
strictly necessary by Jevons and the economics profession were satisfied.
All value information was private, numbers were “small”; no participant
in the double-auction mechanism was a price-taker; each participant was
a maker of prices, who entered bids or asks, as well as a taker of prices, in
the sense that they accepted a standing best bid or ask entered by another
person.5 For these reasons, the strong expectation was that equilibrium
5 At the start of trading in an experiment, and at the typical market opening on an

Exchange, there is always a first bid or ask, and therefore public information is unilaterally
volunteered by a private participant. Such action, however, is a challenge to the theory of
optimal action. Optimality is conditional on information and none is public. This theory
requirement seems irrelevant. Individuals appear to have a natural sense of being situated
like others, a sample of one among N. Of course, once a market is ongoing, all have public
information on yesterday’s closing price. These information challenges in experiments are
at the opening, but they are a way of life in the organized commodity markets, where
would not emerge. Unexpectedly, prices converged to near-equilibrium

levels in a few rounds of trading. The conjecture, that this might be
a non-confirming artifact of symmetry in the buyer and seller surplus,
failed to find support, as new experiments with asymmetric designs
showed empirically that the first results generalized. What, however, best
explains the observed dynamical equilibrating motion in these markets—
the Walrasian auction as it came to be known, the Marshallian, or some
other mechanism?
Early in the first reported experiments, the transactions in two exper-
iments (Smith, 1962, Test 2 and 3) conflicted with the neoclassical
Walrasian hypothesis that prices increase (decrease) in proportion to posi-
tive (negative) excess demand (Smith, 1962, p. 116, 119). The data also
conflicted with the Marshallian hypothesis that the exchange quantity is
an increasing function of the excess of the demand price over the supply
price, “but this hypothesis would seem to be worth considering only in
market processes in which some quantity-adjusting decision is made by
the marketers” (Smith, 1962 footnote 7). In retrospect, this quotation
reveals a failure to appreciate the short-side rationing principles inherent
in classical market price analysis, depending on whether initial prices begin
below or above the unknown equilibrium level. Thus, at a lower price
level, purchases are limited by supply, at the higher, sales are limited by
demand.
This short-side feature is central to our formal theory of classical
market dynamics, and critical to the classical characterization of the price
formation process. This condition, reflecting the disequilibrium state of
demand and supply, is foreign to trader understanding, but very much
part of their experience and knowledge-how to function. If product
purchases are limited by supply, the corresponding demand price is
temporarily above supply price and the shortage condition experienced
by the traders leads naturally to price increases to “ration” the limited
supply. If product sales are limited by demand, the corresponding supply
price is temporarily below the demand price, and the surplus condition
experienced by the traders leads naturally to price decreases to ration the
limited demand. Note that the experimental protocol commonly does
not follow Adam Smith’s narrative in specifying what sellers “brought
new “products” are routinely under consideration, and for which there is no yesterday’s
closing price when they are first introduced.
to market.”6 Rather, the market is for goods made to order; each knows
their own capacity; people start trading, and the initial contract prices
may be below or above equilibrium. In each case, however, the principles
of short-side rationing still apply to our modeling of the price adjust-
ment process. Significantly, the price adjustment process implied by the
short-side rationing principle involves reducing loss or increasing gain,
and therefore lives in the profit space experience of the actors who are
focused on gain or loss for a next unit to be exchanged. This market
dynamic is obscured in the metaphor of Walras’s auctioneer who seeks
a price that equates total units supplied with total units demanded—a
mechanism that invites withholding by one side or the other to get an
advantage in profit space. Evident in the Walrasian metaphor, as a theory
of price formation, is the theorist, whose object is to implement his struc-
tural theory, not to observe the experience and actions of those in the
market and to model them.
Marshall’s effort to synthesize the classical and neoclassical tradi-
tions does not recognize classical short-side rationing principles. Rather,
Marshall assumed that goods might be in short-run inelastic supply,
like Adam Smith’s perishable oranges (Smith, [1776] 1904, p. 59).
Hence, his demand price was above (below) the long-run supply price,
causing profit maximizing entry (loss minimizing exit). With personal
services and appliance or home maintenance services, and goods made to
order (hamburgers), consumption (delivery) occurs after market pricing.
Hence, one does not make units that fail to be sold; supply is therefore
elastic, and responses based on short-side rationing are part of day-to-day
short run price decision-making.
6 That narrative, however, applies to one experiment reported in the Appendix by Smith
(1962). Unlike the other experiments and the discussion in the text, in this experiment
subject sellers were required to decide their production levels in advance, then inter or
not the market with those inventories. The sunk-cost property of that experiment led to
distress sales, low initial prices, and gradually increasing prices across successive trading
periods, as sellers learned that buyers were willing to pay much higher prices than sellers
were settling for initially. In effect, the product was perishable, as there is no provision
in the experiment for allowing the carry-over of unsold inventories into the next period.
Experiments that allow the carry-over of goods to future periods are reported by Smith
and Williams (1984).
3.3 The Dynamics of Convergence:

Excess Demand or Excess Rent?
The surprise finding in the first experiments, that contract prices and
quantities tended strongly to converge, called for an explanation. The
data reasoning in 1962 indicated that the equilibrating force of price
adjustment in these markets is more strongly related to money being left
on the table in the absence of adjustment—profit foregone—than to the
neoclassic-ally dominant Walrasian excess demand hypothesis, WH.
Figure 3.1 illustrates price competition in the early market experiments
and in our classical mathematical treatment of the discoveries described
in the similar Figure 1 in Smith (1962, p. 130). Our narrative will use
Fig. 3.1 to explicate many of the results we establish more formally
in Chapters 4 and 5 on partial-equilibrium theory. We will first iden-
tify excess rent, and the empirical case thought to favor it in the first
experiments; then we articulate our representation of the classical price
adjustment process.
1. Excess rent; comparison with excess supply and the excess of

demand price over supply price.
At price P(t) < P*, or symmetrically (by construction) at P, t) > P*, the
total market implied surplus, V(P), is identified as the area below the
quantities demanded and supplied and illustrated in Fig. 3.1 as the total
area B + S + F + E, where B, S, F, and E are each identified distinctly by
the cross-hatched areas so labeled. In Chapter 4, V(P) is defined by the
integral Eq. (4.25).
Because it is not sustainable, it was named “virtual surplus” in Smith
(1962; Fig. 1). Now if we let EQ (P*) = B* + S* be the total Marshallian
buyer plus seller equilibrium profit surplus achieved in the market, then
excess rent is defined by,
( )
E = V(P) − EQ P∗ .
Hence, E measures the total profit given up if P fails to reach P*,

represented by the triangular area below supply and demand in Fig. 3.1.
B, F, S, and E are surplus components identified by unique cross-
hatching.
Fig. 3.1 Short-Side Rationing and Classical Price Adjustment
( )
V(P) = B + F + S + E Lyapunov function
( ) ( )( )
EQ P∗ = B∗ + S∗ Marshall Surplus
( )
E(P) = V(P) − EQ P∗ (Excess Rent)
( ) ( )
TS(P) = B P, Q + S P, Q V(P) Constrained by Short - side rationing
( )
Min V(P) = Min E(P) = Max TS(P) = EQ P∗
Empirically, it was conjectured that price adjusts proportionately to E,

the surplus profit that will fail to be captured unless there is an increase
in the price, P(t) < P* (or lowering it if P, (t) > P*). (Smith, 1962,
p. 133) In comparison, according to the Walrasian hypothesis, price
adjusts proportionately to the excess supply, rising at P (t) in proportion
to S(Qd)—D(O), ˛ and falling at P, (t) in proportion to—[S( Qs, )—
D(O)].
˛ Marshall had proposed that the quantity available to be offered,
O,
˛ increased in proportion to the excess of demand price over supply
price, P, − P.
Note, that virtual surplus, V (P), but also excess rent, E = V (P)—
EQ (P*), is minimized at equilibrium, i.e., teleologically, an efficient
market minimizes the profit reward that evokes the supply necessary for satis-
fying demand, a proposition on efficiency that was rich with intuitive
appeal. Neither the excess supply, nor the excess of demand price over
supply price, capture measures of profit foregone in the absence of price
adjustment, features that seemed important and to characterize nicely the
experimental results in 1962.
Indeed, the reported regression analysis of the data across all the
experiments tended to support this “excess rent” hypothesis against
the Walrasian (or Marshallian) hypothesis (Smith, 1962, pp. 127–132).
However, none of the original experiments were specifically designed to
perform a comparison test that would unambiguously distinguish these
alternative prediction hypotheses; a more “crucial test” was needed.
In a subsequent study, this problem was addressed using the “swastika”
supply and demand exhibiting constant excess demand (supply) but
declining excess rent; where excess rent = price x excess supply (Smith,
1965; illustrated in Fig. 4.5, Chapter 4). Hence, under the excess demand
hypothesis, price is predicted to decay at a constant rate; under the excess
rent hypothesis price is predicted to decay at an exponential rate. The new
experiments offered stronger support for excess rent.
Missing in this theory-laden empirical description of price forma-
tion is a more precise specification of the “higgling” exchange process,
conceptually involving the traders’ experience, as described by the classical
economists. As theorists we seek to read the theory content in actions;
also desirable, however, is to know how the actors read each other’s
actions. The latter task surely predominates in a fledgling science strug-
gling to define itself. Experienced exchange provides the potential means
of modeling the dynamics of agent price discovery.
2. Short-side rationing and classical price dynamics.
Now modify the above argument to consider the combination of short-

side rationing and dynamic price adjustment, illustrated by further
reference to Fig. 3.1 We carefully follow and interpret the principles
underlying the argument in Smith ([1776] 1904, Book I, Chapter VII).
Entitled, “Of the natural and market price of commodities,” by “nat-

ural price,” Smith means supply price—the price that covers all unit costs
including a unit profit necessary to bring forth and sustain the corre-
sponding quantity in supply.7 However, the conditions he has in mind
are not restricted only to the long run, as indicated by his example of
perishable oranges, compared with scrap iron, that can be carried over
for subsequent selling opportunities (Smith [1776] 1904, Vol. I, p. 59).
When the quantity “brought to market (Qs = O ˛ in Fig. 3.1) falls short
of the effectual demand, all those who are willing to pay the whole
value” of the supply price P, in Fig. 3.1, “which must be paid in order
to bring it thither, cannot be supplied with the quantity they want”
(Qd in Fig. 3.1). Smith ([1776] 1904, Vol. I, p 58),8 similarly, “When
the quantity brought to market ( Qs, in Fig. 3.1) exceeds the effectual
demand ( Qd, = O ˛ in Fig. 3.1), the market price falls below the natural;
it cannot be all sold to those who are willing to pay the whole value ( P,
in Fig. 3.1)….Some part must be sold to those who are willing to pay
less, and the low price which they give for it must reduce the price of the
whole”9 (Smith [1776] 1904, Vol. 1, p. 59).
If some trader in the market posts a bid (or ask), others may “enter”
the competition for that unit. Hence, in general, at any temporary or
trial price, P(t) < P*, (or symmetrically by construction, at P, (t) > P*)
7 Marshall importantly clarifies and extends the concept of “natural,” or normal, supply
price, which “is the real drift of that much quoted, and much-misunderstood doctrine of
Adam Smith and other economists that the normal, or ‘natural,’ value of a commodity is
that which economic forces tend to bring about in the long run” Marshall ([1890] 1920,
p. 347).
8 Notice that in A. Smith’s specification, sellers need have no perception that price is
“below equilibrium.” They simply experience the fact that when they bring Qs = O ˛ <
Q* to market they find that buyers want to buy more (Qd) than the trucked amount,
with each responding naturally in their own interest. Similarly, when they bring Qs, >
Q* to market, they cannot profitably dispose of it and cut (or accept a cut in) price. Each
knows their own cost and, together with other sellers, know that market prices enable
better or worse terms relative to those costs, and proceeds to adjust accordingly. Each
may have beliefs, including conspiratorial beliefs that have no foundation, but each has
tacit knowledge of what is to be done—Ryle (1946) calls it knowledge-how as distinct
from knowledge-that.
9 Recall that in the experiments all goods (services) are non-durable and made to order
(like sandwiches). Unlike A. Smith’s narrative we do not have sellers with inventories
“brought to market;” all sellers are present and eager to sell in the market.
short-side volume is Q = O
˛ and we now write explicitly that if price is P,
then
( ) ( ) ( )
V(P) = B P, Q + S P, Q + F P, Q + E(P),
where, as in Fig. 3.1, B (S) is buyer (seller) realizable surplus and F is

the disequilibrium surplus due to short-side rationing and a source of
lost profit if price fails to adjust. As “virtual surplus,” V(P) measures, and
serves as a collective summary signal of potential profit for all buyers and
sellers. Each trader, experiencing a fragmentary part of the potential profit
available, V(P), is motivated to concede in the interest of capturing their
individual part of the surplus. To concede in profit space is to outbid a
fellow buyer, or under-cut a fellow seller, but waiting for concessions from
the other side is also part of the process. In the experiments think of P(t)
as a temporary resting or trial price (a bid or ask) at which the most
urgent buyers receive profit up to B (P, O), ˛ and the most eager sellers
earn up to S (P, O).˛ Indeed, experiments verify that the traders contained
in these sets (highest value and lowest cost) tend to be the most successful
in contracting; this explains why efficiency is so high although there are
many disequilibrium prices. Hence, the total realizable surplus, at price P,
is V(P) constrained by short-side rationing, or
( ) ( )
TS(P) = B P, Q + S P, Q .
As shown in Fig. 3.1, the set F defines contract-feasible prices greater

than P(t) for closing the price-value gap. Buyers that are most profitable
in F (at price P) easily outbid the lower valued buyers, and the sellers
most profitable in F (at price P, ) easily under-cut their higher cost rivals.
Hence, traders who can thereby profit the most invade F to make effi-
cient new contracts and the total surplus B + S + F is shared among the
collective of all buyers and sellers.
A similar argument applies if the price P, is the temporary trial
price. The numerous experimental markets that achieve full efficiency
are effectively narrowing the price-value gap through competition to
capture contracts in the sets S and B, but also in F. The “higgling” and
contracting action by the collective of traders directly operates to shrink
the set F. The set E and the price-value gap efficiently decline because F
is shrinking —a (classical) regularity property of the experiments that is
not part of the argument, not made plain, in Smith (1962; Fig. 1), and
that we seek here to correct; nor of course is it plain in Marshall.10 Simi-

larly, excess demand, and Marshall’s excess of demand price over supply
price, both shrink derivatively because F is shrinking, and neither is causal
in price determination. None of the three correlates of price adjustment
relate to the individual trader’s profit-loss motive for accepting a price
change.
Adam Smith’s narrative, and our representation of it in Fig. 3.1,
describes market responses either when the market begins at a too-low
price and the price increases, or when it begins at a too-high price and the
market price falls. Hence, mathematically, the price change always has the
same sign as excess demand. This is the second mathematical condition
in classical price theory, Eq. (4.15) in Chapter 4.
3.4 Brief on the Double-Auction

Trading Institution
We provide a brief description of double-auction trading, implemented
in the early experiments as an “open outcry” two-sided auction. In the
earliest version, any buyer (or seller) could announce a price bid (ask),
which was a standing offer to any seller (buyer) in the crowd, until it was
either accepted or replaced by a new price bid (ask); hence, there was
just one offer to buy (sell) a unit, standing available at any one instant.
Subsequently, the procedure was changed to allow both a buyer’s bid-
price and a seller’s ask-price to be announced, thereby defining a bid-ask
spread, say bid, 5.25; ask 6.00. A new bid is required to be higher than
the standing bid, a new ask to be lower than the standing ask. A contract
occurs if the bid (ask) is accepted by some seller (buyer) at any instant
(See Smith, 1976b for a description of these rules).
10 Value (willingness to pay or willingness to accept) is the (potential price) dependent

variable as in Marshall, and in the experimentalists’ common representation of demand
(supply). That is, quantity is the given independent variable, with value to be realized
dependent on that quantity, and in the classical model where buyers arrive with values,
sellers with costs and all are looking to determine prices. Total surplus, TS (P) imposes
short-side rationing for quantities that support P / = P*, and the dynamic market response
distinguishes demand unit value from supply unit cost. If P < P*, Q increases with entry
as P increases; if P, > P*, Q increases with entry as P decreases. Demand price exceeds
supply price, and P becomes the independent variable in characterizing the market price
adjustment effects, V (P) or TS(P).
In 1975, the first computer-based protocols for conducting experi-

ments with human subjects included the double auction, and several other
trading institutions, theretofore conducted using paper-based procedures.
Later, these software products became known in business as e-commerce
(see Smith, 2018, Vol. 2, pp. 48–52 for the history). Smith and Williams
(1983), explain alternative rules in computer-based experiments, and
report experiments comparing their effect on convergence and volatility;
these studies make it evident how and why the rules matter in trading.
3.5 One-Sided vs Two-Sided Competition: Silence

Is Golden; How Buyers Outperform Sellers
Empirically, buyer performance tends to exceed seller performance relative
to their respective equilibrium shares of the total surplus in double-
auction markets in which the trading mechanism offers symmetric equal-
access opportunity. This differential higgling and bargaining strength
surfaced early and has been well-documented in subsequent market
studies (Smith & Williams, 1982). What accounts for this asymmetry
between buyer and seller performance?
Adam Smith represented sellers as the more active in taking initiative
in a market. It is sellers that determine “the quantity of any commodity
which is brought to market” (Smith, [1776] 1904, pp. 73–74). It was the
normal multiplicity of entering sellers that made iron or water competi-
tive, compared with diamonds involving a single source of supply. His
concept of price discovery was a collective interactive process, commonly
involving many suppliers—with the exception of diamonds and single
object auctions—but with inherent asymmetries, such as between buyers
as a group and sellers as a group. Sellers constituted the more active side,
eager to enter and satisfy buyers’ demands at prices that capture a share
of the potentially large available WTP surplus.
Suppose we follow, but extend Adam Smith’s characterization of
sellers, and postulate that sellers are more active than buyers in the bid-ask
DA process, that buyers tend more passively to accept standing ask prices,
sellers to displace a standing ask more aggressively with a new lower ask
when P, >P∗ > P, or to raise the ask above the last contract price when
P < P*. In Fig. 3.1, at P, all sellers with wta’s in the interval [0, P, )
can profit by offering small cuts in price below P, to capture some of the
available demand surplus. However, at P < P*, sellers that can profitably
raise the price have wta in the interval (0, P*], a strict subinterval of [0,
P, ). Hence, price adjustments, according to our postulate, are predicted

to be greater at prices above than below equilibrium clearing.11
This postulated behavioral aspect of competition introduces an
outcome asymmetry in the symmetric access opportunity rules of the DA
process. Note that the competitive price process depends on the density
of extra marginal buyers (sellers) above and below P*. Their absence in
the “swastika” environment, with small excess supply, substantially effects
price adjustment speed (Smith, 1965, Figs. 1A and B).
The effects of this postulated behavioral competitive asymmetry were
observed in an early study in which the treatment design deliberately
varied the form of buyer or seller activity by controlling the message space
available to buyers and sellers.
Three continuous auction trading procedures, varied the message space
symmetry as follows:
“RS — Sellers are permitted to make offers; buyers are free to accept
offers, but are not permitted to make bids.
RSB — Sellers are permitted to make offers and are free to accept bids;
buyers are permitted to make bids and are free to accept offers.
RB — Buyers are permitted to make bids; sellers are free to accept
bids, but are not permitted to make offers”12 (Smith, 1964,
p. 183).
RS was imposed as a treatment motivated by the fact that “…retail

markets…are characterized by an organization in which sellers post their
offers competitively while buyers passively choose among such offers to
form exchange contracts. With minor exceptions in such markets, custom
11 Contrary to our postulate, if buyers were active at P, all those with wtp in the
interval above P could profit from bidding above P.
12 Eventually, experimentalists defined an “institution” as consisting in the rules
governing message exchange and outcomes (contracts in markets, majority rule in polit-
ical contests, or terms of “agreement” in more general human governance arrangements).
Smith (1964) is an early version of this broad scholarly exploration. In this use of the
word, Martin Shubik is cited as the source—“the process of experimental design forces
one to articulate rules and procedures, the collection of which forms an institution, orga-
nization, or ‘body of law’ with striking ‘real world’ parallels (cf. Shubik 1974). The
laboratory becomes a place where real people earn real money for making real decisions
about abstract claims that are just as ‘real’ as a share of General Motors” (Smith, 1976a,
p. 275).
precludes buyers from making counter bids in establishing contract

prices”13 (Smith, 1964, p. 182). RSB, the standard continuous DA, was a
control with the purpose of replicating the experiments in Smith (1962),
while RB was the counterpart opposite of RS that exactly reversed the
activity space of buyers and sellers and was expected to reverse any price
posting effects. By contemporary standards of replication and reliability,
the reported statistical evidence for convergence is not compelling, as
the samples were small, the replications in time were short, and the
corresponding convergence estimates problematic. However, the contract
asymmetry across the treatments is obvious in the charts of all contract
data. Counting the charted observations above, equal to, or below the
equilibrium price, conveys the impact of the treatments on deviation
asymmetry. Thus, in Table 3.1 we observe the strong tendency for
contract prices to disfavor (favor) the active (passive) side of the market:
Buyers (sellers) tend strongly to outperform sellers (buyers) in the gains
from trade in treatment RS (RB ). Passivity is patience, and it pays. Buyers
even excel somewhat in RSB further foreshadowing the natural behavioral
passivity of buyers documented by Smith and Williams (1982).
3.6 Summary
This chapter has considered the role of demand and supply experiments in
the rediscovery of classical price theory. The overriding lesson in all these
experiments is their robust tendency to converge to the predicted “equi-
librium,” or what we call the Market Center of Value. The results strongly
support the rational expectations model as it applies to these markets, as
shown by Lucas (1986). However, as we have repeatedly emphasized,
these markets are for goods and service that are bought for consump-
tion, not for resale. In Chapter 7, we introduce asset market experiments
showing that these strong convergence features do not replicate for assets,
and that this failure can be specifically identified as the consequence of the
re-trade- ability of asset goods.
13 Later, studies of posted pricing only allowed price changes at the beginning of each
period (Ketcham et al., 1984). In the text posted offer markets, the instructions allowed
sellers to choose how often and who posted a freely chosen price. However, each new
posted price displaced the previous posted price, and there was no requirement that the
offers improve the terms for buyers. Later implementations of double-auction trading
introduced bid/ask improvement rules and studied the effect of the various components
of these rules on price discovery (Smith and Williams, 1983).
Another random document with
no related content on Scribd:
— Vaan sinäpä et nukkunut, pyssynlaukaukset sinut herättivät.
— Sinä luulet siis, että teidän pyssynne pitävät semmoista melua?

Isäni tussari pamahtaa paljon kovemmin.
— Vieköön sinut saakeli, senkin kirottu vetelys! Että sinä olet

nähnyt Gianetton, siitä olen varma. Kenties olet hänet kätkenytkin.
Hoi, kumppalit, käykää tupaan ja katsokaa, eikö junkkarimme ole
siellä. Hän nilkutti enää vain yhdellä käpälällä, ja se lurjus on liian
viisas lähteäkseen sillä tavoin palolle asti pyrkimään. Sitäpaitsi
loppuvat verijäljetkin tähän.
— Vaan mitäs isä sanoo, kysyi Fortunato ilkamoiden, jos saa

tietää, että te olette hänen poissa ollessaan tunkeutuneet tupaan?
— Kuules, junkkari, sanoi ajutantti Gamba nipistäen poikaa

korvasta, tiedätkös sinä, että minä voin helposti saada sinut toista
virttä veisaamaan? Ehkäpä sinä vielä sanotkin, jos saat parisen
kymmentä lyöntiä sapelin lappeella.
Fortunato vain naureskeli pilkallisesti.
— Isäni nimi on Mateo Falcone! sanoi hän juhlallisesti.
— Tiedätkös sinä, pikku veijari, että minä voin viedä sinut joko
Corteen tai Bastiaan. Panen sinut vankeuteen, raudat jaloissa
olkivuoteelle makaamaan, ja mestautan sinut, jos et sano missä
Gianetto
Sanpiero piileksii.
Poika remahti suureen nauruun kuullessaan tämän lystikkään

uhkauksen.
Hän vain toisti:
— Isäni nimi on Mateo Falcone.
— Ajutantti, sanoi aivan hiljaa eräs jääkäreistä, älkäämme

riitaantuko
Mateon kanssa.
Gamba näytti todellakin joutuneen ymmälle.
Hän puheli kuiskaten sotamiesten kanssa, jotka olivat tarkastaneet

koko talon, toimitus, joka muuten ei kauan kestänytkään, sillä
korsikkalaisen asuntoon ei kuulu muuta kuin yksi neliskulmainen
tupa. Huonekaluja on pöytä, penkkejä, kirstuja ja metsästys- sekä
talouskapineita. Sillä aikaa pikku Fortunato hyväili kissaansa ja näytti
ilkamoiden nauttivan jääkärien ja sukulaisensa hämmennystilasta.
Eräs sotamiehistä lähestyi heinäsuovaa. Hän huomasi emäkissan

ja sohaisi pistimellä huolettomasti heinäsuovaan kohauttaen
olkapäitään merkiksi, että tämä teko tuntui hänestä naurettavalta.
Suovassa ei mikään liikahtanut, eivätkä pojan kasvotkaan ilmaisseet
vähintäkään mielenliikutusta.
Ajutantti ja hänen joukkonsa miettivät heittää hiiteen koko

toimituksen ja katselivat jo totisina nummelle päin ikäänkuin aikoen
palata takaisin samaa tietä, jota olivat tulleetkin, kun päällikkö,
vakuutettuna siitä, etteivät uhkaukset vaikuttaneet mitään Mateo
Falconen poikaan, päätti tehdä vielä viimeisen ponnistuksen ja
koettaa hyväilyjen ja lahjojen mahtia.
— Kuules, pikku serkkuni, sanoi hän, sinä näyt olevan hyvin

kasvatettu viikari ja tulet varmaankin vielä menemään pitkälle. Mutta
nyt sinä lasket minusta ilkeää leikkiä, ja ellen minä pelkäisi
suututtavani sukulaistani Mateo Falconea, niin piru vieköön
ottaisinkin sinut mukaani.
— Hui-hai!
— Vaan kun sukulaiseni tulee kotiin, niin kerron koko jutun

hänelle, ja silloin saat valheistasi verisen selkäsaunan.
— Jokohan?
— Saat nähdä… Vaan kuuleppa… ole nyt siivo poika, niin minä
annan sinulle jotain.
— Ja minä annan sinulle, serkku, erään neuvon: että jos te vielä

viivyttelette, niin Gianetto ehtii jo palolle, ja silloin täytyy olla
useampia sinunlaisiasi uskalikkoja, jos mieli häntä sieltä etsiä.
Ajutantti otti taskustaan hopeakellon, joka maksoi ainakin

kolmekymmentä frangia, ja huomatessaan, että pikku Fortunaton
silmät säteilivät sitä katsellessa, hän riiputti sitä teräksisten vitjojen
nenästä sanoen:
— Sinä veijari tahtoisit kai mielelläsi tämmöisen kellon kaulaasi ja

astuskelisit Porto-Vecchion katuja ylpeänä kuin riikinkukko; ja ihmiset
kyselisivät sinulta: »paljonko kello on?» ja sinä vastaisit: »katsokaa
kelloani».
— Kun tulen isoksi, niin korpraali-enoni kyllä antaa minulle kellon.
— Antaa jos antaa, vaan enosi pojallapa on jo kello… ei sentään

niin kaunis kuin tämä… Ja hän on kuitenkin sinua nuorempi.
Poikanen huokasi.
— No, tahdotkos tämän kellon, pikku serkku?
Fortunato näytti syrjäsilmällä kelloa katsellessaan kissalta, jolle

tarjotaan kokonainen kananpoika. Tuntien itseään vain härnättävän
ei se uskalla iskeä siihen kynsiänsä, vaan kääntää tuontuostakin
silmänsä poispäin, ettei houkutus kävisi liian suureksi; kuitenkin se
nuoleksii myötäänsä suupieliänsä ja näyttää tahtovan sanoa
isännälleen: »Teidän leikkinne on liian julmaa!»
Ajutantti Gamba tuntui sentään todenteolla tarjottelevan kelloansa.

Fortunato ei ojentanut kättänsä, vaan sanoi happamesti hymyillen:
— Mitä te minua suotta pilkkaatte?
— En, jumal’avita, pilkkaakaan. Sano vain missä Gianetto on, niin

on kellokin sinun.
Fortunaton huulille ilmestyi epäilyksen hymy, ja katsoen mustilla

silmillänsä ajutantin silmiin koetti hän niistä lukea, minkä verran
tämän sanoihin oli luottamista.
— Vietäköön minulta olkaliput, huudahti ajutantti, jollen anna

sinulle kelloa sillä ehdolla! Kumppalini tässä ovat todistajina, enkä
minä saata lupaustani rikkoa.
Tätä sanoessaan hän vei kelloa yhä lähemmäksi, kunnes se

melkein kosketti pojan kalpeata poskea. Tämän kasvoilla kuvastui
selvästi sisällinen sieluntaistelu pyyteen ja vierasvaraisuuden
kunnioittamisen välillä. Paljas rinta kohoili kiihkeästi, ja hän näytti
olevan tukehtumaisillaan.
Sillä välin kello heilui ja kääntelihe koskettaen toisinaan hänen

nenänsä päätä. Vähitellen alkoi vihdoin pojan oikea käsi kohota
kelloa kohti: sormen päät jo koskettivat sitä, ja pian se lepäsi
kokonaan hänen kädessään, vaikka ajutantti yhä piteli sitä vitjojen
toisesta päästä… Numerotaulu oli taivaansininen… kuori vasta
kiillotettu… päivänpaisteessa se tulena välähteli… Houkutus oli liian
suuri.
Fortunatolla nousi jo vasen käsikin, ja olkansa yli hän viittasi

peukalollaan heinäsuovaa, jota vastaan hän nojasi. Ajutantti
ymmärsi hänet heti. Hän päästi vitjat kädestään, ja Fortunato tunsi
olevansa kellon ainoa omistaja. Hän hypähti pystyyn vikkelästi kuin
metsäpeura ja poistui kymmenen askeleen päähän heinäsuovasta,
jota jääkärit heti kävivät penkomaan.
Pian nähtiinkin heinäsuovan liikahtelevan: sieltä ilmestyi verissään

oleva mies, puukko kädessä; mutta koettaessaan nousta seisoalleen
ei hän hyytyneeltä haavaltaan jaksanutkaan pysyä pystyssä, vaan
suistui maahan. Ajutantti syöksyi heti hänen kimppuunsa ja väänsi
tikarin hänen kädestään. Samassa hänet lujasti köytettiin
vastustuksestaan huolimatta.
Maaten kentällä pitkällään, sidottuna kuin mikäkin lyhde, Gianetto

käänsi päänsä lähestynyttä Fortunatoa kohti.
— Senkin… sikiö! sanoi hän tälle enemmän ylenkatseellisesti kuin

vihaisesti.
Poika heitti hänelle saamansa hopearahan takaisin tuntien, ettei

sitä enää ansainnut; mutta vangittu ei näyttänyt huomaavankaan tätä
liikettä. Vallan kylmäverisesti hän sanoi ajutantille:
— Kuulkaas, hyvä Gamba, minä en jaksa kävellä, teidän täytyy

kantaa minut kaupunkiin.
— Äsken sinä kuitenkin juoksit kuin vuorikauris, vastasi julma
voittaja; mutta olehan huoletta: minä olen niin hyvilläni siitä, että
sinut vihdoinkin sain kiinni, jotta vaikka selässäni kantaisin sinua
penikulman väsymystä ensinkään tuntematta. Muuten aiomme
valmistaa sinulle paarit oksista ja päällystakistasi; ja Crespolin
vuokratalolla on meillä hevosetkin.
— Hyvä, sanoi vangittu; kai te panette hiukan olkia paareille, jotta

minun on mukavampi olla.
Sillä välin kuin muutamat jääkäreistä puuhailivat valmistellen

jonkinlaisia kantopaareja kastanjan oksista ja toiset sitoivat
Gianetton haavaa, ilmestyi Mateo Falcone vaimoineen äkkiä erään
palolle vievän polun käänteestä. Vaimo asteli hyvin kumarassa
kantaen tavattoman suurta kastanjasäkkiä, sillä aikaa kuin hänen
miehensä kulki herrana edellä, ainoastaan pyssy kädessä ja toinen
kantohihnassa; miehen arvo ei näet salli hänen kantaa muita
taakkoja kuin aseensa.
Nähdessään sotamiehet arveli Mateo heti, että ne olivat tulleet

häntä vangitsemaan. Mutta mistä tämä ajatus? Oliko Mateolla
mitään oikeuden kanssa tekemistä? Ei. Hänhän oli päinvastoin
hyvässä maineessa. Hän oli, kuten sanotaan, hyvämaineinen ja
itsenäinen mies; mutta hän oli korsikkalainen ja vuoristolainen, eikä
Korsikan vuoristolaisten joukossa ole monta, joka ei tarkoin
muistellessaan löytäisi menneisyytensä ansioluettelosta jotakin pikku
rikosta, sellaista kuin pyssynlaukausta, tikarinpistoa tai jotakin muuta
vähäpätöisyyttä. Mateolla oli parempi omatunto kuin ehkä
kenelläkään muulla, sillä ainakaan kymmeneen vuoteen ei hän ollut
tähdännyt pyssyänsä ihmistä kohti; mutta siitä huolimatta hän oli
varovainen ja varustausi ankaraan itsepuolustukseen, jos tarvis
sellaista vaati.
— Vaimo, sanoi hän Giuseppalle, heitä maahan säkkisi ja ole

varuillasi.
Tämä tottelikin silmänräpäyksessä. Mateo antoi hänelle pyssyn,

joka oli ollut kantohihnassa ja joka ehkä olisi ollut vain vastuksena.
Sitten hän latasi kädessään olevan tuliputken ja astui verkalleen
taloansa kohti pujotteleiden tien varrella kasvavien puiden välitse ja
ollen valmiina pienimmänkin vihamielisyyden huomatessaan
viskautumaan paksuimman puunrungon taakse, mistä saattoi
turvassa ollen itse ampua. Vaimo astui hänen jälkiään kantaen
varapyssyä ja patruunalaukkua. Hyvän aviovaimon velvollisuus on
näet taistelun tullessa ladata miehensä ampuma-aseet.
Ajutantille taas tuli aika hätä, kun näki Mateon lähestyvän näin
verkkaisin askelin, pyssy tanassa ja sormi liipasimella.
— Jos Mateo, ajatteli hän, sattuisi olemaan Gianetton sukulainen

tai ystävä ja tahtoisi häntä puolustaa, niin tulisivat luodit hänen
molemmista pyssyistään kahteen meistä yhtä varmasti kuin kirjeet
postissa; ja jos hän tähtää minuun, sukulaisuudesta huolimatta…
Tällaisessa hämmennystilassa hän teki sangen rohkean

päätöksen: hän astui näet yksin Mateota kohti kertoakseen hänelle
koko tapauksen ja lähestyi häntä kuin ainakin vanhaa tuttavaa; mutta
tuo pieni välimatka, joka erotti hänet Mateosta, tuntui hänestä
hirveän pitkältä.
— Hei, kuules, vanha toveri, huusi hän, — mitäs sinulle kuuluu,

hyvä ystävä? Tunnetko sinä minua, Gamba serkkuasi?
Sanaakaan vastaamatta Mateo pysähtyi, ja sillä aikaa kuin toinen
puheli, nosti hän verkalleen pyssyänsä, niin että sen suu oli taivasta
kohti ajutantin likelle saapuessa.
— Hyvää päivää, veliseni [Buon giorno, fratello, korsikkalaisten

tavallinen tervehdys], sanoi ajutantti ojentaen hänelle kätensä. Onpa
siitä aikoja, kun olen sinua nähnyt.
— Päivää, veli.
— Tulin ohikulkiessani sanomaan sinulle ja serkku Pepalle

hyvänpäivän. Olemme tänään olleet pitkällä matkalla, vaan ei sovi
valitella vaivojaan, kun on saanut sellaisen saaliin kuin me. Saimme
näet juuri kiinni Gianetto Sanpieron.
— Jumalan kiitos! huudahti Giuseppa. Viime viikolla hän varasti

meiltä lypsyvuohen.
Gambaa nämä sanat ilahuttivat.
— Kurja raukka, sanoi Mateo, hän oli nälissään.
— Se veijari puolustihe kuin jalopeura, jatkoi ajutantti hiukan

nolostuneena, — hän tappoi minulta yhden jääkärin eikä tyytynyt
vielä siihenkään, vaan katkaisi korpraali Chardonilta käsivarren… no,
vahinko ei ollut suuri, olihan tämä vain ranskalainen… Sitten hän oli
piiloutunut niin viisaasti, ettei lempokaan olisi häntä keksinyt. Ilman
pikku Fortunatoa en olisi häntä ikinä löytänyt.
— Fortunatoa! huudahti Mateo.
— Fortunatoa? toisti Giuseppa.

— Niin, Gianetto oli kätkeytynyt tuohon heinäsuovaan, mutta pikku
serkkunipa ilmaisi viekkauden. Minä aionkin sanoa hänen enolleen,
korpraalille, että lähettää Fortunatolle kauniin lahjan palkinnoksi. Ja
hänen sekä sinun nimesi tulevat raporttiin, jonka lähetän yleiselle
syyttäjälle.
— Kirous! mutisi hiljaa Mateo.
He olivat saapuneet jääkärijoukon luo. Gianetto lepäsi jo

paareillaan valmiina lähtöön. Nähdessään Mateon tulevan Gamban
seurassa hän hymyili omituisesti, käänsihe talon ovelle päin ja
sylkäisi kynnykselle sanoen:
— Kavaltajan asunto!
Täytyi olla valmis kuolemaan sen, joka uskalsi käyttää kavaltajan

nimeä Falconesta. Tarkka tikarinpisto, jota ei tarvitse uusia, olisi
tavallisissa oloissa loukkauksen heti kostanut. Mateo ei nyt
kuitenkaan tehnyt muuta liikettä kuin nosti murtuneen näköisenä
kätensä otsalleen.
Nähdessään isänsä tulevan oli Fortunato vetäytynyt tupaan. Sieltä

hän ennen pitkää palasi tuoden maitotuopin, jonka hän katse
maahan luotuna tarjosi Gianettolle.
— Pysy loitolla minusta! ärjäisi vangittu jyrkästi.
Kääntyen sitten erään jääkärin puoleen hän virkkoi: — Toveri

hyvä, annas minulle juotavaa!
Sotamies antoi litteän juomapullonsa hänelle käteen, ja rosvo joi

sen miehen antamaa vettä, jonka kanssa äsken oli laukauksia
vaihtanut. Sitten hän pyysi, että kätensä, jotka olivat köytetyt selän
taakse, sidottaisiin ristiin rinnalle.
— Lepään mieluummin mukavasti, sanoi hän.
Pyyntö täytettiin oitis; sitten antoi ajutantti lähtömerkin, lausui

jäähyväiset Mateolle mitään vastausta tältä saamatta, ja niin
lähdettiin kiireisin askelin nummelle päin.
Kului lähes kymmenen minuuttia, ennenkuin Mateo suunsa avasi.

Poikanen katseli levotonna vuoroin äitiänsä, vuoroin isäänsä, joka
pyssyynsä nojaten tuijotti häneen tuimasti.
— Sinä alottelet hyvin, sinä! sanoi Mateo vihdoin tyynellä äänellä,

joka kuitenkin värisytti sitä, ken miehen tunsi.
— Isä! huudahti poika lähestyen kyyneleet silmissä ikäänkuin

aikoen heittäytyä hänen jalkojensa juureen.
Mutta Mateo ärjäisi hänelle:
— Pois minusta!
Poika pysähtyi ja seisoi nyyhkyttäen liikkumattomana muutaman

askeleen päässä isästään.
Giuseppa tuli lähemmäksi. Hän oli huomannut kellonvitjat, joiden

pää pisti Fortunaton paidan aukeamasta esille.
— Kuka sinulle tämän kellon antoi? kysyi hän ankarasti.
— Serkkuni, ajutantti.
Falcone tempasi kellon ja lennätti sen sellaisella voimalla vasten
kiveä, että se pirstausi tuhanneksi muruksi.
— Vaimo, sanoi hän, onko tuo poika minun tekemäni?
Giuseppan ruskeat posket lensivät tulipunaisiksi.
— Mitä sinä sanotkin, Mateo, ja muistatko kenelle puhut!
— No niin, tuo poika on siis heimonsa ensimäinen kavaltaja.
Fortunaton nyyhkytykset kävivät kahta vertaa äänekkäämmiksi, ja

Falcone tuijotti häneen yhäti ilveksensilmillään. Vihdoin hän löi
pyssynsä perällä kerran maahan, heitti sen sitten olalleen ja lähti
astumaan palolle päin huutaen Fortunatoa tulemaan perästä. Poika
totteli.
Giuseppa juoksi Mateon jälkeen ja tarttui häntä käsivarteen.
— Hän on sentään sinun poikasi, sanoi hän vapisevalla äänellä ja

katsoi mustilla silmillään miestänsä silmiin nähdäksensä mitä hänen
mielessään liikkui.
— Laske irti minut! vastasi Mateo. Minä olen hänen isänsä.
Giuseppa syleili poikaansa ja meni itkien tupaan. Siellä hän

heittäysi polvilleen pyhän Neitsyen kuvan eteen ja rukoili kiihkeästi.
Sillä välin astui Falcone pari sataa askelta polkua myöten eikä
pysähtynyt ennen kuin tuli erään laakson luo, jonne laskeusi. Siinä
hän tutki maaperää pyssynsä perällä ja huomasi sen olevan
pehmeän ja helpon kaivaa. Paikka tuntui hänestä tarkoitukseen
soveliaalta.
— Fortunato, mene tuon suuren kiven luo.
Poika teki niinkuin käskettiin ja laskeusi sitten polvilleen.
— Lue rukouksesi.
— Isä, isä, älkää tappako minua.
— Lue rukouksesi! toisti Mateo hirvittävällä äänellä.
Supattaen ja nyyhkyttäen poikanen luki Isämeidän ja

uskontunnustuksen.
Isä vastasi kovalla äänellä: Amen! kummankin rukouksen jälkeen.
— Siinäkö ovat kaikki rukoukset, mitä osaat?
— Isä, osaan minä vielä Ave Marian ja sen, jonka täti minulle
opetti.
— Se on kovin pitkä, mutta menköön.
Poika luki rukouksensa sammuvalla äänellä.
— Oletko lopettanut?
— Voi, isä hyvä, armahtakaa! Antakaa anteeksi! En minä koskaan

enää semmoista tee! Ja minä rukoilen niin kauan korpraali-enoa,
että hän armahtaa Gianettoa!
Hän puhui vielä, kun Mateo jo oli virittänyt pyssynsä ja painoi

perän poskelleen lausuen:
— Jumala antakoon sinulle anteeksi!

Poika teki epätoivoisen yrityksen noustakseen isänsä polvia
syleilemään, mutta hänellä ei ollut siihen aikaa. Mateo laukaisi, ja
Fortunato kaatui kuolleena paikalle.
Luomatta silmäystäkään ruumiiseen lähti Mateo talollensa päin

hakemaan lapiota haudatakseen poikansa. Tuskin oli hän ehtinyt
astua muutamia askeleita, kun tapasi Giuseppan, joka laukauksesta
säikähtyneenä juoksi murhapaikalle.
— Mitä sinä olet tehnyt? huusi hän.
— Oikeutta.
— Ja missä hän on?
— Laaksossa. Aion juuri haudata hänet. Hän kuoli kristittynä, ja

minä luetan hänelle messun. Käy sano vävylleni Tiodoro Bianchille,
että hän muuttaa meille asumaan.
Etuvarustuksen valloitus.
Eräs ystäväni, upseeri, joka joitakuita vuosia sitten kuoli

kuumetautiin Kreikassa, kertoi minulle muutamana päivänä
ensimäisestä ottelusta, jossa hän oli ollut mukana. Hänen
kertomuksensa vaikutti minuun niin voimakkaasti, että heti
lomahetken saatuani kirjoitin sen muististani paperille. Tässä se nyt
on:
Saavuin rykmenttiin syyskuun 4:nnen päivän iltana. Everstin

tapasin leirikentällä. Ensin hän otti minut jotenkin tylysti vastaan;
mutta kenraali B:n antaman suosituskirjeeni luettuansa hän muutti
käytöstänsä ja lausui muutamia kohteliaita sanoja.
Hän esitti minut kapteenilleni, joka juuri palasi eräältä

partioretkeltä. Tämä kapteeni, jota minulla tuskin oli aikaa tarkastaa
tunteakseni, oli kookas, tummaverinen ja ulkomuodoltaan ankaran ja
tylyn näköinen mies. Tavallisena sotamiehenä hän oli alkanut uransa
ja voittanut sekä olkalippunsa että kunniamerkkinsä
taistelutantereella. Hänen äänensä oli käheä ja heikko ollen
omituisesti vastakkainen hänen melkein jättiläismäiselle vartalolleen.
Syynä tähän outoon äänenkäheyteen sanottiin olevan erään luodin,
joka oli kerrassaan lävistänyt hänet Jenan tappelussa.
Kuultuaan, että minä olin juuri päässyt Fontainebleaun

sotakoulusta, hän väänsi kasvonsa irvistykseen sanoen:
— Luutnanttini kaatui eilen…
Minä ymmärsin hänen tällä tahtovan sanoa: »Teidän pitäisi muka

täyttää hänen sijansa, mutta siihen ette kykene.» Huulillani pyöri jo
pisteliäs vastaus, mutta minä hillitsin itseni.
Kuu nousi Cheverinon etuvarustuksen takaa, joka sijaitsi kahden

kanuunanhan tämän päässä leirituliltamme. Suuri ja punainen se oli,
kuten tavallisesti noustessaan. Mutta tuona iltana se näytti
tavallistaan suuremmalta. Hetken ajan häämötti koko varustus vallan
synkkänä kuun heleässä hohteessa. Se muistutti purkautumaisillaan
olevan tulivuoren kartiomaista huippua.
Vierelläni oleva vanha sotamieskin huomasi kuun värin.

— Onpa se punainen, sanoi hän. Se merkitsee, että tuon
kuuluisan varustuksen valloitus käy meille kalliiksi!
Minä olen aina ollut taikauskoinen, ja varsinkin tällä hetkellä teki

tuo ennustus minuun syvän vaikutuksen. Laskeusin levolle, mutta en
saanut unta. Nousin makuulta ja kävelin jonkun aikaa katsellen
tavatonta tulijuovaa, joka kultasi Cheverinon kylän takaiset kukkulat.
Kun arvelin yön raittiin ja virkistävän ilman tarpeeksi vilvoittaneen

veriäni, palasin nuotiolle; kietoutuen huolellisesti päällystakkiini suljin
silmäni toivossa, etten avaisi niitä ennen päivän nousua. Mutta uni
vain ei tullut. Tahtomattani kävivät ajatukseni surullisiksi. Tuumin
itsekseni, ettei minulla noiden kentällä makaavien sadantuhannen
miehen joukossa ollut ainoatakaan ystävää. Jos haavoittuisin, niin
joutuisin sairashuoneeseen, missä tietämättömät välskärit minua
armotta kohtelisivat. Mieleeni johtui kaikki, mitä olin kirurgisista
leikkauksista kuullut. Ankarasti tykytti sydämeni, ja koneellisesti minä
asettelin nenäliinan ja lompakon rinnalleni jonkinlaiseksi panssariksi.
Väsymys valtasi minut, nukahdin aina hetkeksi, mutta samassa sai
joku surullisempi ajatus suuremman voiman, niin että hytkähtäen
heräsin. Väsymys voitti kuitenkin vihdoin, ja kun herätysrumpu soi,
nukuin minä makeinta untani. Asetuimme rintamaan, aamuhuuto
tapahtui, sitten pantiin aseet takaisin ristikoilleen ja kaikki näytti siltä,
kuin olisi meillä ollut aikomus viettää päivä aivan levollisesti.
Noin kolmen aikaan saapui ajutantti tuoden käskyn. Meidät

kutsuttiin uudelleen aseihin, jääkärimme hajoitettiin ympäri kenttää,
me seurasimme heitä verkalleen, ja kahdenkymmenen minuutin
kuluttua näimme venäläisten etuvartijoiden järjestäytyvän ja
palaavan varustukseen takaisin.
Eräs tykkipatteri asettui oikealle, toinen vasemmalle meistä, mutta
molemmat jotenkin kauas edellemme. Ne alkoivat sangen kiivaan
tulen vihollista kohti, joka yhtä tuimasti vastasi, ja pian peittyi
Cheverinon varustus paksuihin savupilviin.
Eräs ylänkö melkein suojasi rykmenttimme venäläisten tulelta.

Kuulat, joita meitä kohti ei monta tullutkaan (vihollinen kun
etupäässä ahdisti tykkiväkeämme), lensivät ylitsemme tai viskelivät
meitä vastaan multaa ja pieniä kiviä.
Niin pian kuin käsky marssia eteenpäin oli annettu, katsoi kapteeni
minuun niin tutkivasti, että minun täytyi pyyhkäistä pari kertaa nuoria
viiksiäni näyttääkseni niin huolettomalta kuin mahdollista. Muuten ei
minua pelottanutkaan, ja ainoa huoleni oli se, että muut ehkä luulivat
minun pelkäävän. Nuo vaarattomat kuulat vaikuttivat nekin siihen,
että pysyin sankarillisen kylmäverisenä. Itserakkauteni taas toisti,
että todellakin olin vaarassa, koskapa kuitenkin olin patteritulen alla.
Tunsin itseni vallan iloiseksi hyvinvoinnistani ja mietiskelin, kuinka
hauskaa on kertoa Cheverinon varustuksen valloituksesta rouva B:n
salongissa Provencen-kadun varrella.
Eversti kulki juuri komppaniamme ohitse virkahtaen minulle: »Kas

nyt te saatte jo alkajaisiksenne totuuden tuntea.»
Minä hymyilin kuin sodan jumala ja pyyhkäisin hihaltani pois

multaa, jota eräs kolmenkymmenen askeleen päähän pudonnut
kanuunankuula oli viskannut päälleni.
Venäläiset näyttivät huomaavan luotiensa huonon menestyksen,

sillä he rupesivat nyt ampumaan räjähdyskuulilla, jotka paremmin
yllättivät meidät notkelmassamme. Eräs suurehko kranaatinsirpale
pyyhkäisi lakin päästäni ja tappoi miehen sivultani.
— Onnittelen teitä, sanoi kapteeni minulle, juuri kun olin saanut
lakkini maasta; kas nyt te olette turvattuna täksi päiväksi.
Minä olen usein huomannut tämän taikauskon sotamiehissä, jotka

uskovat, että selviö non bis in idem pitää paikkansa yhtä hyvin
taistelutantereella kuin oikeussalissa. Panin ylpeästi lakin jälleen
päähäni.
— Kas sepä oli suora tapa tervehtiä ihmisiä, sanoin niin iloisesti
kuin voin. Oloihin nähden pidettiin tätä huonoa sukkeluutta vallan
mainiona.
— Onnittelen teitä, toisti kapteeni vielä, muuta vahinkoa ei teille

tule tapahtumaan, ja vielä tänä iltana on teillä komppania
komennettavana, sillä kovin minun korviani tänään kuumennetaan.
Joka kerta kun olen haavoittunut, on vierelläni seisova upseeri
saanut kuolettavan luodin ja — lisäsi hän hiljempää ja melkein
häpeissään — heidän nimensä ovat aina alkaneet P:llä.
Tekeysin urhoolliseksi, ja useat olisivat kai tehneet minun tavallani;

moneen olisivat nämä ennustavat sanat vaikuttaneet niinkuin
minuunkin. Ensikertalaisena minä tunsin, etten voinut uskoa
ajatuksiani kenellekään, vaan että minun aina tuli näyttää
kylmäveriseltä ja urhoolliselta.
Puolen tunnin kuluttua venäläisten tuli hiljeni tuntuvasti; silloin

astuimme mekin esille suojapaikastamme marssiaksemme
varustusta kohti.
Rykmenttiimme kuului kolme pataljoonaa. Toinen pataljoona sai

tehtäväkseen käydä varustuksen kimppuun kiertämällä laakson
puolelta; molemmat toiset määrättiin rynnäkköä varten. Minä olin
kolmannessa pataljoonassa.
Tultuamme ulos rintavarustusten takaa, missä olimme olleet

suojattuina, kohtasi meitä moneen kertaan jalkaväen linjatuli
voimatta kuitenkaan suuria aukkoja riveihimme tuottaa. Kuulain
vinkuminen oudostutti minua: usein käänsin päätäni sinnepäin
saaden vain leikkisanoja vastaani tähän ääneen tottuneemmilta
tovereiltani.
— Tappelu ei lopulta olekaan niin hirvittävä asia, arvelin itsekseni.
Rientoaskelin astuimme eteenpäin, jääkärit etunenässä; yhtäkkiä

venäläiset kiljaisivat kolme hurraata, kolme eri kertaa, pysyen sitten
vallan hiljaa ja ampumatta.
— En pidä tuosta hiljaisuudesta, sanoi kapteeni, se ei ennusta

hyvää.
Mielestäni meikäläiset melusivat liian kovasti, enkä voinut olla

sisässäni vertaamatta heidän rähiseviä huutojansa vihollisen
juhlalliseen äänettömyyteen.
Jouduimme pian varustuksen juurelle, vallisuojukset olivat

kuulamme rikkoneet ja mullistelleet. Sotamiehet ryntäsivät näille
uusille raunioille huutaen eläköön keisari! kovemmin kuin olisi voinut
odottaakaan ihmisiltä, jotka jo olivat niin paljon kirkuneet.
Loin katseeni ylöspäin enkä ikinä unohda silloista näkyä. Enin osa
savua oli kohonnut ilmaan ja riippui kuin telttakatos noin
kahdenkymmenen jalan korkealla varustuksen yllä. Sinertävän
usvan läpi näkyivät puoleksi hajonneen rintasuojuksensa takana
venäläiset krenatöörit, jotka seisoivat pyssyt koholla ja
liikkumattomina kuin patsaat. Olen vieläkin näkevinäni jokaisen
sotamiehen, vasen silmä meihin luotuna ja oikea kohotetun pyssyn
peitossa. Eräässä ampumareiässä muutamia askeleita meistä seisoi
mies tulisoihtu kädessä kanuunansa vieressä.
Minua värisytti, ja luulin jo viimeisen hetkeni tulleen.
— Kas nyt alkaa tanssi, pojat, huusi kapteeni. Hyvästi!
Ne olivat viimeiset sanat, mitkä kuulin hänen lausuvan.
Rummunpärinää kuului varustuksesta. Näin kaikkien pyssyjen

laskeutuvan. Ummistin silmäni ja kuulin hirmuisen paukkeen, jota
seurasi huudot ja voihkaukset. Avasin jälleen silmäni kummastellen,
että vielä olin hengissä. Varustus oli taas savun peitossa. Ympärilläni
haavoitettuja ja kuolleita. Kapteenini makasi jaloissani: hänen
päänsä oli eräs kuula murskannut, ja hänen aivojansa sekä vertansa
oli hulmahtanut vaatteilleni. Koko komppaniastani ei ollut pystyssä
enää kuin kuusi sotamiestä ja minä.
Tämän verisaunan saatuamme olimme hetken aikaa kuin

ällistyksissä. Asettaen lakkinsa miekkansa kärkeen kapusi eversti
ensimäisenä rintasuojukselle huutaen: eläköön keisari! ja hänen
jäljessään heti kaikki muut eloon jääneet. En paljon muista mitä
sitten seurasi. Me jouduimme varustuksen sisään, en tiedä millä
tavoin. Taisteltiin käsikähmässä niin paksussa savussa, ettei voitu
nähdä toisiaan. Luulen lyöneenikin, koskapahan sapelini oli vallan
verinen. Vihdoin kuulin huudettavan: »voitto on meidän!» ja savun
hälvetessä näin koko varustuksen kentän verta ja kuolleita täynnä.
Varsinkin kanuunat olivat vallan haudattuina ruumiskasojen alle.
Noin kaksisataa miestä ranskalaisissa univormuissa seisoi ryhmässä
ilman järjestystä, toiset ladaten pyssyjänsä, toiset puhdistaen
pistimiänsä. Yksitoista venäläistä vankia oli heidän keskessään.
Eversti lepäsi vallan verisenä särkyneiden vaunujen päällä linnan

portin suulla. Muutamia sotamiehiä tunkeili hänen ympärillään;
minäkin lähestyin häntä.
— Missä on vanhin kapteeni? kysyi hän eräältä kersantilta.
Kersantti kohautti olkapäitään sangen merkitsevällä tavalla.
— Entä vanhin luutnantti?
— Tämä eilen saapunut herra tässä, sanoi kersantti vallan tyynellä

äänellä.
Eversti hymyili happamesti.
— No niin, hyvä herra, te siis komennatte päällikkönä; varustakaa

heti linnoituksen portti näillä muonavaunuilla, sillä vihollinen on vielä
voimakas, mutta kenraali C… tulee avuksenne.
— Eversti, sanoin minä, te olette kai pahoin haavoittunut?
— Yks'kaikki, ystäväni, mutta varustus on valloitettu!
Arpapeli.
Liikkumattomina riippuivat purjeet mastoja vasten; meren pinta oli

kirkas kuin peili, ilma tukahuttavan kuuma ja tyven vallan toivoton.

Secdocument - 9676download Economics of Markets Neoclassical Theory Experiments and Theory of Classical Price Discovery Sabiou M Inoua Full Chapter

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Secdocument - 9676download Economics of Markets Neoclassical Theory Experiments and Theory of Classical Price Discovery Sabiou M Inoua Full Chapter

Uploaded by

Copyright:

Available Formats

Economics of Markets: Neoclassical

Theory, Experiments, and Theory of

ISBN 978-3-031-08427-0 ISBN 978-3-031-08428-7 (eBook)

For thoughtful and constructive reviews of our papers or chapters, we

Fig. 3.1 Short-Side Rationing and Classical Price Adjustment 29

Fig. 4.7 The basic profitability or affordability indicator function

Table 3.1 Number of contracts above, equal to,

Abstract This book proposes a theory of competitive market price

Keywords Marginal utility theory · Equilibrium · Classical economics ·

In neoclassical marginal utility theory, price dynamics was elusive to

© The Author(s), under exclusive license to Springer Nature 1

Classical economics, we argue, originated, and developed a conception

1 We have benefitted from many anonymous, thoughtful, and constructive reviews of

Marginal utility-based general equilibrium was the prevailing state

to in contextual side comments by Adam Smith). Similarly, sellers volun-

Theory could proceed and to foster understanding without knowing the

Motivation: people experience gains from trade and freely interact to

3 One of Adam Smith’s earliest manuscripts is “A History of Astronomy,” published

business interests to protect them from entry via import tariffs or

“Higgling and bargaining”: there is a market process for finding

1. The “short side” rationing condition. At any temporary resting

These contextual details matter to us because they provide clues to a more

Adam Smith’s metaphor of the “invisible hand” expressed his recog-

Abstract The implicit axiom of price-taking behavior opens the question

Keywords Equilibrium · Neoclassical theory and economics · Marginal

Economists think of prices forming in markets through competition

© The Author(s), under exclusive license to Springer Nature 9

2.1 Experiments: Markets

or willingness to accept (WTA) values (costs), and who engage in a multi-

2.2 Classical and Neoclassical Perspectives

Contemporary models often evade this aggregation problem by falling

2.3 Prices Are Unknown Until They

choose optimal quantities of goods from a continuum of possibilities,

3 Seventy-five percent of private product (gross domestic product less government

school (as in common parlance) means the rivalrous interaction of buyers

2.4 Classical Theory, Wealth,

In our modeling, we formally consider that any two discrete consumer

is that every discovered price, as a bit of information, has a wealth effect.

Rediscovering Classical Economics

Abstract In this chapter, we turn to a reexamination of the early exper-

Keywords Competitive market · Neoclassical tradition · Equilibrium ·

In this chapter we turn to a reexamination of the early experiments that

3.1 Experiments, Following Marshall,

© The Author(s), under exclusive license to Springer Nature 21

Marshall’s description of price discovery in “a corn-market in a

3.2 Experiments, However, Were

1 A perfect example is the Boston Haymarket, an historic outdoor greenmarket special-

following closely the non-utilitarian classical tradition in describing the

might be more powerful under conditions putatively more favorable to

5 At the start of trading in an experiment, and at the typical market opening on an

would not emerge. Unexpectedly, prices converged to near-equilibrium

3.3 The Dynamics of Convergence:

1. Excess rent; comparison with excess supply and the excess of

Hence, E measures the total profit given up if P fails to reach P*,

Fig. 3.1 Short-Side Rationing and Classical Price Adjustment

Empirically, it was conjectured that price adjusts proportionately to E,

2. Short-side rationing and classical price dynamics.

Now modify the above argument to consider the combination of short-

Entitled, “Of the natural and market price of commodities,” by “nat-

where, as in Fig. 3.1, B (S) is buyer (seller) realizable surplus and F is

As shown in Fig. 3.1, the set F defines contract-feasible prices greater

that we seek here to correct; nor of course is it plain in Marshall.10 Simi-

3.4 Brief on the Double-Auction