In Economics an externality is an unforeseen or unintended consequence of a transaction. While, in many if not most cases that come to mind, I dispute whether externalities are unforeseen or unintended (I find my argument to be similar to Howard Zinn’s argument against the claim that US aerial bombardments don’t "intend" to have civilian casualities) the important thing to note is that in market systems the effects of transactions between buyers and sellers do not take into consideration the effects on others who are not a direct party to the transaction.
A common example is air pollution. Someone sells a car and someone buys a car, but neither the buyer nor seller considers the effects of air pollution, traffic congestion, car accidents or road rage when determining the cost of the product. These are simply not considered.
In The ABC’s of Political Economy Robin Hahnel points out that not only do externalities not get considered and by doing so the true cost of the products being consumed are not calculated, but that market systems also are biased to private consumption over social consumption.
This is an important thing worth considering when advocating the abolition of markets; not only do they ignore social costs and benefits but they also ignore social products. This insight goes a long way to explaining why healthcare and higher education are privatized, and why many capitalists want to privatize social programs in general (especially Social Security).
There are other examples us Americans, in the midst of a consumer holiday, ought to consider: China.
The prevailing logic is that having lots of the goods made in China is better for us since we can purchase the products more cheaply than if we made it ourselves. Of course, this also includes the unmentioned assumption that “owners” of the products being produced are entitled to the lion’s share of the revenue generated for their own personal profit.
But are the products really cheaper? Are their externalities not being considered? You bet there are. Consider the adverse effects on the environment. China just had the Olympics and it was a big criticism of how dirty the air is. Also, consider the adverse effects of folks working in hazardous environments. Or, more close to home, consider the poor regulation standards of the products being made and how many times we have had to pull products off of the shelves due to them being dangerous to our safety.
The point is markets ignore social costs and benefits and thus distort a more accurate price of the goods consumed and they also are biased to private consumption over social consumption. In other words, market systems are deeply anti-social and antagonistic to social needs.