How about a rousing cheer for free markets? No?
That’s understandable, considering the amount of confusion about the nature, advantages and limitations of free markets.
Some of the ignorance is excusable; some, however, is the result of deliberate misstatements by those who oppose the very notion of economic self-determination, with its focus on the individual.
A free market economy is one whose prices are set by supply and demand rather than by edict.
Some professional economists may quibble with the details, but it’s a workable definition.
Some confuse “free markets” with “capitalism.” The latter term describes a system of private ownership of property and the production of goods and services for a profit.
The two are often considered synonymous, but, in fact, are distinct.
For prices to be freely set by supply and demand, an “arms-length” exchange must exist.
Both buyer and seller must be free to engage, or not engage, in an economic transaction and both must be knowledgeable about all the relevant facts.
Thus, a free market transaction employs some of the highest faculties a human being possesses: intelligence and free will. A free market has the potential of allowing humans to exercise some of their most ennobling traits.
The two biggest advantages of a free market is its ability to most efficiently allocate scarce resources as well as the tendency for prices to decrease and the quality and volume of goods and services to increase.
This is due to the free market’s pricing mechanism being influenced by millions of buyers and sellers, rather than by the dictates of government or a monopoly.
Any entity having a monopoly on the supply of a good or service and, therefore, of its price, can potentially disrupt the market pricing mechanism.
Examples are banks “too big to fail” and labor unions.
Most of us would rather trust our own wisdom and instincts. No one person, company, government or small group of people or firm is so intelligent as to discern our individual wants and needs as well as we can.
The free market is largely impersonal and does not operate with any pretense of altruism.
As Adam Smith wrote in the “Wealth of Nations,” “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.”
Any economic system has “winners” and “losers.”
Not all will succeed, because it’s beyond the capability of a free market to care for the weakest in our society, that task falls to individuals and institutions.
The remarkable, yet overlooked, fact is that free markets produce the greatest prosperity that enables people to better care for the less fortunate more effectively than under any other economic system.
The free market does not control greed. Indeed, greed itself is the driving force behind profits. But excessive, unregulated greed can be the undoing of free market and, by extension, a free society.
It is the responsibility of government to regulate greed.
If government fails in this area, events such as the recent housing bubble can occur, which has contributed to the current Great Recession. People were induced to purchase property and sign mortgages for which they were manifestly unqualified.
There was no “arms length” transaction.
If the government overreaches its regulatory function and attempts to impose its judgment in place of the free market, failures, such as Solyndra, occur.
The free market is similar to fire: a good friend, but a bad master. It needs to be encouraged and strengthened – and regulated.
The abiding question is: How much?
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