Category: Free markets
Myth: Markets lead to disastrous economic cycles, such as the Great Depression
Markets provide mechanisms for adjusting levels of investment and preventing booms and busts in the business cycle. Government policies, however, often distort markets and nurture the conditions that lead to depressions and human suffering.
Myth: Markets don’t work in developing countries
What needs explanation is not poverty, which is the natural state of mankind, but wealth. No system better than the free market, based on well defined and legally secure property rights and legal institutions to facilitate exchange, has ever been discovered for generating incentives for wealth creation.
Walter Williams on government in a free society
Economist Walter E. Williams spoke on the legitimate role of government in a free society, touching on the role of government as defined in the Constitution, the benefits of capitalism and private property, and the recent attacks on individual freedom and limited government.
Myth: The more complex a social order is, the less it can rely on markets and the more it needs government direction
As society becomes more complex, reliance on voluntary market exchange becomes more — not less — important. A complex social order requires the coordination of more information than any mind or group of minds could master.
Myth: Markets don’t work (or are inefficient) when there are negative or positive externalities
Negative externalities such as air and water pollution are not a sign of market failure, but of government’s failure to define and defend the property rights on which markets rest.
Myth: Markets cannot possibly produce public (collective) goods
The public goods justification for the state is one of the most commonly misapplied of economic arguments. But many goods that are allegedly impossible to provide through markets have been, or are at present, provided through market mechanisms — from lighthouses to education to policing to transportation, which suggests that the common invocation of alleged…
Myth: Markets only work when an infinite number of people with perfect information trade undifferentiated commodities
Abstract models of economic interaction can be useful, but when normatively loaded terms such as “perfect” are added to theoretical abstractions, a great deal of harm can be done. For the state to be the agency that would move markets to such “perfection,” we would expect that it, too, would be the product of “perfect”…
Myth: Markets depend on perfect information, requiring government regulation to make information available
Markets do not require for their operation perfect information, any more than democracies do. Significantly, politicians and voters have less incentive to acquire the right amount of information than do market participants, because they aren’t spending their own money.
Myth: Reliance on markets leads to monopoly
While many believe that free markets tend to produce monopolies, it is actually government that is the grantor and protector of monopoly rights. Market competition works against monopoly power.