The View From 1776
Tuesday, June 14, 2011
In Defense Of Free Markets
Free markets adjust prices to reflect continuously changing supply and demand. Free markets are a source of true information. Government interventions such as Obama’s various “green” subsidies, taxes, and regulations, along with the Federal Reserve’s monetary policies, deliberately obscure the truth of underlying supply and demand, aiming to control consumers’ behavior.
Small wonder that the government’s Keynesian economic interventions have left private businesses uncertain about true underlying market conditions. Small wonder that the economy remains mired in the worst recession since similarly wide and deep tinkering under the Nixon and Carter administrations.
Regarding the pursuit of economic truth, read Robert Higgs’s essay on the Independent Institute website.
Much modern economic theory, for example, has been used to justify government intervention in the free-market process. We might pause to reflect that this process, which operates as a price system or, seen from another angle, as a profit-and-loss system, is simultaneously a way of revealing the truth. Thus, for example, a price established on the free market communicates true information to all potential market participants about the exchange value of a good or service relative to other goods and services. If the government places an excise tax on a good, thereby diminishing the quantity demanded and raising the market price, potential buyers now react to a false signal of the good