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Free markets — really?

The papers this morning are full of Members of Congress and several journalists patting themselves on the back for their support of free markets, the supposed grounds on which they rejected Monday’s bill. Sadly, their comments simply reflect their ignorance of history, their Bible, and basic economics.

It is true that markets are a simply superb way of handling economies and that the (dreaded) socialism or (worse) communism, despite being practiced by the early church, have been less successful. But to attribute this to “free” markets is to ignore the plain facts and the underlying economic theory. Pure, market theory is based upon a series of totally unrealistic assumptions. It assumes that all parties who come to the market have sufficient funds to buy. It assumes that all parties who come to the market have complete information about what they plan to purchase and the consequences of their purchase. It assumes that all parties who come to the market act in good faith, do not try to steal from one another, and do not try to deceive one another. None of these things is true in the real world.

From time immemorial, markets have been regulated. The laws that governed the fairs in medieval times are almost identical to those that govern Wall Street today. Yes, we can freely buy and sell shares on the New York Stock Exchange, but only because the SEC is there to protect our trades and to shield us from the scallywags who would rob us blind. Yes, we walk the streets freely in this wonderful country, but only because over half our rates and taxes go to pay for the police who keep our streets and homes safe.

Economic theory shows that as soon as government intervenes at any point in the economy, all the fine principles about perfect competition fly out of the window. The claim by people who have government jobs that they live in a perfectly free-market economy is disproved by the very jobs that they hold and the tasks that the perform, namely to impose laws, rules and regulations on the rest of us.

So, yes of course, we want to get back to markets that function as smoothly as possible. No, no-one on either side of the aisle has any desire to move to a command economy or to promote socialism. What is necessary at this point in time is some extra intervention from a government that intervenes in our lives at every point. This intervention should be targeted at restoring the markets to health. And that means reestablishing trust between buyers and sellers, borrowers and lenders. How to do this is a matter of some debate. That it must be done and that the government is the only body that can do this at this point in time is unassailable. (See my page notes on the left for more details about how we arrived at this point and what needs to be done to get the economy moving again.)

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