Myths of Economics: Perfect Markets

One of the tools used by economic theorists to study and anticipate economic change is the “evenly rotating economy.” This device is used to show how changes can impact a “perfect” economy. From this, theorists can speculate on economies progressively removed from such an ideal. Much like any theoretical device, the evenly rotating economy is completely unrealizable. However, many argue that such an economy can be achieved through top down central planning. This myth persists despite both logical and empirical arguments to the contrary.

Today’s societies are comprised of millions of individuals making subjective valuations of available resources to achieve their individual goals. The potential permutations of outcomes alone make an economy wholly impervious to planning and largely immune to accurate reporting. Regardless, the machinations of an economy are now, and always have been, driven largely be the decisions of individuals acting to achieve their subjective goals.

When classical liberals call for free market capitalism, they are championing a system that is perpetually flawed. That being said, free market capitalism remains far superior to any alternative. The reason for this is two-fold: central planning cannot possibly account for every potential change in aggregate or individual demand and free markets will more closely reflect the individual desires of all engaged in that market regardless of the composition, turbulence and/or outcome of the market. This last point can’t be over-stressed: free market capitalism is driven by consumers seeking fulfillment of their goals. Compared to the alternatives, free market capitalism, while flawed, is most likely to result in resolution of the needs of a majority of individuals.

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