7 Falsehoods About the Free Market : The Freeman : Foundation for Economic Education

7 Falsehoods About the Free Market : The Freeman : Foundation for Economic Education

Here are a few of the latter that I’ve recently encountered, but there are, of course, plenty more. Some libertarians may not agree with me (at least at first) on all of them.

1) The free market creates scarcity and higher prices. In any economic system—socialist, interventionist, or free market—the quantity of a good will typically not be enough to satisfy demand when the price is zero. In a free market, in which people trade their legitimate claims to those resources, prices will tend to rise or fall to the level where the quantity supplied equals the quantity demanded, and in that way prices help us to cope with scarcity.

2) The free market means the government gives businesses special privileges. This is a very common belief based on the idea that pro-market means pro-business. But the free market is free precisely because it denies special legal privileges to any person or group. People sometimes define “privilege” as any advantage a person or group may have over others.

3) The pre-Obamacare healthcare industry was a free market. Actually, it was a highly interventionist market, as John C. Goodman explains. Similarly, the failures of the housing and financial markets were hardly the result of “free-market policies,” and the same could be said for practically every other sector of the American economy.

4) The free market requires that all valuable resources be privately owned and traded on markets. Even if this was possible, and I’m not convinced that it is, it’s not always the best way to overcome a “tragedy of the commons.” Sometimes the alternatives to individual ownership just work better.

5) The free market encourages racism, homophobia, and other types of bigotry. Now, it’s true that you can be a racist homophobe in a free market, and refuse to live next to a same-sex, interracial couple, or refuse to hire someone because their looks in some way offend you. The consequences of those actions, however, mean that you will tend to pay a higher price for a house or a higher wage to your employees because you’ve deliberately narrowed the range of your choices.

6) The free market is pro-war. It’s true that besides being “the health of the State” and the enemy of liberty, war does benefit some special interests such as businesses that produce the weapons of war. But war undermines the free market in general.

7) The free market is always efficient. The real world is populated by real people who don’t have complete information, who may have bad information, and who may just make mistakes.