One of the most misunderstood economic concepts is that of the “market”. We hear the terms “free market” and “controlled market”, but what are we referring to by the market?

market is a complex process of events caused by individuals acting purposefully; based on independent subjective valuations. The market is a process of constant change brought about by the choices and actions of individual humans. It is neither a static thing,nor is it an aggregation of homogeneous ingredients or broad generalities.

Change in the market is constant. The very essence of every human action is change. As individuals act, their subsequent actions (including their valuations) change. For this reason,
Thomas Taylor notes, “...the dynamic market process should be examined; not the static condition of equilibrium.”

So, the term “free market” means nothing more than a process of events in which interacting humans are uninhibited from acting purposefully based on their independent subjective valuations. In any uncoerced exchange between humans (i.e. humans interacting in an unhampered market), both individuals exchange the goods and services they view as less important for goods and services they view as more important for their needs. Based on their subjective valuations, they are both better off.

A “controlled market” or “market intervention” refers to economies where forces outside of the naturally occurring market interfere with the choices and actions of individual human actors. But can coercive market intervention ever satisfy the needs and wants of consumers more than a free market of individual human actors?
Murray Rothbardexplains:

  • [The] view [that free-market action must be brought back into optimality by corrective State action] completely misconceives the way in which economic science asserts that free-market action is ever optimal. It is optimal, not from the standpoint of the personal ethical view of an economist, but from the standpoint of the free, voluntary actions of all participants and in satisfying the freely expressed needs of the consumers. Government interference, therefore, will necessarily and always move away from such an optimum.

Want to learn more about the market?

The Miracle and Morality of the Market 
by Dr. Richard Ebeling, the president of the Foundation for Economic Education.

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