We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

As Ludwig von Mises states in his magnum opus, Human Action, the “market process is the adjustment of the individual actions of the various members of the market society to the requirements of mutual cooperation”.

Thus, markets will always be imperfect, but that is precisely why markets exist in the first place! Markets never conform to the “ideal” of perfect competition, but this is completely irrelevant, since under such state of affairs, markets are unnecessary and redundant, since all resources are already perfectly allocated to their most valued uses. Market processes exist precisely because to generate the information necessary to better coordinate the plans and purposes of individuals in a peaceful and productive manner. The entrepreneurial lure for profit and the discipline of loss is what guides such imperfect processes in a tendency towards the creation of more complete information between buyers and sellers.

Rosolino Candela, from Are Markets Imperfect? Of Course, But That’s The Point!

4 comments to Samizdata quote of the day

  • Rich Rostrom

    Markets are a means of applying information to economic decisions. So is central planning.

    Markets are enormously better at this, because the flow of information and decision-making power are both thoroughly distributed.

    However, markets are not perfect, because there are categories of information which markets are wholly or completely blind to.

    For instance, future risk that exceeds assets. A man facing losses equal to his net worth may attempt a scheme which will either avoid the losses, or cause damage greatly in excess of his worth to other parties, for which he would be liable. That wouldn’t matter to him, because one can’t be any broker than broke.

    People in general don’t properly grasp future risks. That’s why New York City has fire safety inspections conducted by off-duty firefighters. Shopkeepers, restaurateurs, and landlords often get sloppy or lazy. Their lives aren’t at risk.

  • Ferox

    For instance, future risk that exceeds assets. A man facing losses equal to his net worth may attempt a scheme which will either avoid the losses, or cause damage greatly in excess of his worth to other parties, for which he would be liable. That wouldn’t matter to him, because one can’t be any broker than broke.

    Markets do fine with this. To incur those losses someone will have to provide the capital for him to try his scheme. They had better do their own analysis, and do it well, or suffer those losses themselves. Presumably they have priced the risk of this into their deal with the schemer. If they win let them have their winnings. If they lose they get to eat the loss.

    That’s the trick to making risk work in markets. Let winners and losers win and lose. Don’t create perverse incentives for investors to be indifferent to risk. The markets will manage interest rates and capital costs in response to the changing risk landscape, all without any central planning by the Wise.

  • Paul Marks

    As Mr Ed is fond of pointing out – free “market forces” are just human CHOICES. They can be very silly indeed (people can voluntarily choose to act in some very silly ways) – but they are the best we have got.

    On the other hand “structures of power” (such as a government court saying that the bankers do not have to honour their contractual obligation to pay cash-on-demand) are not voluntary choices by ordinary people – they are things imposed-from-above by governments allied with special interests.

    When we societies that are less free and more free say North Korea versus South Korea, or a less extreme example – say New York versus Florida, I know where I stand.

    To me it is absolutely clear that societies with more freedom (less taxation, government spending and regulation) are better than societies with less freedom – that South Dakota is better than Minnesota, and that Florida is better than New York (and not just because of the climate – as Florida is better than warm California).

    Other people sincerely disagree and believe that higher taxes, higher government spending and more regulations are the way to go.

    This is the Great Divide in politics.

  • Paul Marks

    Sadly in the modern world profits often come from Central Banking system and the government that sits behind it.

    And losses are socialised away.

    Both free market people and socialists agree that what we have now in most Western countries is a vile system – an obscenity.

    The Great Divide is not over whether a person is pro or anti the present system (we all know the present system stinks) – the Great Divide is over what the present system should be replaced with.

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