Economics for Occupiers 12: The Myth of the Regulation-free Market

There's a very vocal segment of free market capitalists that maintain that the free market should be entirely free of regulation.  Their position is that in a pure free market, anyone should be allowed to trade anything, to place any product for sale on the open market.  In their idealistic world, the free market will self-regulate, and substandard products will find no buyers, and every seller in the market will seek excellence, to the benefit of everyone. Anyone who dares to suggest that this may be an overly extreme position is immediately castigated and accused of being a "statist."  This black or white logical fallacy presumes that if you're a "statist," that you automatically endorse government regulation and interference at all levels of the free market.

As we saw in section 10, this view of a pure free market ignores a couple of important points.  You will remember from our basic definition of capitalism that transactions should be free of coercion or misrepresentation. For the capitalist purist market to work as desired, all participants in a transaction must have perfect knowledge of the value of the commodity being exchanged.  This is clearly impossible. What if the seller in a transaction misrepresents the product he's selling?  A seller can make all sorts of claims that may be difficult to verify during the transaction.  The answer given by the market purist is that doing so would stain the seller's reputation, and his product will quickly fall out of favor.  The purist offers no explanation of how this would happen.  I suppose the news of the miscreant's bad product will magically propagate through an almost infinite market by some sort of telepathy.

Read more about this in chapter 14 of Economic for Occupiers, now available on Amazon.com.