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| The Free Market: A False Idol After All? (Photo credit: elycefeliz) |
Current economic thinking essentially states that any demand will be met by a supply because people are rational who are constantly striving to maximize their "happiness". Ofcourse, happiness needs to be defined more closely. So acquisition of material goods is deemed to be a proxy for "happiness". The more goods and services someone acquires, consumes or accumulates, that person is considered to be "happier" relative to someone else who is unable to do the same. By this reckoning, rationality indicates that any demand will be met since by doing so, all parties concerned will be "better off" or "happier".
That is the theory. What about practice? Currently business organizations provide many of the goods and services that we depend on. These are profit making entities whose primary, if not sole mandate, is to make a profit for their shareholders. So any demand should be met. But it isn't. Why not? One of the biggest flaws in the current capitalist paradigm is that it overserves some goods and services and underserves others. The free market system is very powerful. If all costs are properly factored in, then it serves as an excellent allocator of resources most of the time. Most of the time, not all of the time. Why is this so?
If markets are perfect, then no segment of a population should be left unserved. If this happens, then markets are flawed and some corrective mechanism needs to be applied.
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I believe, in theory there are 2 market structures: the free market system and the monopoly. But according to me and I may be wrong, they do not exist at all, practically I believe there is a line, free market structure at one end and monopoly on the other; all industries lie between these two ends none touching any of the two ends.
ReplyDeleteThe system and allocation could have been perfect only in case if there was single allocating body (monopoly) or the (actual, theoratical free market economy).