Thursday, September 10, 2009

In defense of markets---Thomas E. Woods, Jr. - Mises Institute

I have not mentioned the Mises Institute in a while. But this response is so thorough and so well thought out that I had to. It is a response piece to a person who does not favor free market responses. Thus, Mises plays the role of free market defender. It is a role that is played very well!

Anatomy of an Economic Ignoramus - Thomas E. Woods, Jr. - Mises Institute:
" free-market economist thinks the market 'always knows exactly what to do and when to do it.' If that were the case, how could free-market economists account for firms that go out of business?

The argument that free-market economists actually make is that on the free market, decisions regarding what to produce, in what quantities, using what methods, and in what locations, are made in light of satisfying the most urgent demands of consumers. Business firms find out very quickly what consumers want and what they do not want, and they adjust their production decisions accordingly."

and later in defense of profits:

"...profit is simply society's way of ratifying a firm's past production decisions. It indicates what consumers want, and (by the process of imputation) the best process for producing it. Profits attract further investment in a given line of production, until the increased supply of goods in that industry brings the rate of return there back down to the level that exists elsewhere in the economy. This is how we ensure that our limited resources are not wasted, and that the most urgently desired goods are produced."
If only more people understood this.

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