Wednesday, July 23, 2008

Market Domination

I just thought that I would write a quick note in response to a comment on my post on 'The Market and the Crash'.

The comment was as follows:
'Yes, but I can still imagine the ultimate free marketeer. He would be the businessman who finally managed to 'own' everything: all the land, all the houses, all the water, all the fuel. The people would have to do whatever he required in order to survive. Isn't that the logical conclusion of an unregulated free market?'
The quick reply to this comment is that I did not suggest no regulation, but light regulation. This is the kind of regulation such as competition regulation (such that no organisation can dominate a market), such as laws against insider trading, and laws on disclosure, false advertising (making fraudulent claims) and so forth . In short, regulation to ensure that markets are competitive and open - regulation to ensure that individuals have as much exposure to information as possible, and that there is a competitive market in analysis and presentation of information.

The alternative is what we currently see. Too much regulation creating a false sense of security. As I mentioned before, we need to return to 'buyer beware', as the best regulator of markets. After all, the mass of current regulation did not protect people from the housing bubble (this was one of the complaints of the person commenting). The current housing bubble was, in part, built upon an oversupply of finance into the mortgage market, and that oversupply was (in large part) the direct result of regulation and government interference in markets, as I mentioned in my previous post.

As a note, I would like to thank the anonymous poster, who prompted me to clarify the issue of regulation somewhat.

1 comment:

  1. One thing I have yet to resolve, is the role of 'fractional reserve banking' in the operation of the markets. Why do we use it? Is it fundamental to capitalism? Is the idea that it is simply an efficient self-regulating mechanism? Or is it a system bankers have devised make themselves very rich?

    Whenever I ask economically-literate people about this, they shuffle uncomfortably and change the subject, as though they don't know the answer themselves. I have yet to see anything written about it that doesn't just state it as a fact, or hysterically 'expose' it as a scam perpetrated by bankers. And, mystifyingly, one book by Henry Hazlett which claimed to cover all of economics didn't mention it all, as far as I recall.


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