Knowledge Problem

Debunking Myths About Markets

Lynne Kiesling

I frequently argue that markets provide the most effective institution for coordination of individual economic activity to improve well-being and create growth and prosperity. Market processes aggregate and transmit information among decentralized, distributed agents, enabling them to make decisions in their own individual interest while still (inadvertently) communicating information about their decisions (and their underlying preferences and costs) that will enable other agents to make decisions in their own individual interests. This is the means through which the coordination of economic activity occurs.

If you argue that regularly in your work, as I do, you will come across people who hold a variety of beliefs about market processes. Often these beliefs are strongly held, yet incorrect. I spend a lot of time talking about market processes and correcting these misperceptions. Thus I find this paper from Tom Palmer incredibly useful. Tom lays out “twenty myths about markets” and explains in careful, clear language what the misperception is for each one. If you find yourself making these kinds of explanations regularly, this paper will be a good resource for you.

Hat tip to Marginal Revolution for the link.