Submitted by Claude Bogardus, Sep 17, 2007 07:38

At any selected instant in time a free market is always wrong. The proof? The price that clears the market changes in the next instant. The reason? Every market participant attempts to manage the market in his own nterest bt offering to sell or to buy the economic good in question. Human action, the result of the transactions of multiple market participants trying to maximize the gains of each one, sets price. The social value of free markets is gained by the most efficient allocation of economic resources, such as land, labor, capital, and management skills or insights. Human beings, whether acting in concert or alone, are fallible. In an economy of free markets the people, motivated by irrational aspirations, cause panics, recessions, and booms. Citizens are fond of booms, and they would rather not be embarrassed by panics and recessions. Economists, reviewing economic histories, can always discover the misallocation of a critical resource, usually capital, that caused a panic or recession. Citizens are pleased to hear such wisdom and are also pleased to assign the task of preventing panics and recessions to the masters of such profound insights. So the Federal Reserve System was given to power to control the markets for capital by controlling the supply of credit, which is the most prevalent form of money. But men are fallible, and men manage the Federal Reserve System. So they make mistakes as they execute their benign market transactions on a huge scale that shifts the clearing price. Resources are misallocated and the wise men seek to blame "somebody else." We voted for it.

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