THE MARKET MECHANISM

Because the majority of economic activity in most high-income countries occurs in private markets—as a result of the market mechanism—we begin our systematic investigation there. In a market economy, who is accountable for making decisions?

You might be astonished to find that in a market economy, no single person, organization, or government is accountable for resolving economic issues.

Instead, millions of enterprises and consumers participate in voluntary trade with the goal of improving their own economic circumstances, and their actions are invisibly coordinated by a price and market system.

Consider the city of New York to realize how astonishing this is. New Yorkers would be on the verge of hunger in a week if there was no steady flow of products into and out of the city.

New Yorkers, on the other hand, have a pretty good economic situation. The reason for this is that things travel for days and weeks from all over the country, from all 50 states, and from all over the world to arrive at New York.

How is it that ten million people can sleep well at night without living in constant fear of the intricate economic systems on which they rely failing? The surprise answer is that these economic activities are coordinated through the market, without the need of compulsion or centralized direction.

Everyone in the United States is aware of the government's extensive efforts to regulate economic activity: it controls medications, sets tariffs, collects taxes, deploys soldiers around the world, and so on.

But we rarely consider how much of our everyday economic life takes place without government intervention. Every day, millions of people manufacture thousands of commodities willingly, with no central direction or master plan.

Posted Using LeoFinance ^Beta