In his famous book, The Wealth of Nations, Adam Smith descried the free market system as a self-regulating mechanism, which maximizes society’s wealth and well-being. Indeed, since the time of Adam Smith, the free market has been an incredibly successful system for improving society. This can be attributed to an increase in overall wealth, innovation, and efficient resource allocation. Unfortunately, the market system also suffered numerous drawbacks, the most important being the inequality and the inequality of opportunity which the system created. These inequalities are best observed in the credit, education, and labor markets. The question of whether the use of free markets is truly preferable method for improving society will be discussed.
To elaborate, Adam Smith stated that man should not try to do good, but let good develop as a byproduct of self-interest. Indeed the principle of self-interest has been and always will be the driving force behind the market’s successes. However, since the majority of people do act in their own self-interest, competition develops in the market both among the buyers’ and among the sellers’. Regardless of whether the product is big and expensive like a car or small and cheap like an apple, the seller will want to sell it for the highest possible price and the seller will want the lowest possible price (with the exception of some luxury/status products). During the process of negotiation, the optimum equilibrium price, which is good for both parties, will be agreed upon. As a result, the consumer and producer surplus is maximized, leading to an overall increase in wealth.
The greatest success of markets is probably in its steady increased in wealth. For example, in t...
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...hich was created by the market system, the market, just like humans, is not perfect. It is certainly not a Panacea for all of societies problems (even Smith realized this when he warned that division of labor creates boring jobs). While the creation inequality is an unavoidable sideffect of its mechanism, the jury is still out on whether this flaw is fatal. Despite the fact that inequality continues to grow steadily, the poor cling to the chance that they will be the lucky few to make it to the top. The concept of self-interest continues to drive markets. While time will tell if the prost of prosperity outweigh the cons of inequality, one must admit that some problems, such as discrimination, must be solved outside of the market through government intervention. Markets should probably used in areas where the need for efficiency outweighs the need for “social justice.”
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