Intervention vs. Balance

In free markets, we have what I have dubbed balance. I use the term balance advisedly because I want to connote the idea that the market always adjusts to the changes in the behavior of buyers and sellers. I want to distinguish between balance, which I used to note dynamic adjustment, and the frequently used … Continue reading Intervention vs. Balance

Resource Allocation

Balancing Production and Consumption Before I continue discussing the allocation of resources in a free market, I would like to recap some of the points that I have made in the last few blog posts. I started by explaining the concept of consumer sovereignty, which means that the whole purpose of production and markets consists … Continue reading Resource Allocation

Market Complexity

In previous posts, I introduced the importance of consumers in a well-functioning market. I also introduced the fact that consumers consisted of a byproduct of production. Consumers can neither consume nor acquire things to consume without first producing. These facts might lead one to assume that some sort of centralized control might make a more … Continue reading Market Complexity


Creating Consumers

I have described the importance of consumers in the operation of free markets. All production and distribution exist to serve consumers. Consumers ultimately determine all market pricing. But, from where do these all-important consumers come? How do consumers get "created?" According to common usage, we call people who spend money in the economy "consumers." Consumers, … Continue reading Creating Consumers

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Price Determination—Part Two

Now that we have a precise definition of the word “price,” we can discuss price determination (or priced discovery) of what we refer to as “market price.” We can understand the determination of an individual price by understanding the previously discussed definition of “price.” The individual price results simply from the agreement between buyer and … Continue reading Price Determination—Part Two

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Price Determination—Part One

The determination of prices represents another piece in the free market puzzle. As frequently as you hear people refer to prices, I find it surprising how many misconceptions people have about prices. How do you define “price.” What factors determine price? What role do prices have in resource allocation? In this article, I will address … Continue reading Price Determination—Part One

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Lower Producer Costs

The importance of consumer satisfaction—which I have referred to as Consumer Sovereignty—plays a critical role in the behavior of all actors involved in the structure of production. Miners, manufacturers, distributors, and retailers will all try to lower their costs so they can pass the saving on to consumers. To understand this tendency, let's examine the … Continue reading Lower Producer Costs

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Consumer Sovereignty

Legislating minimum wages, at any level, is a dumb idea. It fits a pattern of dumb ideas suggested by the interventionists in governments. Many of the critics say that minimum wage laws lead to more unemployment. That statement turns out to be accurate, but I want to begin this discussion on a much more fundamental … Continue reading Consumer Sovereignty

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Crazy Markets

In my post titled “Money Tree,” I explained in a general way how the addition of “non-market money[1]” distorts market prices, which in turn leads to a misallocation of resources. In this post, I will build a hypothetical model to show how that process works in more specific conditions. I will follow two different market … Continue reading Crazy Markets

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Developing the Money Tree

As an experiment I have posted (below) a video version of the diagram I used to develop the Money Tree Post. If this experiment works, I might use videos such as this (only a little slicker) to enhance the explanation of additional points related to free markets. Let me know what you think of … Continue reading Developing the Money Tree