This article is an excerpt from the Shortform book guide to "What Money Can't Buy" by Michael J. Sandel. Shortform has the world's best summaries and analyses of books you should be reading.
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What are the major disadvantages of a free-market economy? In what way is the price system unjust?
In his book What Money Can’t Buy, philosopher Michael J. Sandel argues that market values have become society’s dominant moral framework, the lens through which we determine what is important or unimportant as well as right and wrong. He argues that the free market is unjust and restrictive because they create injustices and eliminate choice.
Keep reading to learn about the disadvantages of the free-market economy, according to Sandel.
Markets Are Unfair and Restrictive
Sandel mentions two key disadvantages of a free-market society: 1) free markets create inherent inequalities and injustices and 2) free markets often eliminate free choice for people and force them to make dangerous or unethical decisions.
The Injustices of the Price System
Earlier, we explored the pro-market argument that prices represent the fairest and most equitable way to allocate society’s scarce resources. According to this argument, if the price of a good (in a properly functioning market) reflects its true value and someone’s willingness to paythat price reflects how much theyvalue that good, then prices will always get the goods to those who value them most.
However, Sandel writes that the distribution of resources—often essential resources—on the basis of the price system is incompatible with widely accepted moral principles.
He writes that someone’s willingness to pay the asking price for something does not necessarily mean that they need or want it more than someone else, and that, therefore, free markets create inherent inequalities and injustices.
Those with substantial means can afford things they don’t need, while those with insufficient means are unable to acquire basic resources like food, shelter, clothing, or healthcare. While Sandel acknowledges that this may be “efficient” from a purely economic perspective, it is not morally correct for some people to be deprived of things they need while others have more than they can ever consume.
When Free Markets Aren’t Free
Sandel further argues that “free” markets are often instruments of coercion—pushing people to make dangerous and unethical choices that they would never make without the pressure of having to compete and succeed in the market.
He writes that living in a market society puts individuals and families under constant strain—they need to earn enough money to afford the basic necessities of life like food, shelter, education, and healthcare. Most earn the money they need by selling their labor to an employer. Sandel notes that this type of employment is not necessarily coercive or exploitative—after all, employees are free to leave their jobs whenever they like for any reason they wish.
However, Sandel notes that the pressure of surviving in a capitalist society often puts people in positions where they must, out of sheer necessity, exploit themselves for profit. Since such people are often facing severe material deprivation, they are ripe for such exploitation. He argues that if people are forced into dangerous economic activities—like participating in medical testing for potentially dangerous medications—out of sheer desperation, then they cannot be said to be truly “free.”
The Disadvantages of a Free-Market Economy
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Here's what you'll find in our full What Money Can't Buy summary :
How market values are corrupting society's morals
Why markets lead to the inequitable distribution of essential goods, services, and experiences
A look at the massive impact of living in a market society
The benefits of a market economy include increased efficiency, production, and innovation. The disadvantages of a market economy include monopolies, no government intervention, poor working conditions, and unemployment.
Some advantages of a mixed economy are capitalism, supply and demand and the free market. Some disadvantages of a mixed economy are government regulation, and excessive taxation.
Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market. Furthermore, the individual incentives for rational behavior do not lead to rational outcomes for the group.
Disadvantages of a market economy include inequality, negative externalities, limited government intervention, uncertainty and instability, and lack of public goods.
Some of the potential cons include a lack of efficient resource allocation, lack of innovation, and poor planning that ignores the needs and preferences of the population. Free market economies are the opposite. They encourage innovation, efficient resource allocation, and competition.
One disadvantage of a free market economy is that some producers are driven exclusively by their profit motives. Even though the primary goal of any business is to generate profit, such an objective should not be prioritized over the needs of workers and consumers.
Another negative effect of a free market is the potential emergence of monopolies. Without government intervention, some companies may gain excessive market power and limit competition. This lack of competition reduces consumer choice and can result in higher prices and lower-quality products or services.
Markets fail under any of three conditions: production has increasing economies of scale; goods in the market are public; or production or consumption has externalities.
Disadvantages. Goods that are generally not profitable to manufacture will not be produced in a free enterprise. This is because there is no economic incentive for a firm to produce these goods—unless there is government aid or a stipend. This may also include limitations on where goods are delivered.
Final answer: In a free market economy, economic equity is not considered an advantage. The advantages are economic freedom, economic efficiency, and economic growth.
Critics of the free market also argue that it results in significant market dominance, inequality of bargaining power, or information asymmetry, in order to allow markets to function more freely. Critics of a free market often argue that some market failures require government intervention.
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