CapitalismBreaking the Myths

Myth 1 Free Markets are immoral

Markets make people selfishDriven by greed and profit

No concern for others

This is a morally false claimAll transactions are voluntary exchange

Cooperation for Mutual benefit

Markets work on principles of Justice

Success depends on customer satisfaction

Both Altruists and the Selfish operate in peace

Myth 2: Markets lead to monopoly

Free markets create monopoliesA few big firms would control all all markets

Small producers would be squeezed out

Do Free markets promote monopolization?No evidence to believe, no concrete examples

Free markets allow free entry into markets

Huge rise and fall of great corporations

Governments promotes monopoliesThrough licenses, Tariffs, special status etc

Government itself is a monopoly

Myth 3: Complex modern society

Modern society is too complex for markets and needs government intervention

If anything the opposite is true

A tribal society can work on centralized power

Complex society requires Extreme levels of information

High level of decision making

Only Markets can handle

Government bureaucracySlow decision making

Red tape, populism, etc

Myth 4: Not for Developing Nations

Markets requireDeveloped infrastructure

Well developed legal systems

Hence developing countries require state direction

Markets are the solutionAll wealthy countries were once poor

Wealth is created through incentives for people

Create strong Legal systems with property rights

Wealth creation requires & leads to infrastructure

Myth 4: Not for Developing Nations

State control is the problemState control and rejection of free markets

Lack of incentives to create wealth

Poor quality of decision making, delays

Freedom to cooperate for mutual benefit

The SolutionCreate strong legal foundations

Limit the powers, budget and reach of state power

Myth 4: Economic cycles & Recessions

Markets lead to Boom and Bust cycleOverconfidence and asset bubbles

Recession: production & employment contraction

Wrong againMarkets have inbuilt self correcting mechanisms

Economy wide bubbles are not a free-market phenomenon

Free markets redirect investments between sectors

Myth 4: Economic cycles & Recessions

Government: Cause of bubbles and recessionsFoolish manipulation of monetary systems

Subsidies and protection to unviable industries

Interference and distortion of Currency markets

Great DepressionCheap credit and monetary expansion

Sudden contraction of money supply

2008 CrisisExcessive liquidity and low interest rates

Eurozone CrisisHigh FD’s and separation of Monetary/Fiscal policy

Myth 5: Rich get richer Poor get poorer

Only those with Money & Education benefit

Free Market is not a zero sum gameVoluntary exchanges benefit both parties

Maximize opportunity for growth & Social mobility

Poor People emigrate to free countries

Income growth across all categories

Rich get richer and Poor get PoorerApplies to rigidly controlled markets

Access to Power determines wealth

Myth 6: Free markets tend to raise prices

It is competition that keeps prices downFocus is to offer more value at lower prices

Increase productivity and efficiencies

Regulation can keep prices lowDirect or Indirect subsidies

Price controls distort markets Black markets and corruption

Production shortfalls and low wages

Labor Productivity and wagesHigher in free market economies

Price of items/wages is low

Myth 7: Mixed economy

Combines best of Free markets and socialismThe diversified portfolio approach

Policies need to be focused, not diversifiedIndian experience is worst of both

The evidence is clear: Market economies Higher GDP growth and per capita income

Lower unemployment, better healthcare

Every parameter of human development

Myth 7: Mixed economy

There is no middle pathState interventions in market

Distortions and crises – Excuses for intervention

GovernmentsBy nature seek more control

Tend to blame private players

Bad policy – Perpetuated by vested interests

Politicians – Crony Businessman