July/August 2011

The Virtues of Free Markets

In the Spring/Summer 2011 issue of the Cato Journal, Mark Zupan, dean and professor of economics and public policy at the University of Rochester, examines “The Virtues of Free Markets.” He argues that entrepreneurs’ interest in maintaining long-run relations with their customers gives them an incentive to cooperate and honor their word — or face the loss of business to those who are more ethical. Private property, freedom of contract, and the rule of law — the institutions upon which free markets rest — motivate individuals to take account of the impact of their current decisions on future values, and in so doing foster cooperation and integrity over time.

French social philosopher Anthony de Jasay examines several cases in which it appears that an individual sacrifices self-interest for the good of the group. Upon deeper reflection, and with some realistic assumptions, he finds that what initially looks like “selfless” behavior turns out to be “selflessly selfish.” Thus, the self-interest postulate behind rational economic man (homo economicus) can be broadly applied.

Economists Daniel Gropper, Robert Lawson, and Jere Thorne Jr. present evidence from more than 100 countries that economic freedom and happiness go hand in hand. Economic freedom expands individual choices and increases real per capita income, making people better off and happier. Carrie Kerekes of Florida Gulf Coast University, in a cross-country study, finds that when property rights in land and water are more secure, there is a positive impact on environmental quality.

Paul Rubin, professor of economics at Emory University, examines the role of markets, tort law, and regulation in achieving safety. He finds that free markets are often the most important mechanism to achieve safety and that tort law and regulation may “overreach” — doing more harm than good.

Other contributors include Jerome Stein on “The Diversity of Debt Crises in Europe,” Matthew Carr on “The Impact of Ohio’s Ed Choice on Traditional Public School Performance,” Dean Stansel on “Why Some Cities Are Growing and Others Shrinking,” Joseph Noko on “Dollarization: The Case of Zimbabwe,” and Jerry Tempelman on “Why Do Federal Funds Trade at the FOMC’s Target Rate?”