Market Intervention


Market intervention consists of the interference with the natural process of exchange. Intervention comes mostly from government. It leads to less efficient allocation of economic resources and the loss of liberty.

Markets lose efficiency because intervention distorts the information flow created by prices. People lose liberty because of intervention because they cannot freely chose actions that represent their preferences.

To understand the nature of exchanges in the modern world we must take into account the many forms of intervention. Violent intervention has become so pervasive that we must consider it in the background of every question about the process of exchange. We must ask, "Would we see a different—and arguably better—result without a specific intervention."

In this section we pick up our discussion of exchange—started in the first section, but with an eye toward how interventions affect those exchanges.


Government Intervention

Governments — at all levels — represent the primary source of intervention in markets. In general, they have a negative influence on the function of markets.

Intervention by government represents the most disruptive force for the interference in market activities. Government, by exercising its monopoly on power, can force players in the market act in ways they would not otherwise act. Government literally has the power to send men with guns to implement interventionist policies.

Federal Government

The federal government represents a major force in market intervention. It has the power to supersede state laws and thereby become a much broader interference in market activity.

Regulation

By telling individual actors in the market what they can and cannot do, government interferes with the normal process of exchange.

Redistribution/Spending

When the government “spends” (redistributes) money, it distorts the resource allocation that the market would normally perform.


Monetary Intervention

Intervention in the monetary system represents the most insidious form of intervention in economic markets.

I have addressed some of the effects of the banking structure and changes in the quantity of money. In this section I will discuss the more direct effects of monetary intervention. How does the force of government affect what's going on in the monetary system?

Monetary Policy

Although the artificial manipulation of the money supply resides in the banking system (the Federal Reserve and commercial banks,) monetary policy still remains the responsibility of federal government legislators.

Banking Intervention

Whether banks participate actively in interventionist policies, or innocently act in their own best interests, the banking system plays an important role in economic intervention.


Economic Crises

Today's crises arise from yesterday's solutions.

When examined closely we find that nearly all economic "crises" occur as the result of solutions to previous "problems" in markets.

Economic crises seem to occur with significant regularity. The topic of economic crises takes up a lot of media time these days. So I will devote space here to discussing the whys and wherefores of economic crises.


The Roots of a Financial Crisis

The Fraud Enforcement and Recovery Act of 2009 created the Financial Crisis Inquiry Commission (FCIC) to find the causes of the financial crisis of 2008. They have started the process, however, by looking in all the wrong places. I wrote this paper to guide them (or any reader) to understanding the real source of the problem.

The New Depression

This graphic presentation examines the similarities between the economic "crisis" of 2008 (actually beginning in 2007) and the Great Depression.

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Real Estate

Because of the many distortions introduced into the real estate market by the banking system, government spending and regulation, real estate plays a role of unwarranted importance in the economy of the United States. At some time The Free Market Center may post a page dedicated to real estate; for now we will focus on its role in economic crises.

Although financial crisis of 2008 has its roots in the U. S. Banking system, many see it as a problem in the real estate market. Refer to The Roots of a Financial Crisis.



Market Intervention — Distorting market activities.