Opposition to freer and unhampered markets takes many forms. But one thing common to most is the criticism that market-based thinking is "magical" thinking -- that free-market adherents are guilty of assuming markets will simply "magic away" all problems. How? Somehow? Frankly, as Patrick Carrroll outlines in this guest post, this says less about the "magic" of markets than it does about critics' complete ignorance of (and disinterest in) the market process. (A great introduction to the market process -- and a powerful antidote to this Myth of Magic Markets -- is Henry Hazlitt’s Economics in One Lesson, available free here).

The Magic of the Market

by Patrick Carroll

In a recent book, The Big Myth, its academic authors set out to expose what they call “market fundamentalism,” the idea that markets are almost magical and work better than governments for just about everything, an idea the authors portray as almost superstitious.

Market fundamentalists [they say] treat “The Market” as a proper noun: something unique and unto itself, that has agency and even wisdom, that functions best when left unfettered and unregulated, undisturbed and unperturbed…
    Americans in the early 20th century were largely suspicious of “Big Business” and saw the government as their ally. By the later decades of the century, this had flipped: many Americans now admired business leaders as “entrepreneurs” and “job creators” and believed it made more sense to count on the “magic of the marketplace” to solve problems than to engage government.

First, in case it needs to be said, no free-market proponent thinks “The Market” is literally magical, nor do we believe it is some mystical deity that has agency or wisdom. As Dan Sanchez has pointed out, no religious presuppositions are required for free-market proponents.

To the contrary, the “magic” of the market is figurative. Markets seem magical because they produce amazing results that are far too intricate for any individual to orchestrate, as Leonard Read famously pointed out in I, Pencil. The market is mysterious and seems to have agency because it is a complex adaptive system.

The “fundamentalist” pejorative is likewise misplaced. Our confidence in markets is not based on blind adherence to a religious dogma, but on careful reasoning—the very opposite of fundamentalism. The reason we are so insistent that the market be left alone is that we have learned—through rigorous analysis—how the system works, and we’ve realised that interference pretty much always breaks something.

But while the vast majority of free marketers have arrived at their position after critically examining all sides, the same cannot be said for those who believe in government. For many, the virtues of big government are articles of faith—a dogma that was taught to them in public school, university, and the media, and which they have accepted with minimal questioning.

This state fundamentalism—also known simply as statism—is truly ideological. The idea that the government just needs to preside over society to “fix” it and “manage” it is ingrained into the vast majority of New Zealanders, who still believe that it is "the government" who "runs" the country, but when pressed to explain why such interference is so desperately needed, their responses reveal a stunning dearth of critical self-examination on the topic.

If that’s not fundamentalism, I don’t know what is.

Critically, it is this statist ideology that needs to be exposed and refuted. Unlike market fundamentalism, the ideology of statism actually does dominate our institutions. It is this ideology that blossomed in the 20th century—largely thanks to government rigging the marketplace of ideas—and it is this ideology that is responsible for most of the problems we face today.

So if we want to talk about a “Big Myth” that has wooed the public for decades to our detriment, let’s talk about the myth this book conspicuously promotes: the myth that markets can be improved by the state.

* * * * 

Patrick Carroll is the Managing Editor at

the Foundation for Economic Education (FEE).
This post is an excerpt from the original, which 

first appeared at the FEE blog.