Markets Don't Fail - Part IV
The Fallacy of "Externalities"
On July 26, 2025, Forbes published a review written by John Tamny of my book, The Moneyball Method. It was also published on July 18, 2025, at RealClearMarkets.com. This brief essay will focus on a quote from their nineteenth paragraph:
All of which explains why so-called “monopolies” should be revered and cheered. They’re the price signal that summons competition. Conversely, a lack of so-called “monopoly” profits should similarly be cheered as information telling investors where more capital is not needed. As Shupe explains it, “breaking even is not productive.” No, it’s not, which is why prices are so elemental to progress.
In socioeconomic terms, the effect of progress is to enrich an entire society in countless ways that go unnoticed. And presumably, the information of prices and earned profit does this more efficiently than any centralized authority could hope to achieve in their most elaborate and well-intentioned schemes. Furthermore, private sector monopolies do not exist – and for the reason discussed in the previous essay: there is no such thing as pricing power. People have free will and money is not stupid.
Yet, “market failure” is the never-ending rationale for State control over the price mechanism that enriches the lives of everyone, as capitalist economist George Reisman explains,
The profit motive … is also blamed for poisoned foods, dangerous drugs and automobiles, unsafe buildings and workplaces, planned obsolescence, pornography, alcoholism, narcotics abuse and crime.
Naturally, most economists and moralists need to rationalize their intrusion: prices and financial statements do not include the costs borne by a multitude of people who do not participate in the transactions. And for the activist economist and their State regulator clients, these are known as “negative externalities.”
These are usually environmental, workplace and public health conditions, but objective economist Brian Simpson gives them perspective,
The term is supposed to identify and help one understand some significant phenomenon. However, it identifies a phenomenon that is so widely prevalent that it is meaningless. The production and consumption of any good consumes resources that could have been used to produce any other good.
In other words, these effects are a small fraction of the countless and unseen consequences that are impossible to quantify and most of them are positive. But for the protection of fundamental rights, “negative externalities” are too vague for objective law that demands infractions and penalties to be known in advance.
That is why today’s regulatory agencies have become a one-stop protection racket shop of legislators, prosecutors and judges. To learn more, please click the link below:
https://www.amazon.com/Moneyball-Method-Middle-Class-Manifesto-Objective/dp/1696009111/