Letting the Market Rule

It is possible, at least in theory, to think of extremes in which all economic activity is either based on government diktat or where the government absents itself entirely and leaves all decisions on output and resource allocation entirely to individual economic agents. In practice neither extreme has tended to arise in the real world. Rather most countries lie somewhere on the spectrum between these two extremes.1 The question of what is the government’s appropriate role in a modern economy has long been the subject of debate. Writing almost 150 years ago, the great neoclassical economist and liberal philosopher, John Stuart Mill, observed that: One of the most disputed questions both in political science and in practical statesmanship at this particular period, relates to the proper limits of the functions and agency of governments. At other times it has been a subject of controversy how governments should be constituted, and according to what principles and rules they should exercise their authority; but it is now almost equally a question, to what departments of human affairs that authority should extend. And when the tide sets so strongly towards changes in government and legislation, as a means of improving the condition of mankind, this discussion is more likely to increase than to diminish in interest.