Free Our Markets: A Citizens' Guide to Essential Economics.

• Author: Connors, Joseph
• Position: Book review

Free Our Markets: A Citizens' Guide to Essential Economics

By Howard Baetjer Jr.

Thornton, N.H.: Jane Philip, 2013.

Pp. xv, 359. $18.45 paperback.

A problem many books have when making the case for free markets is that the first half of the book explains how markets work, while the second half contradicts the first when the author proposes a menu of policy prescriptions. This book does not make this mistake. The explanations of the price system, profit and loss, and property rights are excellent and are consistently applied throughout.

The first part of this book should be required reading in an economics survey course. It is an excellent explanation of the marvel of the free-market price system. Howard Baetjer Jr. (Department of Economics at Towson University) weaves together insights from Leonard Read (I, Pencil, Foundation for Economic Education, http://feestore.myshopify.com/products/i-pencil) and F. A. Hayek ("The Use of Knowledge in Society," American Economic Review 35 [September 1945]: 519-30) with discussions of the evolutionary nature of market competition a la Armen Alchian ("Uncertainty, Evolution, and Economic Theory," Journal of Political Economy 58 [June 1950]: 211-21) and creative destruction per Joseph Schumpeter (Capitalism, Socialism, and Democracy [New York: Harper & Brothers, 1950]).

The exposition is broken into three fundamental principles. (1) Market prices coordinate economic activity by transmitting usable knowledge dispersed throughout an economy. This is referred to as the "price coordination principle." (2) Profit and loss guide entrepreneurs to use resources effectively as they seek to serve others--the profit and loss guidance principle. (3) Private-property rights and free exchange provide better incentives than government to use resources to benefit others. Baetjer refers to this provision as the "incentive principle." An understanding of the first principle is the most important, largely because it is always the most poorly understood by nearly everyone. Hayek was right when he mentioned that the allocation of resources in an economy is not the economic problem that we must solve. This unfortunately is the focus of a majority of today's principles of economics courses. How to make the best use of decentralized knowledge is the actual problem, and as Hayek and this book eloquently explain, prices are the answer.

As Baetjer elaborates later in the book, an appreciation for the second principle was largely absent during the recent financial crisis. The knowledge problem informs us...