Yes. Not to mention the economic fact that markets do occasionally fail, though laissez faire capitalists would prefer to ignore that fact.
Laissez-faire capitalism does not fail, or at least not in the sense that it is often thought. I’ve said previously that the only “failure” I can see with Capitalism is how the air can not be privatized (so smoking cigarettes still inflicts what economists call “negative externalities” on third-parties, i.e. non-smokers). I’m not convinced by the Austrian economists excuses for this
That said, when people criticize Laissez-Faire Capitalism on the grounds that it “fails”, they are almost always referring to the fact that recessions and depressions occur. But such notion is quite simply, wrong. Recessions and depressions are not caused by some “mysterious flaw” in a free-market economy. On the contrary, they are caused by the central bank’s manipulation of the official/base interest rate. This dupes businessmen into prolonging their financial projects because they inevitably enter unprofitable projects that now under an illusion due to decreased interest rates now appear profitable. In other words, businessmen begin to invest in longer projects which are artificially profitable but naturally unprofitable. As time progresses however, the unsustainable boom is followed by a bust, as retail banks begin to call in their loans. Given that businesses did not make profits with the new projects they embarked on, they slash costs and many other things as an attempt to survive. Generally speaking, they cut workers last (which is why unemployment is sometimes referred to as a “lagging indicator”).
For a non-economist, this may seem a little bit to much to understand, but believe me, it is quite simple. I’d recommend “
Economic Depressions: Their Cause & Cure”, which is a short book (about 45 pages or so) written by economist Murray Rothbard. He has a lively way of writing that it is accessible to even those who have never touched an economics book before. You can read it freely here:
mises.org/Books//economic_depressions_rothbard.pdf
To date, only two economic schools of thought can really explain why recessions and depressions occur: The Austrian School, and the Chicago School. Whilst both have slightly different views, they both point the cause of economic fluctuations to the central bank. Keynesians can’t explain the business cycle. I used to be a Marxist a few years ago, and Marx couldn’t explain the business cycle…in fact, the very notion of the business cycle left him perplexed, so he resorted to the Classical economists (Adam Smith, David Ricardo, etc), but that didn’t help him too much either.
Thank you,
** Eugen von Böhm-Bawerk **
