In The Wealth of Nations, Smith points out the possibility of producers contriving to raise prices. Are there other potential problems with the free-market system that he did not point out?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are many possible problems with the free market system that Smith does not point out in this book.  I will discuss two of them here.

First, Smith does not discuss the problem of what economists call "negative externalities."  In Smith's vision, companies compete ruthlessly to make profits and this helps society.  However, think about what can happen due to competition.  Companies may cut corners as they try to compete.  They might, for example, stop disposing carefully of their hazardous waste and, instead, dump it in ways that harm other people or the environment.  Smith does not contemplate these sorts of harms that can come from competition.

Second, Smith does not foresee that firms would tend to get bigger and bigger and stifle competition.  In Smith's day, firms were small things with a few employees.  Today, there are huge firms which do not really have much in the way of competition (think of cable companies).  These companies are able to concentrate wealth in the hands of a few rather than distributing it to the many in the way Smith anticipated.

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