Free markets don't always selfcorrect from "summary" of The General Theory of Employment, Interest, and Money by John Maynard Keynes
In free markets, the assumption is often made that they will naturally self-correct in the face of economic disturbances. This notion is based on the belief that prices and wages will adjust accordingly to restore equilibrium. However, this assumption does not always hold true in reality. When there is a significant decrease in aggregate demand, for example, prices and wages may not adjust quickly enough to restore full employment. This can lead to a situation where resources are underutilized and unemployment remains high. In such cases, the market mechanism alone may not be sufficient to bring about a quick and efficient recovery. Furthermore, the presence of rigidities in the economy can also prevent markets from self-correcting. For instance, sticky wages and prices can impede the adjustment process, leading to prolonged periods of unemployment and economic downturns. In these circumstances, government intervention may be necessary to stimulate demand and jumpstart the economy. Moreover, uncertainty and animal spirits can play a significant role in exacerbating economic fluctuations. When businesses and consumers are uncertain about the future, they may postpone spending and investment decisions, further dampening aggregate demand. In such situations, market forces alone may not be able to overcome the pessimism and restore confidence.- While free markets have many strengths, they do not always self-correct in the face of economic disturbances. Factors such as rigidities, uncertainty, and animal spirits can hinder the adjustment process, leading to prolonged periods of unemployment and economic stagnation. In such cases, government intervention may be necessary to help restore equilibrium and promote economic recovery.
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