In the general euphoria about the collapse of communist regimes in Eastern Europe, it is often assumed that capitalism has been vindicated.
To be sure, the failure of the Soviet model has shown the futility of attempting to organize an economy that minimizes the role of markets and the scope of the individual’s choice. However, the case for free-market
capitalism espoused by Margaret Thatcher and Ronald Reagan is shakier than ever.
For one thing, the last ten years have taught us that although markets are important for economic efficiency, so, too, are limitations on
markets and on individual efforts to maximize wealth. When banks are “deregulated” so that bankers abandon prudence in favor of making the largest profit, the result is the collapse of the savings and loan industry. Similarly, when
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