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About the Speech

The generic function of markets, stock markets, and globalization are primary drivers of the world's economies. Dr. Smith discussed what we have learned about the generic function of consumer-producer, or commodity and service markets, which are the foundation of existing wealth. In established commodity markets, producers incur recurrent, relatively predictable costs, and consumers experience corresponding recurrent flows of value from consumption. In laboratory experiments these recurrent flow markets are incredibly efficient.

Stock markets are inherently far more uncertain than markets for commodities and services, because stock markets must anticipate innovations — the new commodities and services of the future. At the time of new innovations, the extent of their subsequent economic success is inherently unpredictable. In laboratory stock markets, even where fundamental value is well defined and known, inexperienced subjects produce great price bubbles and crashes. They reach rational expectations equilibria only through experience.

Globalization is really just the worldwide expansion of resource specialization determined by the extent of market development. Markets, global and domestic, not only require freedom to function, but bring freedom by functioning. In country after country, we see that economic freedom leads to personal freedom and entrepreneurial activity — drivers of both ancient and modern economies.