Efficiency: not wasting resources. Most of economics deals with the social efficiency gains by allowing freely negotiated exchanges of things between individual actors. This means that although no new wealth is created when exchanges occur between individuals, the amount of already produced wealth that is usable by individuals increases dramatically -- the so-called gains from trade.
Although you didn't ask it, equity, or fairness, is also an important element but, like wealth, it is a completely relative term, dependent upon subjective determination of needs and wants. Every economic change can be be divided into just two effects regarding how social welfare is impacted: and efficiency effect and an equity effect.
Although it can be shown (Stiglitz has the Nobel Prize for this, as well as Arrow in another sense) that, in the real world, the assumptions of effective omnipotence and omniscience on the part of market actors doesn't exist and means that markets cannot be efficient, it has also been shown that no other system yet devised is superior to markets (Stiglitz again) and that other means of allocating resources are almost always worse, especially in large-scale social systems like nation-states, because of the inescapable information asymmetry problem -- that it is rational for people to lie to each other for personal advantage.
Efficiency: not wasting resources
Quite regardless of any other criticism that may be applied to the efficiency of markets, it must be noted that market transactions do not actually reflect the underlying resources, unless externalities are priced in. And since many externalities cannot be assigned a fair value through anything but a collective political decision, the efficiency of markets becomes inherently and inseparably entangled with political and regulatory systems.
Most of economics deals with the social efficiency gains by allowing freely negotiated exchanges of things between individual actors [my emphasis]
Thereby becoming, to a greater or lesser extent, inherently counterfactual right from the first axiom. In some cases, the error introduced by this simplification is negligible (in a well regulated market, where no non-state player has excessive market power, the state player(s) are democratically accountable and so on and so forth). In others (transnational corporations having budgets comparable to a mid-sized sovereign state, lack of effective regulation of cross-border capital flows, etc.), not so much.
To these two considerations must, of course, be added the information asymmetry issues raised by Stiglitz.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
It's a question of whether markets are BETTER able to minimize the biases toward the powerful and the crooked than other means of allocating resources.
There's a reason that the OECD capitalist countries are so powerful and have so much higher standards of living than the formerly (and currently) communist countries.
You mean apart from colonial militarism and outright theft?
You're being terribly naive if you really think that markets make people rich without any other factors.
While the OECD basks in its financial superiority, most - if not all - of the countries benefit from straightforward colonial resource extraction of both materials and labour from the rest of the world.
