Lots of people have pointed to shortcomings of markets, of course, but when did they begin to get categorized into the concepts that are used and taught today?
E.g., are the common arguments for government intervention ones that were well recognized before the 1940s? By that I mean, those related to “externalities” and “public goods” (as in non-rivalrous and non-exclusive). (Not so much more complex macro-economic arguments.)
I’m asking because I am reading some arguments in the 1920s and 1930s where people are making these sorts of arguments (i.e., that markets will under-invest in creating in public goods) but they are not using those textbook terms that are taught in very public policy or political economics course now.
I think Arthur Cecil Pigou coined the term “externality” in the 20s. He wrote The Economics of Welfare in 1920 and Wealth and Welfare in 1912, which suggest a distinction between market valuation and welfare valuation, that is, a market failure.
As for terminology, Milton Friedman seemed to be fond of using the term “neighborhood effect” which I think is equivalent to “market failure” and “externality”.
I can’t help you on “public good”. Perhaps checking out wikipedia or a university library using those terms and looking at the oldest reference would help you.
Yes, “market failures” are the new jargon. Which is kinda weird-these kind of “market failures” refer to markets which have been distorted by government intervention-take the housing market-low interest rates plus no regulation lead to a bubble in the housing market. But this was entirely rational behavior on the part of the participants-they saw the government tacitly approving this activity, so why not get into the game?
When the bust came, the government actions REWARDED those who had caused the instability…setting the stage for another boom/bust cycle.
So it was NOT a failure of the traditional role of the markets-it was a failure caused by government intervention (in the worst possible way).:smack: