I’m a little puzzled by one of the statements in David Hackett Fischer‘s conclusion to his The Great Wave: Price Revolutions and the Rhythm of History. On p. 249, he writes,
In a free market, individual responses to inflation commonly cause more inflation. Individual defenses against economic instability cause an economy to become more unstable.
This process might be called the irrationality of the market. It is so in the sense that it converts rational individual choices into collective results that are profoundly irrational. Far from being a benign or beneficent force, the market when left to itself is an unstable system that has repeatedly caused the disruption of social and economic systems in the past eight hundred years.
In a heavily footnoted text, this statement has no supporting citation, so it must be part of the common wisdom. But I must have missed that part of Econ 101.
Is this statement supportable? Is there evidence that this is the case? Or has every instance of “market instability” resulted in an over-correction by forces “outside” (or dominant players inside) the market?