Nice post by Mark Pennington.
Contrary to fashionable commentary, the classical liberal tradition has never claimed that markets are ‘perfect’ institutions populated by fully rational agents. Neither has it denied the possibility of ‘systemic’ market failure. In a world where learning via imitation is crucial for transmitting knowledge and where ‘herding’ behaviour may be prevalent it is entirely possible that many actors may learn the wrong things and simultaneously invest in mistaken ventures – as the sub-prime bubble so clearly demonstrated. The great advantage of markets, however, is that they reduce the possibility of such failure because potentially erroneous decisions are not backed by the force of law – private property affords those who dissent from the way the crowd is behaving the liberty to act differently.