| Economic theory is based on the idea that where individuals make a free choice based on their own self-interest, the society as a whole benefits. One of the assumptions of economics is that the valid information about an exchange is contained within the price.
One of the core problems of economics is externalities. The technical definition of an externality is when a purchase or use decision of one party effects others, who had no choice in the matter, and whose interests are not taken into account. Externalities generally refer to economic events whose value is not fully captured within the economic system (one definition is "when the actions of one agent affect the interests of another agent other than by affecting prices").
The classic example of a negative externality is polution. When a factory opens and starts generating polution. This effects other people around the factory. When this is done without their consent or without taking into account their interests. This has a direct economic effect, which is generally not built into the economic system -- that is the factory owner does not incur any costs associated with the economic effect they have on other people.
A an example of a positive is when a customer buys a product that needs after-sales service (eg linux). This increases the demand for that after-sale service, which will decrease the over-all cost of that after-sales service for all owners of that product.
There's no question that externalities exist and are surprisingly large. The question I have is, within a capitalist system, "how does one take into account externalities?" |