Is mental illness nothing more than a myth?

Is "mental illness" a valid concept? It seems that many members of the free-market movement are enthused about the theory, promulgated by the likes of Thomas Szasz and Jeffrey A. Schaler, that there is no such thing as mental illness. They say that if one cannot pinpoint a direct physiological cause for behavior considered "mentally ill," there are no grounds for referring to that behavior as a symptom of some "illness." Furthermore, they argue that the concept of "mental illness" is simply a term that the social establishment uses to stigmatize nonconformist behavior of which it does not approve. Is there anything to these claims? If not, what's the proper understanding of the basic nature of mental illness?