Take No Prisoners

5 Simple Economic Reasons that the Free Market Cannot Work

A prolific argument in society surrounds the issue of whether, and to what extent, to regulate the free market. Generally, right-wingers claim that a free market economy is good because it leads to a fair distribution of wealth and resources. Left wingers are for regulation, claiming it is necessary to even out market ups and downs, and to protect the disadvantaged. The mainstream media treats this argument as a matter of opinion, with both sides having good arguments. But it’s not.

Whether an unregulated or barely-regulated free market is a sound basis for the economy is not a matter of opinion! It is an empirical question for which the balance of evidence weighs heavily on the free-market-is-a-bad-idea side.

Here are 5 fundamental reasons why a free market economy does not lead to a fair distribution of wealth and resources.

1. Imperfect Competition

Free market economics assumes “perfect competition,” a technical way of saying that no single firm or person is sufficiently powerful to influence prices. Monopolies, oligopolies and cartels, all demonstrate that perfect competition is obviously a myth. Anti-competitive behaviors also undermine competition. For instance, when the telecom companies erect barriers to entry (like locking your cell phone) to prevent competitors from gaining ground. As another example, when the six largest tobacco companies conspired to “to preserve and expand the market for cigarettes and to maximize the Cigarette Companies’ profits”, they undermined competition between smoking and other activities, that, you know, don’t kill you. As a third example, intellectual property laws, especially the inane US patent system and the more inane copyright legislation undermine competition and innovation. All of these things mean that competition is far from perfect, and this, by itself, refutes the whole free-market hypothesis.

2. Problems with Bidding

For the market to efficiently distribute wealth and resources, everyone has to be able to “bid,” that is, offer money for goods and services, or offer their good and services (including their labour) for money. If everyone can bid as they choose, environmentally-concerned individuals can offer to pay more for environmentally friendly goods. In this way, the market will reflect the concerns of all people. The only problem is, this is bullshit. The ability of children to bid is seriously limited, and people who haven’t been born yet obviously can’t bid. Thus, future generations are subject to the despotic hegemony of the present. In a hundred years, when the world’s gone to shit from today’s environmentally destructive actions, our progeny can’t exactly go back in time and fund the development of clean energy, now can they?

3. The Price of People

Since everything in the free market works on money, a monetary value must be assigned to all things, including human life. I don’t care whether economists determine that a year of human life is worth $50K or $129K, the whole concept of price-tagging life is morally reprehensible. Yet, insurance companies, hospitals and governments do it everyday. We could save thousands of lives every year by simply legislating higher safety standards in automobiles, replacing lead water pipes and removing asbestos from old buildings, but we don’t, because it costs too much. How much is your life worth?

4. The Real/Nominal Costs Divergence

Nominal cost is literally how much cash you take out of your wallet and hand over for something. The real cost of something is its out-of-pocket cost plus all the implicit and hidden costs of getting and using it. For the whole free market system to work as advertised, nominal costs and real costs must be equal. There’s just one problem: they’re not. For example, the nominal cost, to you, of driving your car down 1 km of road includes the cost of 1) the fuel burned, 2) the maintenance to your car and 3) a small amount of wear and tear on your car. In addition, the real cost includes the 4) the cost of road maintenance, 5) the cost of the air, noise, land and water pollution created by your vehicle, 6) the opportunity cost of not using the land under the road for something else, 7) the administrative cost of maintaining and policing the road, and 8) a fraction of the cost of building the road in the first place. Costs 4 through 8 are paid by society. For the market to remain efficient, the tax on cars and gas would have to cover these expenses. It doesn’t. The same analysis applies to all sorts of things, including practically everything imported from China, everything that creates pollution, everything that uses a limited resource, and everything that relies on society’s infrastructure.

5. Socialists are Happier

If free market economics was really the best basis for a national economy, then wouldn’t you expect citizens of free markets to be happier than, say, citizens of highly-regulated socialist economies? You would right? Too bad it’s the other way around.

Bonus: Calling it “free” doesn’t make it good.

The right-wingers have a huge advantage in this argument: the misnomer “free” market. People have been brainwashed to believe that freedom is the very definition of good and therefore anything that inhibits freedom is bad. This is, of course, absurd. The freedom to defer the cost of your actions onto society is not good. The freedom to have slaves is not good. The freedom to start an unjust, hopeless war and thereby murder thousands of your own soldiers is NOT GOOD. Freedom is neither good nor bad, it depends on what one is free to do.


Any one of the above reasons is grounds to refute the argument for deregulation. Yet the incompetent, defunct mainstream media continually fails to point out any of these basic truths.