Free Markets

The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another. – Milton Friedman


Libertarians believe that free markets do a far better job of regulating our behavior than clumsy government rules do. Individuals do not agree to buy or sell something unless the terms of the deal are favorable to both parties, so that no one is being hurt. Thus, the government should not interfere in transactions between people, but only act to enforce laws against force and fraud.

Currently, the government interferes in mutually-beneficial transactions in many ways:

  • Sales taxes and excise taxes (sales taxes on specific items such as gasoline, alcohol and cigarettes) hurt the economy by making things more expensive, and punish low-income people the most.
  • Regulations depress the economy (the economy is probably 20% smaller than it would be without all the laws), costing millions of jobs. These regulations (including minimum wage laws) actually don’t help workers and consumers, but usually result in more (perhaps different) harm, while benefiting large corporations at the expense of small businesses.
  • International trade is restricted and taxed, which makes things more expensive for us and keeps developing countries poor.
  • Government subsidies tilt the playing field in favor of companies with deep enough pockets to hire lobbyists who influence politicians in their favor. This only encourages corruption and makes things more expensive for everyone else.
  • Governments have outlawed certain types of transactions completely, even though the transactions themselves don’t hurt anyone else (prostitution, drugs, selling a kidney, etc.). These may sound distasteful but are nobody else’s business (unless one party commits force or fraud in the transaction). Making them illegal only drives them underground so violent criminals profit, making the transactions (and America) less safe.

Libertarians believe that all of this big government meddling should be stopped, because free markets can be relied upon to police themselves. Contrary to what regulators would have you believe, free markets don’t result in monopolies, price colluding, exploitation of workers and the poor, worsening income inequality and other “failings” of capitalism. Most of these situations can only happen with the help of government. For instance, monopolies can only exist for a short time before other companies try to gain market share by charging lower prices – unless the government grants the monopoly in the first place, outlawing or discouraging competition (like for public schools or the Post Office).

A great example of what truly free trade looks like is the internet, especially Ebay. There are laws and rules against outright fraud, but little other regulation of transactions, and no taxes. It is no wonder that e-commerce has grown so fast and been so successful. Private companies are working out the problems inherent in the market (PayPal has made payments much easier and safer, for instance) and fraud is comparatively rare among the millions of online trades every day. People are learning how to protect themselves, with the help of new technologies and reputable companies. And all of this is without any government regulation (although governments are trying their best to get in the middle and mess it up with laws for internet taxes and so-called “net neutrality”).

To understand why free markets work, it is important to know something about economics. There are many books and websites that provide a good introduction to the topic with being dry or boring.