A groups of Christians prays for economic recovery. Image credit: “Dan the Man”

The superiority of free market capitalism over government-controlled systems has been clearly demonstrated by historical events. The 20th century was dominated by the conflict between capitalism and communism, and capitalism won, primarily by generating economic growth and innovation that could not be matched by government-run systems. There are many stories of the shelves of stores and the warehouses of factories in Eastern Europe being empty for months on end under the USSR. It’s been a long time since Americans faced the prospect of an empty grocery store.

As a libertarian, I have long supported free markets. My decision was based on empirical historical evidence that free markets worked better. They provided more prosperity, more opportunity, and more growth than socialist or communist systems.

Recently, many observers have referred to the free market not as a system that we use because it works, but instead as an ideology. The phrase ‘faith in the market’ has entered the lexicon, and lent a devotional bent to what should be an empirical economic evaluation.

When reliable evidence challenges a belief, then it is time to reevaluate that belief. The failure to examine assumptions in the light of new evidence is the calling card of fanaticism. When the collapse of the financial markets demonstrates a flaw in a deregulated market, it is time to question the advantages of deregulation.

The free market system is not something that should be taken on faith. It is something that should be evaluated empirically. We should choose the economic system that yields the most prosperous economy, not the one that happens to conform to one particular political ideology.

History still shows the strength of free market capitalism. While free markets are generally good, they are not absolutely good. Consider the similar examples of free trade and democracy. Free trade helps to generate wealth around the world, allowing poorer countries to improve conditions, increasing the availability of goods worldwide, and providing new and growing markets for American products. But free trade also means that some American workers lose their jobs to overseas competition. In general it generates long term benefits, but it is not an unadulterated good.

Similarly, democracy is not an absolute good. We have seen in the last years the disastrous consequences of taking democracy as an absolute good in our attempts to forcibly spread it throughout the globe, even in countries where the basic foundations of order and rule of law had not been established. Even in the United States, we do not treat democracy as an absolute good. The Founding Fathers were wise enough to temper the potential tyranny of absolute democracy with institutions that are decidedly undemocratic. The Bill of Rights limits democracy by protecting certain rights from the vagaries of public mood. The Supreme Court is appointed and serves for life, no matter what the voters think. More recently, institutions like the Federal Reserve provide a barrier between democracy and the management of the economy.

So if we acknowledge that free trade and democracy, both of which are generally good, must be regulated and balanced by other factors, why do we not admit the same fact about the market?

It is important to note that a free market does not necessarily mean an unregulated one. The goal of free markets is to promote competition, which increases consumer choice and leads to better products and lower prices. Regulation that assists with this goal could be seen as aiding the idea of a free market instead of opposing it.

Freedom is never unlimited. For individuals, there is a long list of activities that are forbidden. To be absolutely free on an individual basis would mean chaos. One could steal and murder with impunity, since everyone would be absolutely free to do whatever they want. Instead, we have laws that restrict individual behavior to protect the rights and freedoms of others (and some laws that restrict individual behavior just to prevent fun; but that’s another discussion).

Instead of absolute freedom, where one can do anything, some people argue for the idea of maximal freedom. A system is maximally free if it provides the greatest possible freedom for any individual while protecting the equal rights and freedoms in others.

Perhaps the same principle can be applied to markets. A maximally free market would be regulated enough to prevent abuse and provide stability, while still being free enough to promote innovation, growth and prosperity.

Finding the balance of regulations must be a practical concern, not a blind adherence to ideology and ‘faith in the market.’ Some industries, like health care and banking, might require heavy regulation. Others, like computer technology or small businesses, might require almost none. The important thing is to pursue the universal goals of economic prosperity through practical means, even if it means throwing out some cherished political beliefs.

Please don’t misunderstand. The free market is still overwhelmingly good. But it is neither perfect nor infallible. Relying on faith in the free market as an ideology, instead of supporting the free market because of functionality, has partly led, in the guise of deregulation, to the current crisis, and may lead to more in the future.

Sometimes even fundamental tenets need to be questioned.