The Free Market is Not Self-Regulating, Efficient or All Knowing

CONservatives and LIEbertarians like to, or pretend to, believe in a free-market that is self-regulating, efficient and all-knowing. However there is a little problem with that assumption..

IF the free market was even 25% as good or real as its promoters tout it to be, it would be the default system of socio-economic activity throughout human history.

Its promoters are unwittingly touting it as a minimum energy path through the potential energy surface of human nature and civilization. So why don’t most people adopt it? Why do we require a boatload of laws to make the free market work? Why don’t civilizations, nations and cultures naturally slip in the direction of the mythical free market?

If you pour water over a landscape (thought experiment), most of it would ultimately gather and flow along low energy paths. The same is true of molecules (low energy conformations), electromagnetic phenomena (think electricity) etc. The universe seemingly abhors high energy states and pathways when low energy ones are readily available and accessible.

So why would such a supposedly self-regulating, efficient and all-knowing system not be the default socio-economic system. After all, it is touted to be based on human nature and shortcomings.. and has supposedly lower transaction costs than other systems. So why does it not work like that in real life or human history?


  1. February 22, 2011 at 5:52 pm

    The article below (warning, contains mathematics) discusses computational complexity issues concerning the market. TL;DR: Even if the market could, in theory, be all-knowing, that would require solving NP-hard problems quickly, which is pretty much impossible (or if a way is ever found to do so, that would be so revolutionary, economics would be the LEAST of the implications).

    Click to access derivative.pdf

  2. zhai2nan2
    February 22, 2011 at 6:26 pm

    See also

    and then, after realizing that economics has a lot of terminology, skip to

    and download a few chapters.

  3. Meme
    February 22, 2011 at 6:40 pm

    Where is the example of “free market” in the United States?

  4. MeMyselfI
    February 23, 2011 at 8:31 am

    “So why would such a supposedly self-regulating, efficient and all-knowing system not be the default socio-economic system. ”

    Why? Because there’s no power in it for the sociopaths. They prefer something more profitable – for themselves.

    However, the free market IS the best option for the most people. Even if it has localized failures, this keeps the entire system from being at the mercy of a large centralized failure – most of the time. But, no, it’s not perfect, either… nothing is… the (truely) free market is simply the best of all of the possibilities.

    Communism also worked very well for Russia and China.

    Every system-wide “failure” of the supposed “free markets” we’ve experienced in the modern era (at least since the Fed was created in 1913) have been due to mistakes and machinations of some centralized authority and NOT the shortcomings of the free market itself.

    A system is defined by how it works, not what theoreticians say.

  5. Blanchard
    February 23, 2011 at 10:48 am

    I fail to see how starving millions of people qualifies as Communism working.

    It did take those countries to superpower status rather quickly, at the cost of 20-60 million lives

    And you’re right, a system is defined by how it works but everyone is going to have differing opinions about how well it works.

    Every economic model has the same fundamental flaw, it assumes that people are ideal and identical, but we obviously aren’t. However if we were, free market capitalism and socialist communism would produce a very similar end product although through slightly different means.

    You actually answered your own question with “Why do we require a boatload of laws to make the free market work?”. Boat load of laws and free market are mutually exclusive. For the free market to work you basically need 3 conditions; low government influence, low or no barriers of entry to a market, and an intelligent and knowledgeable consumer.

  6. zhai2nan2
    February 23, 2011 at 8:39 pm

    “Free market” seems to be the Mammon-worshiper’s equivalent of “Heaven” or “Dictatorship of the Proletariat” or “Big Rock Candy Mountain.” It’s an ideal, and nothing bad can be said about it, because any approximation to it fell short of the ideal.

  7. DoesNotMatter
    February 23, 2011 at 10:08 pm

    you frigging moron! they never happen because moronic despots like you who cannot get laid in a whorehouse with a sackful of cash, come up stupid theories like this and never ever let a free market happen. You are not a unique little snowflake. You are in fact as foolish, stupid and opinionated as every other moron out there. It is you morons who cannot bear the thought of someone smarter than you making you feel stupid. So you try to crush his spirit by restricting his freedom with stupid theories like this. Despots like you never want other people to be free. You feel ill when others are free and happy. unfortunately the world is full of little, jealous, envious people like you. But you are right. The world will never have a free market. They don’t deserve it. Instead they deserve you. Have fun… suck keynes cock. maybe go to his grave. suck his cock. i know he’s dead. knowing you, you’ll still enjoy it, you pussy. have fun all of you while I get laid. oops! gotta go.

  8. Pode
    February 24, 2011 at 7:13 am

    Lowest energy for society != lowest energy for individual actors. Much, much easier to rob someone than to work for a living. Easier yet to have someone else do the robbing in exchange for a cut of the proceeds. Easier yet to brainwash the victims into believing this system is the will of the gods. Easiest of all is to brainwash the victims into believing they in fact have control of the process and you are robbing them for their benefit and at their collective command. A casual but honest survey of history will reveal that this is the path taken in the formation of all states.
    Laws are by defintion opposed to the free market, as laws are promulgated by governments, which claim a monopoly on the legitimate use of force. Monopoly != free market. You can’t have functioning free markets without anarchy. As long as the monopoly of force exists, someone will use it to establish a theft based state for their personal benefit per the path above.

  1. February 27, 2011 at 12:27 pm

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