11/25/2014 11:17 am ET Updated Jan 24, 2015

Nobody Really Believes in Free Markets

Many people have heard the story of George Bernard Shaw's conversation on the topic of prostitution. Playing the contrarian, as usual, Shaw asked his female interlocutor "Would you sleep with me for ₤1,000,000?" "Of course" she replied. "What about for ₤10?" he queried. "What kind of woman do you take me for?!" she demanded. Shaw replied "We have already established that. We are now merely quibbling over the price." The same sort of point could be made to many who call themselves libertarians and purport to be defenders of free markets. In reality, nobody believes in totally free markets. Nobody thinks that businesses should be allowed to do just anything to maximize their profits. We merely quibble over how much regulation is the right amount.

Should businesses be allowed to do anything to maximize their profits? Actually, some people might answer "Yes!" Mafiosi, Somali pirates, the heads of drug cartels, and traffickers in sexual slavery, for example. A system does exist that approximates a totally free market. It is called organized crime. Big time criminals practice profit maximization with virtually no restraints at all. If you break a contract with Don Corleone, he doesn't call his lawyer. He calls Luca Brasi, and soon you are sleeping with the fishes. In his Devil's Dictionary, Nineteenth Century American humorist Ambrose Bierce slyly defined "Piracy" as "Commerce without its follyswaddles, just as The Lord intended it." Commerce with no rules is just piracy.

Our defender of free markets would quickly backtrack and qualify the claim and say that of course businesses should not be allowed to murder, kidnap, steal, extort, etc. Businesses must be willing to compete with all comers in an open market, and not be permitted literally to murder the competition, as Al Capone did to the Bugs Malone gang in the St. Valentine's Day Massacre. Contract breakers must be sued, not outfitted with cement overshoes. Lenders must deal with defaulters by having recourse to the courts, not by breaking knees. Goods must be paid for, not simply hijacked. It appears, then, that an "open" market cannot be a totally free one. To ensure fairness and openness, indeed, to ensure that business does not become simple piracy, there have to be restrictions and regulations imposed on the means whereby profits may be maximized.

However, to make the above qualifications is to concede much. Certain standards of fair play, honesty, and decency must be imposed, and violators punished, even to the detriment of profit. Actually, there have been times when profits could be acquired with virtually no regulation. Barbara Tuchman's magnificent history of the Fourteenth Century, A Distant Mirror, tells of the time when France had been so weakened by losses in the Hundred Years' War that freebooting companies of mounted brigands could not be controlled. These companies roamed the countryside pillaging and looting (i.e. maximizing profits) at will. Now that was laissez faire! Clearly, though, the pure human misery that results from brigandage cannot be permitted. When there are no means to prevent the powerful from exploiting the weak, misery is maximized along with profits.

However, once we admit a concept of the common good, and that such good might outweigh the maximization of private gain, haven't we admitted that profits are just one variable in the complex equation that determines human well-being? In that case, there can be no in-principle objection to rules that prevent corporations from polluting, discriminating, buying elections, union-busting, maintaining unsafe working conditions, using child labor, and so forth. If, for instance, dirty air and water are not conducive to the common good, then there can be justifiable restrictions on polluting industries, even if these restrictions reduce profits. The only legitimate objection to specific regulations will be that these in fact do not serve the common good. In short, we are not debating the principle of regulation, only quibbling over how much regulation is right.

It might be objected that the way to keep markets from descending into piracy is to make the right to private property sacrosanct. Brigandage is wrong not because it contravenes a principle of the common good, but because it violates the sacred right to private property. Libertarians tend to elevate the right to property as something close to an absolute.

OK, let's talk about private property rights. They are not sacrosanct--far from it. In every society, religion, morality, and custom place limits on private property rights. Property rights are always rightly set aside when the urgent public good demands it. In the earliest days of WW II, British bombers over Germany dropped only leaflets. When someone suggested that perhaps instead they should drop bombs, one outraged cabinet member objected vehemently that bombing would damage private property! In Stanley Kubrick's blackest of black comedies, Dr. Strangelove, there is a hilarious scene in which a phone call has to be made to save the world from nuclear annihilation. The only source of change for the pay phone is a Coke machine. Surely, in that circumstance it would be allowable to damage the private property of the Coca Cola Company to save the world.

Greater goods therefore sometimes trump property rights. Everyone knows this. Nobody really believes in free markets. Why, then, can be wrong with regulating the means that may be used to maximize profit? Once more, if you agree that the common good can justify some restrictions on profit-making, then our disagreement will be one of degree, not principle. We both admit that regulation is a good thing and only have to agree on how much.