Free Markets & Regulation

Most political debate usually consists of participants talking past one another. To avoid this, it is helpful to define your terms. The typical argument over Free Markets vs Regulation is one that could use a definition of terms. Consider the below a Public Service Announcement.

Free Market: a market that serves no political or moral ends.

The confusion over “Free Markets” reminds me of a similar type of confusion over “Free Software.” “Free” in Free Software means “free” as in “free speech,” not as in “free beer.” Free as a matter of liberty, not price.

Free in Free Markets means “free” of protectionism and special privilege, not as in “free” of regulation.

Regulated Market: a market that has internalized any externalities.

A well-regulated market is one that internalizes it’s externalities. A non-regulated or unregulated market is one that does not internalize it’s externalities.

From my above definitions, which are historically and economically accurate, one can derive the proper logical relationship between “free” and “regulation.”

FM=Free Market
UFM=Un-Free Market
RM=Regulated Market
URM=Un-Regulated Market

(i) FM !–> RM That is, a free market does not imply a regulated market
(ii) RM –> FM That is, a regulated market implies a Free Market

(i) is easily established by any example of a free market that could have have externalities. This simply means that a “free market” is not a sufficient condition for a regulated one.

(ii) a well-regulated market necessarily implies a free market because protectionism and special privileges(factors of an unfree market) are not means to internalize externalities but rather means to disperse externalities across a wide population.

We can logically rewrite (ii) as:

(iii) ~FM –> ~RM, or UFM–> URM

This simply means that a unfree market, that is one that serves political ends, is a sufficient condition for an unregulated market.

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