This article is a rebuttal to an article titled “Free markets need more regulation than you think” by John Aziz, taking the form of a point-by-point commentary.

The article is subtitled “After all, they can’t just magically appear out of nothing.” No one is claiming that free markets magically appear or that they arise out of nothingness, so this is a straw man fallacy. Now let us delve into the article proper.

“I have always found it unfathomable that people think a “free market” means little to no regulation.”

This is an argument from personal incredulity. That one person finds an idea unfathomable has no bearing upon its truth value.

“Yet since the days of Reaganomics, an increasingly large number of economic thinkers have made exactly that case, to the extent that deregulated markets have become Republican orthodoxy. What is so mind-boggling is that the policies they champion have little to do with the intellectual heritage they invoke.”

This is a fair point. Many Republicans claim to support government deregulation of markets while in practice, they tend to merely reduce regulations rather than eliminate them. They also tend to favor regulations that help large corporations at the expense of smaller competitors, as well as protect certain industries, such as the military-industrial complex and the petroleum industry.

“Proponents of deregulated markets say their cause was born from the idea that millions of people acting freely in the marketplace make more efficient decisions consistently than any group of Wise Men appointed by government can. In this world, humans are rational actors pursuing rational ends and the competition between them is a better regulator than any government official. The market simply rejects the businesses who do not offer a good service, while rewarding those who do.”

This is not entirely correct, as we need not assume rational actors pursuing rational ends. If people are irrational actors, then the government which is composed of people will contain irrational actors, who will therefore do nothing to solve problems by imposing irrational government regulations.

“These laissez-faire attitudes are encapsulated in a quote from Reagan himself: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.'” The implication is clear — government regulators and bureaucrats come in, misunderstand the market, and just get in the way of entrepreneurs. At best, it is argued, this hurts efficiency. At worst, it is a road to totalitarianism, where the government completely squashes economic and political freedom.

Friedrich Hayek’s The Road to Serfdom is a book frequently cited by many who see government regulation as a slippery slope toward totalitarianism.”

All of this is true.

“Yet Hayek himself was more pragmatic about regulation than the title of his book implies, condemning a “wooden insistence” on “laissez-faire” as harmful to the cause of economic freedom.”

Pragmatism is a rejection of the very idea of having principles. It says that there is no a priori knowledge, which is a performative contradiction because the act of asserting that there is no a priori knowledge requires the use of logic, which is an example of a priori knowledge. It also says that truth is either not a property which can be attributed to a statement (deflationary), or that truth simply means “useful to believe” (pragmatic). This rejection of objective truth is another performative contradiction, as to reject objective truth is to make an objective statement, which cannot be true by the premises of the argument. That the falsehood of pragmatism is proven has helped to grow the Rothbardian school of thought to eclipse the Hayekian school. Rothbard, it should be noted, was equally (if not more) condemning of Hayek’s defenses of limited statism and deviations from laissez-faire.

“Advocates of laissez-faire and deregulation generally argue that government’s regulatory role is the prevention of violent coercion, fraud, and theft, as well as the enforcement of property rights and contracts, and little more. In other words, it should act as the night-watchman state. Some — such as the anarcho-capitalist followers of Murray Rothbard — go further and argue that it is beneficial for even these functions to be taken over by the market.”

The reason that anarcho-capitalists advocate for the market to take over night-watchman state functions is that it is contradictory for governments to perform them. Governments cannot prevent violent coercion because they are institutions of violent coercion. Governments cannot prevent fraud because their supposed legitimacy comes from contracts that no one living has ever signed or been given an option not to sign, which is a fraudulent basis for legitimacy. Governments cannot prevent theft because they are funded by taxation, which is theft. Governments cannot protect property rights because their powers of taxation and eminent domain are violations of property rights. While governments can enforce contracts, they use violence to monopolize this service within their geographical areas, meaning that they can charge almost any price and provide as poor a quality of service as they wish.

“Yet Hayek pointed to a number of areas where he considered regulation beneficial — and the list may shock advocates of laissez-faire economics. Hayek cited the restriction of excessive working hours, the maintenance of sanitary conditions, and the control of poisonous substances.”

These are all necessary protections, but the idea that government regulation is the only way to create such protections is a positive claim which carries a burden of proof. As that burden has not been fulfilled, there is no obligation to accept the claim. There is also an appeal to authority here; just because Hayek considered regulation to be beneficial does not mean that it is.

“He argued that regulation by the market became ineffective when property owners weren’t charged for the damages they caused, and thus saw a need to regulate deforestation, farming, and the smoke and noise produced by factories.”

Such results were caused by government intervention. Through the legal fiction known as a corporation and the government monopoly on the enforcement of law, business owners and investors have been shielded from civil and criminal liability for their acts of property damage. A better alternative to the statist system for dealing with pollution has been laid out by Stefan Molyneux here.

“So what “road to serfdom” was Hayek talking about if he favored government regulation in many areas? He was actually describing central economic planning, where the government takes over the process of allocating resources, setting prices, and directing economic activity entirely. In other words, Hayek warned of states like Soviet Russia, Cuba, and North Korea. And if we look at the lack of political and economic freedoms in a country like North Korea, it is clear that Hayek was at least partially right.

But the key thing that Hayek grasped that many modern advocates of laissez faire don’t is that government regulation of markets is not the same thing and not even close to being the same thing as full-on central economic planning.”

Regulation and central planning differ only in degree, not in kind. Both are coercive interventions by the state into the economy. Government regulation always has some economic impact, and will in some way alter the process of allocating resources and setting prices through the effects of compliance costs. There is also the overwhelming tendency for state power to expand, meaning that today’s regulation can easily turn into tomorrow’s full-on central economic planning.

“In fact, I’d go even further and argue that the existence of a free market where individuals can freely pursue their economic desires and enjoy the fruits of their labor is a product of freedoms secured through government regulation.”

This is an ipse dixit fallacy, as to argue a point, one must actually provide logical deduction and/or empirical evidence to support the point. The author does not do this.

“A free market isn’t something that just magically appears out of nothing.”

This straw man fallacy has already been dealt with above.

“It is a complex system born out of the context of a whole framework of legal, social, and political conventions that allow for the development of individuals who are capable of making the discerning economic and social decisions required for the functioning of a free market.”

This is true, but the claim that a government is required for this is a positive claim with an unfulfilled burden of proof. The claim should therefore not be accepted.

“Beyond the basic freedoms of the night-watchman state — secure property rights, freedom from coercive violence, freedom of movement, freedom of association — a genuinely free market requires regulation to secure other freedoms as well, like the freedom from being tricked by misleading advertising or from being poisoned by dangerous chemicals. I would also suggest that the following are equally important to the creation of a free and healthy marketplace: freedom from starvation; freedom from dying from easily curable diseases; freedom from environmental degradation caused by pollution; and the freedom to develop yourself as a person through education.”

We have dealt with the security of property rights and freedom from coercive violence above. From there, the contradictions of government continue. Governments have not defended freedom of movement; in fact, they have done the opposite through immigration laws, passports, vehicle operation licenses, and economic and travel sanctions. Governments cannot protect freedom of association because they violate freedom of association by forcing people to associate with them. Governments cannot protect people from misleading advertising because they engage in misleading advertising in the form of propaganda. Governments have infringed upon the freedom to develop oneself through education by forcibly indoctrinating children in public schools and by denying children the ability to learn a trade through child labor laws.

Mr. Aziz advocates for some positive liberties, which are invalid because their provision violates negative liberties. Freedom from starvation implies that a farmer or hunter/gatherer should be forced to provide food to someone, a violation of the freedom of association of the food provider. Freedom from dying of easily curable diseases implies that a doctor should be forced to treat a person, and/or that a personal trainer should be forced to help a person stay physically fit enough to repel disease. These are violations of the freedom of association of the doctor and/or personal trainer.

Pollution, as explained above, is a problem that free markets can solve, but governments have used their violence to prevent such solutions.

“After all, it is no coincidence that the market economy only really began to develop when the modern democratic state did too.”

We end with both an ipse dixit fallacy and a cum hoc ergo propter hoc fallacy. No rational or empirical evidence is given to support the idea that the market economy developed because of the modern democratic state. Numerous economists and historians have argued that the opposite has occurred. There is also the possibility that it is just a coincidence, as well as the possibility that some other factor is responsible for the development of both.

To conclude, a free market is an economic system in which no fraud, coercion, or initiatory force is present. Government is an organization that initiates force. Therefore, free markets do not need more regulation than one might think. They require, by definition, no regulation at all.

This article was originally published on on May 16, 2014.