Why Are Free Markets So Good?

Abstract

As we saw in chapter 1, one of the critical characteristics of the free market argument is its hypothesis that the market, if left alone, will generate socially desirable results. This hypothesis is supported by modern economic theorists, who have proven what have been called the Fundamental Theorems of Welfare Economics or the invisible hand theorems, which, in a restricted sense, prove Adam Smith’s assertions to be correct. But exactly what are the advantages of organizing society along free market lines? What is the advantage of leaving individuals alone to barter and trade? One answer would be that this type of economic organization is the only one consistent with individual freedom. Milton Friedman echoes this view in Capitalism and Freedom, where he points out that there has never been a politically free society that did not have a capitalist economic system. Hence, for ideological reasons we should have a vested interest in maintaining our free enterprise system.¹ But there is a more fundamental economic reason why society should want its economy organized along the lines of the free market.