I was happy to see a post on Democracy now titled "Why the Free-Market is a Myth", but then upon reading the explanation provided I was disappointed because the explanation provided was so woefully inadequate, so I guess I'll cover the issue here.
In the interview Chang states that there are no "free-markets" because there are actually lots of regulations and no body would want to get rid of all of the regulations, like child-labor laws, because presumably, some regulations are "morally good".
Yes, well this much is obvious, but this has nothing to do with the myth of free-markets. The myth of free-markets is the very notion that there ever could be a "free-market", even from just a technical perspective.
Now, addressing the issue of "free-markets" depends on how you define what a "free-market" is. This is more difficult than one might think because the definition of "free-market" has changed over time, indeed one could argue that the most common definition of a "free-market" today is in some ways the opposite of what it used to be.
If one defines a "free-market" simply as a market without government regulations, then of course Chang's comments make some sense, but defining a "free-market" simply as without regulation is also of little use. If we take the definition that a free-market is simply "Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy," this implies that private "interference, regulation, and subsidy" doesn't exist, and that without government "interference, regulation, and subsidy" either "interference, regulation, and subsidy" will not exist or by definition whatever "interference, regulation, and subsidy" that does exist is still considered "free" simply because it's not government imposed; in other words a market that has "interference, regulation, and subsidy" imposed on it by the mafia would still be a "free market" under this definition. As one can see, such a definition makes little sense.
But let's take another common definition of the term, in this case from Investopedia:
"A market economy based on supply and demand with little or no government control. A completely free-market is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation."
The tricky part of this definition is "buyers and sellers are allowed to transact freely". This part of the definition goes directly to the heart of classical definitions of "free-market", whereas the neoclassical definition of "free-market" focuses on "little or no government control".
But these two components of the definition are at odds. It is not necessarily the case that with "little or no government control," "buyers and sellers are allowed to transact freely".
This really gets to the heart of the matter, because what many "free-market" advocates are really advocating is a market in which there are no government controls to prevent private entities from preventing buyers and sellers from "transacting freely" and from imposing their own "interference, regulation, and subsidy". The contradiction of the "free-market", the reason that the idea of a "free-market" is itself a paradox and cannot ever really exist, is that there have to be regulations in order to ensure that "buyers and sellers are allowed to transact freely".
The myth of the "free-market" is that without regulations a "free-market" would exist. This isn't the case, there are no real situations in which a true "free-market" would ever exist on any large scale. If one only defines a "free-market" as a market free from government regulation, then yes of course "free-markets" can exist, but if one defines a "free-market" as a market where buyers and sellers are "allowed to transact freely" and prices are "governed by the laws of supply and demand" then this will never truly exist on any large scale.
Certainly we can acknowledge "degrees of freedom", and we can acknowledge that government imposed price controls are certainly a restriction on markets, but to assume that a market with no government imposed restrictions would be "free" is just another fallacy. It falsely implies that prices cannot be manipulated by non-governmental entities, it is akin to the suggestion that anarchy provides more freedom than a state with police powers, which is to imply that there is more "freedom" in Somalia than in your average American down town. It all depends on how you define freedom. In Somalia you certainly have more freedom to rape someone, but you also necessarily have less freedom from rape. Can police powers be too imposing so that they restrict freedom more than they ensure it? Of course, but it's all a matter of degrees, not absolutes. We can't have a completely free society just like we can't have completely free markets. There will always be restrictions, either by laws and rules or by those who impose their will upon others. We recognize this in society at large, but some people fail to recognize this in economics. Those who argue for "free-markets" are no different from people who would argue that we shouldn't have laws against theft and rape and fraud, etc. Clearly people arguing against those laws we would recognize not as people who support freedom, but as people who want to be free to steal and rape and commit fraud against others.
Classical economists like Adam Smith and David Ricardo did advocate free-markets as opposed to the mercantile system of the feudal period, but they did so only in so far as "free-markets" served the public good.
We can look at specific examples, including one provided by Adam Smith. Below Smith argues against regulation of corn prices, to allow corn traders to determine the price of corn, arguing that even when traders buy low and sell high, thereby driving prices up in the short term, they still provide a benefit by having the effect of "evening out" the price of commodities over time.
"Secondly, it supposes that there is a certain price at which corn is likely to be forestalled, that is, bought up in order to be sold again soon after in the same market, so as to hurt the people. But if a merchant ever buys up corn, either going to a particular market or in a particular market, in order to sell it again soon after in the same market, it must be because he judges that the market cannot be so liberally supplied through the whole season as upon that particular occasion, and that the price, therefore, must soon rise. If he judges wrong in this, and if the price does not rise, he not only loses the whole profit of the stock which he employs in this manner, but a part of the stock itself, by the expense and loss which necessarily attend the storing and keeping of corn. He hurts himself, therefore, much more essentially than he can hurt even the particular people whom he may hinder from supplying themselves upon that particular market day, because they may afterwards supply themselves just as cheap upon any other market day. If he judges right, instead of hurting the great body of the people, he renders them a most important service. By making them feel the inconveniencies of a dearth somewhat earlier than they otherwise might do, he prevents their feeling them afterwards so severely as they certainly would do, if the cheapness of price encouraged them to consume faster than suited the real scarcity of the season. When the scarcity is real, the best thing that can be done for the people is to divide the inconveniencies of it as equally as possible through all the different months, and weeks, and days of the year. The interest of the corn merchant makes him study to do this as exactly as he can: and as no other person can have either the same interest, or the same knowledge, or the same abilities to do it so exactly as he, this most important operation of commerce ought to be trusted entirely to him; or, in other words, the corn trade, so far at least as concerns the supply of the home market, ought to be left perfectly free."
- Adam Smith - Wealth of Nations Book 4 Chapter 5
Smith's argument here, whether ultimately correct or not, is that in this case a "free-market" would serve the public good by evening out the price of corn over the year. He argues that independent corn traders without regulation would serve that interest better than government imposed price controls which attempt the same goal.
However, in a truly unregulated market there would be nothing to prevent a well capitalized trader from coming in and buying all of the corn to monopolize the market, thereby holding prices at ransom and driving up prices astronomically even in the short term. The idea that "free-markets" are good is predicated on the assumption of a large and distributed market place of individual actors, where no actor is able to have a significant singular influence. The idea being that competition between the sellers will drive the market to "fair" prices, and "profits" will actually be low.
This is basically true, but the problem is that without regulation there is no way to ensure that such a situation will exist. Even if a market starts out with a large number of actors, history shows that markets can quickly become consolidated so that a market of many actors can be driven down to only a few or even one actor over a short period of time, and once that happens then sellers can "dictate" the prices. History also shows that even with many actors and compeition, speculation can result in market forces that act against the public good, market bubbles being perfect examples of this.
There are plenty of examples of private interests undermining free-markets in our current economic system. A common example is the practice of suppliers paying fees to retailers for exclusive product rights. Tickemaster is one perfect example of this, but even companies like Coke-a-Cola and Pepsi pay restaurants and retail stores fees to prevent them from carrying competitors products.
It's hard to ague that this constitutes "free-market" practices under any definition of "free-market" other than simply "a market without government regulation". In this case what we have is not government manipulation of prices, but private manipulation of prices.
In the case of Ticketmaster, what they do is they pay venues an up-front fee for exclusive ticket selling rights. By doing this, Tickemaster gains a monopoly on the tickets for a given event. Ticketmaster can then set "transaction fees" without competition.
This is where things get even more complicated philosophically. Certainly there is a difference between a "free-market" and a "perfect market". What many "free-market" advocates do is they support "free-markets" even when a "free-market" deviates more from a theoretical "perfect market" than a regulated market, in other words, even when a "free-market" is objectively contrary to the public good.
A perfect market is a theoretical market where there is infinite competition and each actor is essentially omniscient, i.e. knows everything about every aspect of the market and all products in the market. Under these conditions we predict that profits will be zero, everything will exchange at cost.
So if we hold that in a perfect market there will be zero profits, i.e. that zero profits is the ultimate efficiency, then the means of generating profits is to steer the market away from perfectness, in other words to intentionality attempt to reduce competition, hinder access, and reduce the information of the other actors in the market. Adam Smith did not advocate allowing private interest to reduce competition, hinder access, and reduce the information of the other actors in the market, indeed quite the opposite.
What we know about market behavior, however, is that this is exactly what we find in the real world in an "unregulated market". In an unregulated market the actors engage in behavior that is intended to reduce competition and restrict information or provide misleading information, both about their specific products and about the market as a whole.
And so this is what many "free-market" advocates are really advocating for, the ability to reduce competition, hinder trade, and mislead others. It's hard to argue that this constitutes a "free-market" under any definition but the strictest definition of a market without any government regulation. It's like arguing that a society where people are free to hold slaves has more freedom than a society that has restrictions against slavery.
Let's finish with a specific example of how the ability of "buyers and sellers to transact freely" can be restricted without government regulation. Suppose that we have an area of unowned land, across which people travel to exchange goods. Now, in an unregulated environment where there is, at a minimum, just private property right enforcement and nothing else by the government, someone could acquire that land and erect a wall thereby disrupting trade. They could then put a passage in the wall and charge a private toll for passage across the barrier. It's hard to argue that this fits the description of allowing "buyers and sellers to transact freely". What has happened here is that in an unregulated environment a private entity has created a barrier to trade and is using that barrier to trade to levy a rent on trade, and this rent itself violates the principle of allowing "buyers and sellers to transact freely". Certainly they could transact more freely prior to the imposition of the rent, and a government which used regulation to prevent this type of rent charging would in fact be protecting the ability of "buyers and sellers to transact freely", but in so defending this aspect of a "free-market" it would violate the principle of barring government regulation.
And this is why there is no such thing as a true "free-market", and can never be. The principles of a free-market are at odds with one another. Allowing "buyers and sellers to transact freely" requires government regulation.