Milton Friedman championed not unfettered markets, but markets fettered by competition and consumer sovereignty rather than by political diktats.  Friedman understood that fetters imposed by government are neither the only nor the best means of keeping markets working well.  Indeed, far too often – as Friedman knew – fetters imposed by government turn in practice into crowbars that businesses use to break free of the competitive shackles that oblige them to behave prudently and fairly. [emphasis added]

(And yes, I do believe that the price system is somewhat magical. Read more about the free price system here.)

“That is why the operation of the free market is so essential, not only to protect productive efficiency, but even more to foster harmony and peace among the peoples of the world.” -Milton Friedman

Nothing could be further from the truth, and here’s why.

First, let’s start with two definitions:

Free market: a market in which property is voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers.

Corporatism: a political or economic system in which power is held by economic, industrial, agrarian, social, cultural, and/or professional groups.

I took both definitions from Wikipedia and agree with them both on a basic level.

The corporatist economic system that we operate under today caters to the needs of the special interests, powerful backroom wheeler-dealers who have politicians in their pockets and get them to make laws (tax, subsidy and otherwise) to benefit them. Logically, this occurs at the expense of others. If, for example, the US House passes a $25 billion subsidy for the American automobile industry so that Chevrolet can build an assembly plant for the new Volt, well then Chevy benefits while we–the taxpayers and consumers–lose out. We may not want to buy a Chevy Volt–why, then, are we paying to have it built?

(This doesn’t even take into consideration how taxpayer subsidies have a tendency to delay innovation in the auto industry. Why would a car company or its industry as a whole be in any rush to produce/invent alternatively fueled cars if there’s assurance that they can keep getting “free” money from the American people if they stall?)

A free market system, on the other hand, would reject any government involvement in the economy (beyond enforcing contracts and basic regulation [which I'll define at a later time]) and leave it up to people to make voluntary decisions on what they want to buy or sell and for what price.

You see, when government gets involved in the economy and starts to help out the friends of the politicians, we have a muddled, controlled economy. If, on the other hand, we leave it up to people to choose–which was Milton Friedman’s hope–the “invisible hand” that Adam Smith talked about will lead society into the most beneficial position.

Courtesy of Copious Dissent