Ah ha! You see, my dear Watson, this isn't the real free market at all...

The “free market” has been grabbing a lot of headlines since it was found lying bruised and battered in the middle of Wall Street (to be fair, it started the fight). Conservatives, in between beating their chests, rending their clothes and wailing, have been printing their “get well soon” editorials. Liberals, in between bouts of gloating, have been squabbling about how to carve up the ideological inheritance. Some on both sides have been busily eulogizing, wishing capitalism all the best in the socio-economic afterlife (feudalism, mercantilism, and pinko commie-ism must be thrilled to be getting a new poker buddy).

Amidst all this grim funereal nonsense, I was recently surprised to find a headline posing a relatively interesting question about the free market: does it corrode moral character? My initial response was, surprise, “of course it does! The free market sanctions hedonism and greed and preaches that selfishness is good!” But then, after reflecting a moment, I came to the rather depressing conclusion that, perhaps, the free market is really just a neutral tool, a lens that gets held up to human nature and magnifies whatever happen to be its most dominant characteristics, in which case there’s maybe not much we can do. If that’s the case, I gotta say that given all the current economic news, human nature’s not looking so good at the moment; greed and selfishness make for bad combination skin and a nasty complexion. The end result is the same – ultimately, greed and its ilk win out – but it’s not really the free market’s fault; the market merely provides the stage on which the tragic drama gets acted out. And then I realized that the original question wasn’t really fair, as free market economics by definition refuses to concern itself with such bothersome issues as morality and equity (how nice it must be for free market economics, that it can so airily dismiss those nettlesome questions!).

So asking if the free market corrodes moral character is really kind of unfair, as it obviously has no idea what moral character is, and is not particularly interested in finding out. It’s a bit like asking a nuclear physicist if the Balanchine school of ballet corrodes the art of dance (“Hey man, I just split atoms, don’t ask me”).

Rather, the concern of free market economics is efficiency, that is, the most efficient allocation of this world’s scarce (and some might add dwindling) resources. This principle of economic efficiency – which underpins all the modern mantras about the glories of economic growth – has become something of a religion in modern western society, the prime organizing social creed. For the record, I think it’s about time we collectively freed ourselves from the vice-like grip of the Invisible Hand, cast it off and defy it by having the courage to live as inefficiently as possible. I’m still working out how exactly to do this, but I think it involves wearing ski boots to work every day (or moccasins, if you happen to be a ski instructor) and then when you get to work, writing poetry or playing music or painting instead of doing anything typically considered “productive.”

Of course, the irony is that the free market that keeps appearing in the headlines – the smoldering ruins that everyone’s busy crying over – aren’t really the House That Adam Smith Built at all, but rather represent the blasted remnants of a pale imitation, a two-dimensional free market-lite movie set. The Free Market ideal that formed the ideological bedrock of modern conservatism, and that now lies ideologically bankrupt and interred, was, in fact, an imposter bearing no resemblance to the theoretical perfection of the “free market.” So everyone should take a breath and stop worrying about the free market; it’s not the one on the autopsy table.

The corpse that is, however, has all but usurped any meaning that term may once have had. The reason this house-of-cards that was apparently underpinning our entire financial system came crashing down is that it violated one of the core principles of the true free market: transparency and equal access to information. The free market, at least as originally formulated, only works if all actors have equal access to information about the goods and services being exchanged. The most important piece of information about these goods and services – their price – is assumed to be real and accurate, reflecting all the social costs of that good or service. This ensures that market actors can weigh all available options and make the choice that’s most sensible for them; this pursuit of self-interest on the part of individuals ultimately leads to the best outcome for society. Theoretically, it means that government regulation would be irrelevant; if a company were making, say, tainted milk that sickened anyone who drank it, all milk consumers would know this and buy other brands milk. The point is, for anything approaching a free market system to function properly, transparency is key.

Of course, perfect access to information and full transparency is a theoretical impossibility. But the imposter free market that’s shredded the financial system went too far in the other direction; the mess we find ourselves in now stems from the fact that, basically, its underlying paradigm was built on lies and nobody really knew what was going on. Housing prices were falsely inflated, and therefore meaningless. Far from including any sort of transparency, risks were hidden and tossed from actor to actor in a game of economic pass-the-parcel to the point that they were no longer apparent, and no one knew what they were or who was supposed to be responsible for them. Equating this opaque train-wreck to the “free market” doubtless has Smith and his intellectual successors down in their graves spinning faster than the offspring of Karl Rove’s homemade perpetual motion machine and an Iranian centrifuge.