Few ideas in modern economics are as powerful, or as misleading, as the notion of the “free market.” In popular imagination, an unregulated market is supposed to be a realm of voluntary exchange, healthy competition, and innovation driven purely by merit. Prices find their natural level. Bad actors fail. Good ideas rise. Everyone benefits from efficiency.
It is an appealing story. It is also largely a fantasy.
Markets do not exist in a vacuum. They are shaped by laws, institutions, access to capital, and power. When those structures are stripped away or weakened in the name of freedom, what emerges is not a fair playing field. What emerges is concentration, exploitation, and instability. History shows this pattern repeatedly, across industries and centuries.
The uncomfortable truth is that unregulated markets do not produce freedom. They produce private rule.
Markets always create winners, and winners rewrite the rules
Even classical economists understood that markets do not naturally remain competitive. Adam Smith, often cited by advocates of laissez-faire economics, warned explicitly about the tendency of merchants to collude and restrain competition. In The Wealth of Nations, he observed that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”
Smith’s point was simple. Once participants gain an advantage, they use it.
This is not a moral judgment. It is a structural reality. Accumulated capital creates leverage. Leverage buys influence. Influence reshapes markets. Over time, early winners become gatekeepers, and competition becomes something they manage rather than endure.
The late nineteenth and early twentieth centuries in the United States provide a textbook example. Industries like railroads, oil, steel, and finance rapidly consolidated into monopolies and trusts. Standard Oil controlled roughly 90 percent of U.S. oil refining at its peak. That dominance did not arise because consumers freely chose monopoly. It arose because scale enabled predatory pricing, exclusive contracts, and control over transportation infrastructure.
The response was not ideological. It was practical. Congress passed the Sherman Antitrust Act in 1890 precisely because unregulated markets had produced private empires that distorted commerce and crushed competitors. The Supreme Court eventually ordered the breakup of Standard Oil in 1911.
This was not an attack on capitalism. It was an acknowledgment that capitalism without guardrails destroys its own foundations.
Unregulated markets concentrate power, not opportunity
The same dynamics are visible today, even in sectors that present themselves as innovative and disruptive.
Modern technology markets illustrate how quickly “free” competition turns into structural dominance. Network effects reward scale. Data accumulation reinforces advantage. Capital markets favor incumbents. Over time, a few platforms become unavoidable intermediaries.
Companies like Amazon and Google did not become dominant simply by offering better products. They benefited from feedback loops that reward size itself. More users generate more data. More data improves services. Better services attract more users. Smaller competitors struggle to break in, regardless of innovation.
This is not accidental. It is how markets behave when left to compound.
Economists have documented rising concentration across many sectors of the U.S. economy. A landmark paper by Autor, Dorn, Katz, Patterson, and Van Reenen found increasing market power and declining labor share across industries, driven in part by “superstar firms” that pull activity toward themselves.
In other words, competition does not naturally sustain itself. It collapses into hierarchy.
The myth of self-correction ignores real-world damage
Defenders of deregulation often argue that markets self-correct. Bad products fail. Unsafe companies lose customers. Inefficiencies are punished.
This argument ignores timing.
Markets do not prevent harm. They react to it, often after damage is done. Financial crises are the clearest example. The 2008 collapse was not a mysterious natural disaster. It followed years of deregulation, speculative leverage, and financial engineering that shifted risk throughout the system.
The Financial Crisis Inquiry Commission concluded that the crisis was avoidable and driven by failures of regulation, corporate governance, and risk management.
By the time markets “corrected,” millions had lost jobs and homes. Trillions in wealth evaporated. Public institutions absorbed private losses.
This is the pattern of unregulated markets. Gains are privatized during expansion. Losses are socialized during collapse.
Environmental harm follows the same logic. Pollution is profitable until it is regulated. Companies do not voluntarily account for external costs unless forced to do so. The Environmental Protection Agency exists because market incentives alone do not protect air, water, or public health.
Without rules, markets reward whoever can externalize harm most effectively.
Freedom for capital is not freedom for people
The rhetoric of the free market often frames deregulation as liberation. In practice, it frequently shifts risk downward.
When labor protections are weakened, workers bear volatility. When consumer safeguards are removed, households absorb losses. When financial oversight is relaxed, communities pay for crashes.
Meanwhile, capital becomes more mobile, more insulated, and more powerful.
This asymmetry is not theoretical. It is measurable. Research from the International Monetary Fund has shown that increased market power is associated with lower labor shares and higher inequality.
In unregulated environments, those with assets can adapt. Those without assets endure.
The idea that removing rules creates universal freedom ignores how unevenly market power is distributed. For most people, deregulation does not mean choice. It means exposure.
Even the architects of capitalism understood the need for guardrails
It is telling that many of the institutions now criticized as “interference” were created by market economies themselves.
The Federal Trade Commission exists to prevent deceptive practices and unfair competition.
Securities regulation emerged after repeated market panics and fraud wiped out investors.
Food and drug safety laws followed waves of contaminated products and public health crises.
These frameworks were not imposed by hostile outsiders. They were responses to repeated failures of unregulated markets to protect the public.
The history of regulation is not a story of bureaucrats suppressing freedom. It is a record of societies learning, often painfully, that markets require boundaries to function in ways that are broadly beneficial.
Why the fantasy persists
If unregulated markets perform so poorly in practice, why does the fantasy endure?
Part of the answer is narrative simplicity. It is easier to believe in an invisible hand than to grapple with institutional design. It is comforting to imagine that competition naturally produces justice.
Another part is interest. Deregulation disproportionately benefits those already positioned to exploit it. Concentrated wealth funds lobbying, think tanks, and messaging campaigns that frame oversight as tyranny and market outcomes as destiny.
Finally, there is a psychological appeal. The free market myth offers moral clarity. Success becomes proof of merit. Failure becomes personal responsibility. Structural forces disappear.
This framing is powerful precisely because it removes the need to examine how systems are constructed.
What real economic freedom actually requires
A functioning market economy depends on rules that preserve competition, protect participants, and limit the accumulation of unchecked power.
Antitrust enforcement prevents dominance from becoming permanent.
Labor standards prevent exploitation from becoming the default business model.
Consumer protections ensure that transparency and safety are not optional.
Financial regulation limits the ability of speculation to destabilize the broader economy.
These are not obstacles to markets. They are what allow markets to serve society rather than consume it.
The alternative is not some abstract libertarian utopia. The alternative is what history repeatedly delivers when guardrails are removed: monopolies, crises, environmental damage, and widening inequality.
The bottom line
A truly unregulated market does not produce liberty. It produces hierarchy.
It rewards scale over fairness, leverage over innovation, and profit over stability. It concentrates power in private hands and leaves the public to absorb the consequences. Regulation exists not because markets fail occasionally, but because they fail predictably when left to their own devices.
The fantasy of the free market persists because it is emotionally satisfying and politically useful. The reality is messier. Markets are tools, not moral arbiters. They do not generate justice on their own.
If freedom is the goal, then rules are not the enemy. They are the price of admission.
—Greg Collier
